Japanese Management: The Case of Toyota Management

This article analyzes and evaluates the specific characteristics of Japanese management
systems using the case of Toyota Motor. We find that the overall managerial efficiency of
Toyota is very high compared to other companies in the same industry and can be
attributed partly to specific influences of Japanese business culture. However, an analysis
of the recent business history of Toyota points out that there is substantial room for
improvements, and an altered business strategy is outlined.

The Japanese way to achieve efficient management has been subject to research in
organizational theory for a considerable amount of time. Success stories such as the long-
term development of Toyota made the Western schools of management curious about
how they reached their unmatched efficiency and effectiveness in successfully running a
large corporation. Furthermore, the application of Japanese management principles
proved to be more difficult in other countries than previously anticipated. The focus of
this paper is to provide an overview of what is commonly considered to be Japanese
characteristics of management. Toyota motor was chosen as a case study to both provide
the reader with a practical example of the underlying mechanisms that are present in
Japanese corporations and to highlight an exceptionally successful case of applied
management theory. Several works have already focused in great detail on Toyota and its
practices, such as Liker (2004) and Hino (2006).

Rooted in the deep cultural geographical differences, Japanese corporations have shown
a structurally disparate form of management compared to those of Western
management. Not only as a pivotal supplier and competitor, but Japanese management
also has several enviable attractions such as decision making, labor productivity, and
continuous training. As shown in Howard F. Van Zandt “How to Negotiate in Japan” (1970),
if there is one point on which all authorities on Japan are in agreement, it is that Japanese
institutions, whether business or government agencies, make decisions by “consensus.”
The Japanese, we are told, debate a proposed decision throughout the organization until
there is agreement on it. And only then do they make the decision.

The distinctive difference between the Westerners and Japanese regarding the
“consensus” is that Westerners by all means accept it as the answer to a question. In terms
of Japanese perspectives, however, the process of defining the question seems to be the
core of their consideration. The significant phase of this procedure is to know whether the
decision is necessary to be made and what it is about. Accordingly, the answers to the
question follow the definition. Such kind of process may be frustrating, taking a
considerable amount of time to the Westerners who are trying to reach a deal with the
Japanese. Only when all the people engaged in agreeing have come together on the
consensus can the decision be made to move forward.

Besides the consensus culture of the Japanese management system, there is the well-
known lifetime employment. Abegglen (1959) defined the key features of the ‘lifetime
employment system’ as follows: ‘At whatever level of organization in the Japanese factory,
the worker commits himself on the entrance to the company for the remainder of his
working career. The company will not discharge him even temporarily except in the most
extreme circumstances. He will not quit the company for industrial employment
elsewhere. He is a member of the company in a way resembling that in which persons are
members of families, fraternal organizations, and other intimate and personal groups in
the United States.’ The influences of such a system were delineated in comparative figures
cited by Cole (1972), who showed that in the USA in 1966 only 34% of male employees
aged 35-39 had been working within the same company for more than ten years, whereas
in Japan the figure was 56%.What is important is that the concept of ‘lifetime employment’
in Japan is not dedicated to the law. As shown in Hanami (1982), though it is supported
to some extent, employment protection by formal legislation is if anything weaker than
in Europe. Instead, ‘lifetime employment’ is based on implicit comprehension between
workforce and management.

Another remarkable factor that underlies Japanese management practices is employees’

hard training techniques originated from their traditions. The two great skills of the
Samurai, members of the warrior caste that ruled Japan for 300 years until 1867, were
swordsmanship and calligraphy. Both demand lifetime training. In both one keeps on
training after one has achieved mastery. And if one does not keep in training, one rapidly
loses one’s skill. Thus, he too keeps in “continuous training.” Otherwise, his skill, and above
all his creativity, would soon start to go down.

When employees and efficiency experts take this attitude toward work, the result is a
subtle but important change in emphasis.

The name tag ‘made in Japan’ was not a favorable description to have for the automobile
company back in the 1960s’. Toyota, however, managed to overcome this matter with its
outstanding delicacy, endurance, and craftsmanship. Toyota’s management policy ‘Just In
Time’ (JIT) and ‘Total Quality Management’ (TQM) became the important chapter of
management textbooks around the world and even the world-class luxury brand
Mercedes-Benz had to adopt Toyota’s system for its survival (Albright, 2000).

Founded by Kiichiro Toyoda in 1936, the world-renowned Automobile Company Toyota

was developed from Toyoda Automatic Loom Company which was founded by father
Toyoda, Sakichi Toyoda. It once went to the cliff of bankruptcy in 1949 due to the financial
strains after World War â…¡, yet it managed to revive itself with large-scale restructuring
work and military truck sales during Korean War.

In 1956, Toyota entered the US market after witnessing the success of German vehicle
Volkswagen in the world’s most vibrant and ambitious market. However, Toyota was
confronted with vicious failure because of its low quality and engine displacement which
were not suitable for the States’ highways. Such failures led Toyota to develop its systems
such as Just In Time (JIT) management which brought significant decreases in stock and
resource wastes. Moreover, the failure in the export market stimulated Toyota to improve
its quality with “Kaizen” (the Japanese word for continuous improvement) and “Total
Quality Management (TQM)”. As is stated by Rogerson, TQM is the management that
sets the goal at each stage in the operational supply chain to define and meet the
customer requirements. Thus it maximizes customer satisfaction while maintains rigorous
cost control.

As a result, the company showed brilliant performance during the 60s' and 70s', and it
even earned the description of ‘Quality Toyota’. Furthermore, the Oil shock in the 70s'
brought a golden opportunity to Toyota which made over 28millions in sales with the
Corollas model with outstanding fuel economy.

Preserving its high-valued image, Toyota introduced a high-class luxury line Lexus in 1989.
Lexus’ high levels of quality and reliability together with price advantage compared to
other luxury brands brought huge success and it remains to be one of the leading luxury
lines in the automobile business.

Meeting its 73rd Anniversary, Toyota now sells in over 170 different countries and it is one
of the largest automobile manufacturers in the world.
Toyota Management System consists of the following factors. The first is the operational
factor. It includes:

(a). “Pull” system & “Level out the workload (Heijunka)”:– Virtue of rejecting
Overproduction - To survive in the severe competition of the international market, supply
should meet the required amount of demand as an essential part of the specification. If
not, a company cannot expect to generate profit and even to survive in harsh competition.
Therefore, in most industries, many companies cannot help paying much attention to the
management of their inventory system. Moreover, most of these companies adopted an
inventory “Push” system to always meet the demand by anticipating customer demand.
However, in real business goods and services are often pushed onto the retailer whether
or not the retailer can sell them right away. The retailer tries to push them onto another
retailer or vendors whether they need them right now or not. As a result, a lot of inventory
of stuff that is not needed to immediately use would be stacked up in the warehouse and
it causes the unnecessarily high cost to manage inventory. To avoid such an
overproduction problem, Toyota tries to eliminate inventory by adopting a “Pull” system
& “Level out the workload”. Very early on, Toyota started thinking in terms of pulling
inventory based on immediate customer demand, rather than using a push system that
anticipates customer demand.* As a result Toyota could operate its inventory close to
zero and could reduce inventory cost tremendously. This successful result is primarily due
to the management system of Toyota that applies successfully Japanese virtue of rejecting
overproduction and waste to manage inventory, and

(b). Managing Production Quality “Prevention”- Strong risk-averse tendency of Japanese

value:- Toyota believes that fixing a deficiency problem of a product after it has been sold
is much? more costly than detection of defects during the producing process, and also a
follow-up service in case of defects of a product will cost a lot compared to the costs of a
prevention process and its cost would be a large burden for the company. As a result, it
would harm the efficiency of the entire corporate operation line. Therefore, Toyota started
to focus on defect prevention and invested in total preventive inspection much more than
in a follow-up service process.* It also developed an education program for employees of
their inspection section. Such efforts brought big success to Toyota as the No.1 quality
product manufacturer in the international automobile industry.* Based on the peculiar
feature of Japanese that is strong risk aversion, Toyota was able to develop a highly
efficient way of managing product quality by combining a good understanding of the
market environment and appropriate management philosophy for Toyota itself.

The second is the organizational Culture Factor. It comprises; (a). The tidiness of the
working environment- ‘Typical Japanese virtue’. Pursuing efficiency is not only about
operational issues but also about the organizational environment and process issues.
Toyota always tries to make an optimized profit by putting in only a minimum amount of
input. The organization process and working environment is no exception. Therefore,
Toyota tries to enhance its managerial efficiency of the organization by emphasizing the
importance of ‘Tidiness’ in the process. They believe the tidiness of the organization in
terms of both appearance and system process as a great power of Toyota’s growth. By
making the working environment nice and neat and eliminating unnecessary part of the
process, they could draw higher efficiency of the working process, and the Tidiness of
Toyota became a great momentum that made Toyota as Leading Corporation of the
world, and (b). The collective power of Toyota. The degree of satisfaction of employees
is a critical part of the competitiveness of a company. In that sense, Toyota undertakes
great efforts to create a friendly environment for their employees. During job training,
Toyota tries to teach new employees to love the organization where they belong, to love
co-workers as much as they love their family, and to be a member of a team. Especially
for Toyota, by focusing on the importance of becoming one as a team, they maximize the
collective power of their organization so that Toyota can achieve optimized productivity
and competitiveness. The inherent Japanese values promoted this approach to a great
extent.

The third factor of the Toyota management system is Toyota’s philosophy to support
Globalization. After the oil crisis, the Japanese automobile industries have steadily grown
up in the U.S and other countries. Nowadays, Toyota has an enormous market share all
over the world and is even threatening the U.S automobile industry. Toyota´s
management system has greatly contributed to this success. From tradition, Toyota’s
philosophy has been shared and succeeded. However, to adapt to a globalized market,
Toyota had to add more value to existing ideologies. With tolerance about
multiculturalism, it denies chauvinism by harmony with local society. Even Toyota
considers protecting the environment when they do manufacturing.

However, Toyota never comprised with some values which were generally applied to
Japan. In transaction situations, the Japanese put more weight on long-term stability and
affiliation. Consequently, Toyota disapproves of the conflict between management and
unions. Furthermore, Toyota does not make a tied contract with unions because of mutual
development.

Specifically for operating in other countries, even if Toyota needed Japanese workers who
are more elaborate and skilled, they could not help hiring local people. Instead, Toyota
educated the workers to be more skilled and shared processes and direction with
managers to reduce asymmetric information. In this harmony with local people, Toyota
has been keeping the high quality of automobiles.

Unfortunately, there was a big issue about Toyota's automobile’s deficiency. In some
faulty automobiles, the accelerating pedal didn’t work under specific conditions so that
over 40 people were killed on the road. These defects were reported in 2007 but Toyota
tried to avoid the problems and after more and more people were killed, it became the
topic in U.S. Toyota decided to recall the defective models in November 2008. As a late
reaction to the situation, Toyota lost its reputation and its market share dropped
considerably.

Even though Toyota is well known for high product quality, there will be always defects.
Not like other automobile companies, Toyota mainly focuses on preventive inspection
rather than follow-up service. With thorough prevention, Toyota has been reducing the
rate of defects and this point was a proud part of their system. However, when the critical
deficiency was found, Toyota’s response became the main problem and not the defect
itself. They attributed some accidents to drivers and external factors. After lots of
problems were reported, Toyota decided to recall problematic automobiles but it was too
late. Moreover, suspicions of bribing to conceal the incidents arose during the
investigations. Compared to Toyota’s weight on preventive inspection, its followed-up
service was too indifferent.

Concerning this tragic incident, Toyota’s drawback is exposed and generally, the Japanese
tend to strongly avoid risk. This characteristic made Toyota mainly focus on a preventive
inspection, not a followed-up service. However, most companies should know defects can
break out anytime and anywhere so that they have to prepare for these situations, too.
Specifically, in this pedal incident case, Toyota should have reacted quickly and ethically.
In a managerial manner, Toyota needs to improve the recall system, secure emergency
capital, and systematic communication channel with customers. For example, there was 7
death who took a dose of Tylenol medicines in 1982. At that time, the managers of Tylenol
made a special reaction team and recalled all the medicine to prevent further accidents.
Fortunately, death was revealed as not because of Tylenol’s fault. It is now the top famous
medicine company in the world.

Through this study, it was found that Japanese culture has greatly influenced the way
corporations are managed and this influence shaped the management systems of
Japanese companies to a great extent. Especially the principles of lifetime employment
and consensus-based decision-making are of great importance in the Japanese context.
Toyota Motor can look back on a long history of economic development and success and
many Western companies strive to adapt their way of management. However, it is due to
the Japanese culture that this way of managing has been so tremendously successful. The
implications of the Toyota case are far-reaching in economic terms, but they remain
limited in different cultural settings, as can be seen in the performance of Toyota´s
subsidiaries in other countries. Management has to pay attention to the country-specific
characteristics and the culture, it is applied and although there is much to learn from
Toyota there remain aspects that might not be transferable.

Questions

1. Identify the specific Japanese characteristics of management mentioned in this

article.
2. Based on this article examines the Japanese features of the management of Toyota.
3. What are the western management approaches used by Toyota? Briefly elaborate.
4. How Japanese culture influence Toyota's success? Explain.