Toyota Organizational structure

The organization structure of Toyota Motor Company finds its roots in the traditional
Japanese approach that relies on centralization. The top managers in the headquarters in
Japan have the power and are responsible to take the important decisions. This organization
structure comes with its own advantages and disadvantages. On the positive side, this
approach enables companies like Toyota to leverage their knowledge systems and resources
developed over the years and use it globally to obtain synergies and global efficiencies.
However, as the organization expands into multiple geographies, this structure shows its
limits. The speed and quality of decisions goes down as there is a big hierarchy and a diverse
set of cultures to respond to in each region. The company has a global hierarchical structure
with a hybrid structure of geographic and product divisions. Next, we discuss the
dimensions of organization design with focus on Toyota Motor Company.
Dimensions of Organization Design
Structural Dimensions
1. Centralization

As discussed above, Toyota Motor Company has a highly centralized structure which
is central to majority of Japanese companies. The authority is not delegated in the
company to an extent that up until 2009, all the executives in US had a Japanese
boss to mentor them. This approach has helped me use their resources and methods
effectively over time. https://saylordotorg.github.io/text_principles-of-management-
v1.1/s11-organizational-structure-and-c.html

2. Specialization

Over the years, Toyota Motor Company has seen extensive specialization, with
individuals on the shop floor given complete responsibilities of one of many tasks in
the process. Each employee is given special training to impart holistic understanding
of the production process to have a better idea of the team they will lead in the
future. https://link.springer.com/article/10.1186/s41469-016-0006-6

3. Formalization

For over six decades, Toyota Motor Company has established and improved the
‘lean’ production system which has become a template for a learning organization
aiming for high performance and growth. All the methodologies and procedures
have been extensively documented and every new employee is given diverse
training to get accustomed to the Toyota Way.

4. Hierarchy of Authority
 Toyota Motor Company follows a tall global hierarchy with headquarters located in
Japan. The headquarters are the decision makers on all the major matters
concerning the organization. The final verdict on all the important decisions or
conflicts between different units is passed by the headquarters in Japan. All the
geographic and product division heads also report to the central headquarters.

Contingency factors
1. Size
Over the last six decades, Toyota has grown to be the leading automobile
manufacturer globally, with over 359542 employees in 2020 and a net worth of 236
billion USD. https://www.statista.com/statistics/294192/number-of-toyota-
employees/
https://www.celebritynetworth.com/richest-businessmen/companies/toyotas-net-
worth/
2. Organizational Technology

When it comes to develop efficient and quality centric methods, Toyota is a

pioneering example for not only the automobile industry, but the whole world. It has
developed the methods of lean production and management, creating a benchmark
for quality production all over the world.

3. Environment

Toyota Motor Company has expanded globally and thrives in a highly uncertain and
dynamic environment. It has adapted to new geographies and grown with time along
with promoting in the environment, including helping the suppliers incorporate
efficient systems, serving customers with quality products, etc.

4. Goals and Strategy

Toyota has always focused to grow and lead the way with a commitment to quality,
constant innovation, and environment conservation. The strategies have changed
over the years, with some working in their favor, and some hurting their
organizational goals. An example of the latter are the strategies and decisions
leading to the 2009 recall crisis, which we will discuss in the coming section.

5. Culture

Just like the organization structure, the culture in Toyota draws its inspiration from
the traditional Japanese ideologies. The detailed discussion of culture is presented in
Information and Control Systems

The 2009 recall crisis

Toyota Motor Company, synonymous with safety and quality, faced one of the worst crises
in its history in 2009. In August 2009, the incorrect installation of a floor mat from an SUV
into a loaner Lexus sedan by a dealer led to the vehicle’s accelerator getting stuck, causing a
tragic, fatal accident. Similar problems started showing up in different models around the
world. This led to the company recalling 3.8 million US vehicles and over 9 million vehicles
worldwide. What appeared to be a surface level technical problem highlighted deep
organizational failures in the company. In this section, we throw light on the organizational
factors pertaining to the 2009 recall crisis.

 Conflict between organizational goals and organizational culture:

The 2009 recall crisis started taking shape in the early 2000s. In the 1990s, Toyota
pioneered lean production in its domestic plants and exported all over the world as a
major part of its sales. However, in between 2000 and 2007, Toyota began rapid
expansion and opened 18 new plants all over the world. It was very well known from
the experience that it takes around 10 years to train managers, and around 6-7 years
to perfect the lean production process. This rapid expansion forced Toyota to
compromise the very principles it created both internally and externally. The
workers who were hired in other countries were not trained the “Toyota way”.
Moreover, the suppliers who were with Toyota for almost three decades faced
global competition now. This was found to be one of the main reasons of the quality
issues in the Toyota cars all over the world.
https://link.springer.com/article/10.1186/s41469-016-0006-6

 Change in leadership

The step of Toyota’s rapid expansion was a result of change in leadership. Hiroshi
Okuda’s appointment as the new President led to a change in strategy. The company
took over a wave to expand production in North America, and as mentioned, opened
18 plants in seven years all over the world. And up until the recall crisis, Toyota
reaped fruits and surpassed GE to become the leading automotive manufacturer in
the world. Despite the 2008 financial crisis, Toyota enjoyed a profit of 16.7 billion
 dollars that year. (https://saylordotorg.github.io/text_principles-of-management-
v1.1/s11-organizational-structure-and-c.html). This shows the way a change in
leadership can change the goals and create a conflict with the organization’s long
lived methods even when the organization is growing.

 The facet of sequential interdependence

In the Andon system of Toyota’s lean production, the workers are trained to pull the
Andon cord in case they detect issue in their part of the assembly. The team leader
was responsible to handle the situation and correct it so that it is not passed down
the assembly line. Toyota’s need to speed up its expansion led to a hiring of
temporary workers who were trained ineffectively. The team leaders were not
adequately trained too. The assembly line had a sequential interdependence of
resources, as one unit can only work on its part when the previous unit has finished
the necessary work. The hiring of new inexperienced workers and team leaders led
to quality problems which affected the entire assembly and the final product as a
whole.

 Excessive centralization of decision making

Toyota’s highly centralized structure and decision led to a slow and a mismanaged
handling of the crisis. The executives in U.S. did not have the power to issue vehicle
recalls without approval from the headquarters in Japan. Moreover, due to this tall
hierarchical structure, Toyota could not proactively find the source of the quality
issues, which was shocking as the name Toyota became synonymous to quality
production. This one way flow of information and lack of decentralized decision
making further damaged the reputation of the company after the 2009 crisis.