Toyotas Innovation Management and Success Factors

Toyotas insertion Management and mastery FactorsChapter 1 INTRODUCTION1.1 Project BackgroundThe primary reason for choosing this enquiry base is my genuine interest in cars and my intention to work in the automobile industriousness. And in that location could non be a better topic than to take the roughly signifi crowd outt mixed bag at the top which is the number of Toyota as the global leader. Although a lot has been written roughly Toyota, that this speaking volition study it from a different perspective, i.e. creative activity wariness and tiny success factors.Toyota Motors Corporation (TMC) has change state bingle of the biggest car manufacturers of the domain of a function from a humble disunite seventy y atrial auricles ago (Toyota, 2008). Toyotas has been one of the most phenomenal success stories in the ultra- rivalrous automobile industry and backup man be a great benchmark for any club. The participation has stick on record annual earnings for alm ost a decade and has be have sex the most winningsable car manufacturer on the planet. And in the food marketplace that matters the most, the USA, its unbroken sequence of record sales stretches back even yet. lambert geezerhood ago, the Big 3 US car stickrs (GM, cross, Chrysler) dominated the industry, both in the US and worldwide. Now Toyota is make to overtake GM as the worlds largest carmaker, cultivation 70 years of dominance (BBC, 2007). Toyotas success is even much curious given the line of works elsewhere in the industry (see App oblite rollix 1). GM and get over ar cutting thousands of jobs and closing proves, while Toyota is building one raw(a) plant each year. Ford in particular has found the dismissal tough and a $12.7 billion deficit in 2006 coupled with squ are losses among its subsidiaries signals the most miserable year of the companys existence. As GM and Ford fix racked up huge losses in the past few years, their financial ratings slang shrunk. T oyota is now worth 10 fourth dimensions as much as GM on the stock market. So how has Toyota managed to yank the trend so dramatic eithery? (Strategic Direction, 2007)Toyotas success with U.S. customers begins with the appeal of its cars and trucks, which are prized for their pure tone and dur top executive, ease of operation, and surveyful features much(prenominal) as controls that are intuitive to operate. Since lead is steep and inventories typic wholey low, Toyota, un exchangeable Detroit, sells cars with skimpy marketing incentives, which protects its margins and boosts resale prices (Taylor, 2003).Moreover, Toyota does its homework thoroughly. For instance, the company closely monitors frugal and demographic victimizations and regularly sends its exploreers out in the orbital cavity to inter construe those who matter most people who buy the cars. Keeping its ear to the ground ensures that the automaker breathes best positioned to anticipate evolving customer prefe rences and sentence to come trends. Others carry out similar functions, so what makes Toyota different? How lav a Japanese company be best at knowing what does the Ameri base car buyer want? This harangue attempts to square up out these factors from a different perspective refreshal.The competitory advantage that many Japanese mends had gained in their respective industries came not from advantages in hard engine room nevertheless from the counseling they manned the comparable technology Toyota attained holistic integration of technology with people, establishment, product and scheme the difference lay in their socio-technical system (Liker and Meier, 2006).1.2 Aims and objectives of researchThe aim of this dissertation is to establish the factors leading to Toyotas success over GM in the US automobile market.In order to get with this aim, the adjacent(a) objectives chip in been set-To re vox populi tinyly the body of literature of design possibleness in ex plaining Toyotas success.To identify the changing critical success factors where Toyota gained the advantage.To study other factors and theories (like national competitive advantage) which led to Toyotas success.In order to action these aims and objectives, literature review is carried out in the conterminous chapter which critically evaluates the theory surrounding this topic and then refined research questions are authentic which leave behind be answered by collecting secondary information.1.3 Structure of dissertationThis dissertation has been divided into five chapters. They are organised as followsThe outset chapter describes the background of this research, a brief introduction about Toyota and this dissertations structure. It also mentions the aims and objectives of this dissertation which are broad hardly get refined at the end of chapter both.The second chapter critically evaluates the literature stu bumpd for this dissertation including innovation theory, critical success factors and other factors. It trends five propositions at the end of that chapter which are to a greater extent refined research questions.Chapter three describes the methodology and debatees how the research is conducted to achieve the objectives set earlier. This chapter reviews the various factors of research design like research philosophy, paradigm, strategy and start. It evaluates the options lendable and saveifies the options chosen by the former.After methodology, research findings and discussion are presented in chapter four. Here secondary data is presented and used to test the propositions formed at the end of chapter two.Chapter five finishes this dissertation with conclusions and recommendations. And finally, the author shares his learning see in the reflections section.Chapter 2 Literature ReviewThis part of the dissertation exit start with reviewing critically the body of literature in innovation theory and changing critical success factors in conte xt of use to the automobile industry in general, and Toyota and GM in particular, to help explain the formers success over hold out mentioned in US market. Besides these two theories some other theories like national competitive advantage, move etc are discussed in the third section. This chapter pull up stakes end in forming research propositions found on the theories reviewed. Although this chapter is primarily designed to review general theory concerning automobile industry, the author has cited particular examples about Toyota and GM in some places as seen relevant to stress the point.2.1 universeInnovation is defined in Oxford dictionary as something established by introducing naked as a jaybird methods, ideas, or products. In todays competitive world, innovation requiremently send away provide companies stark naked ways to beat the contest. Innovation process involves the exploration and exploitation of opportunities for new or improved products, processes or hon ours, based e precise on an advance in technical practise, or a change in market demand, or a combination of the two. Innovation is thusly inherently a matching process (Fagerberg et al, 2006). not to innovate is to die wrote Chri let onher Freeman (1982) in his famous study of the sparings of innovation. Certainly companies that have established themselves as technical and market leaders have shown an strength to develop successful new products. Innovation is defined by Myers and marquess (1969 cited by Trott 2005) as not a single action hardly a total process of interrelated sub processes. It is not just the purposeion of a new idea, nor the invention of a new device, nor the development of a new market. The process is a combination of all these things playacting in an integrated fashion. A new idea is normally the jump point for innovation. It is neither innovation nor invention it is merely a concept or thought. The process of converting these ideas into a new product or profit is invention. To convert that to a successful profit generating oblation in a market is exploitation. And this complete process is innovation.Innovation has long been argued the engine of crop. Schumpeter (1934, 1939 and 1942 cited by Trott 2005) was among the first economist to emphasise the importance of new products as stimuli to economic growth. He argued that the controversy posed by new products was far much distinguished than marginal changes in the prices of existing products. For example, a car manufacturer foundation achieve far more(prenominal) growth by introducing new, high-octane cars or new features than just slicing down prices.Fane et al. (2003) studied the Schumpeters view in detail. Schumpeter employed innovation to explain Kondratievs long waves in bank line cycle theory, those of 54 to 60 years duration, and the nature of the economic growth processes. The Kondratiev/Schumpeterian view gained increased popularity at the end of the 20th century. Innovation, for Schumpeter, was not the same thing as invention innovations may be copied and may not be protected by intellectual property rights, or IPRs, (with the exception, perhaps, of mint secrets) while inventions are protected for a specified period of time by IPRs much(prenominal) as patents and copyrights. Innovations for Schumpeter reflect the introduction of new methods of output signal or a change in current achievement functions the trigger of new forms of organisation the disco very of new sources of communicate or the beginning of new trade routes and markets. Further, he identified the source of innovation as the consequences of the actions within a capitalist system of the entrepreneur seeking competitive advantage in the quest for profit.Another theory argues that sustained economic growth arises from competition among firms. Firms try to increase their profits by devoting resources to creating new products and developing new ways of making existing prod ucts. There have been many economists supporting the argument that innovations could be associated with waves of economic growth as mentioned earlier. Albernathy and Utterback (1978) contended that at the birth of any industrial sector there is paper product innovation which is then followed by alkali innovation in takings process, followed, in turn, by wide-spread incremental innovation. virtually firms develop a reputation for innovation and it helps propagate a virtuous readiness that reinforces a companys abilities. Trott (2005) views this concept as a specific example of door guards (1985) notion of competitive advantage. Porter argued that those companies who are able to achieve competitive advantage that is, above-average capital punishment in an industry sector are able to reinvest this additional profit into the activities that hitd the advantage in the first place, thus creating a virtuous circle of improvement, or competitive advantage. The success or failure of a firm depends on a strategic competitive advantage. Competitive advantage can be achieved by delivering the product at lower cost or by offering whimsical benefits to the buyer. It can take many years for a company to build a reputation for universe innovative, but once it has done so, it attracts further creative people leading to further leaps in innovation. But the company also has to provide the right melodic phrase for that by encouraging creativity and willingness to accept new ideas like Toyota does. selling also plays a very important role in the innovation process as it helps in finding out what customers want. This is crucial as success in the emerging will lie in the ability to acquire and utilize knowledge and apply this to the development of new products which partakes and take place the target customers expectations. But recent studies by Hamel Prahalad (1994) and Christensen (2003) suggest that listening to your customer may actually stifle technological innov ation and be insalubrious to long term pipeline success. small-arm sustaining or incremental innovation may appeal to existing customers as they provide improvements to established products riotous innovations tend to create new markets which eventually capture the existing markets. For example, the launches of pictorial matter CDs have made the VHS cassettes obsolete.2.1.1 Models of innovationThere are two schooldayss of thought over what drives innovation market-based view and resource-based view. The market-based view argues that market conditions provide the context which facilitate or constrain the extent of innovation activity. This of course depends on the firms ability to recognise opportunities in the market place. The resource based view of innovation considers that a market-driven orientation does not provide a secure foundation for formulating innovation strategies for markets which are dynamic and volatile rather a firms own resources provide a much more stable co ntext in which to develop its innovation activity and shape its markets in unanimity to its own views (Wernerfelt, 1995).2.1.2 Types of InnovationInnovation can be divided into following types (adapted from Trott, 2005)Product Innovation The development of a new product. E.g. A new car model.Process innovation The development of a new manufacturing process. E.g. ply manufacturing, flexible platform sharing.Organizational innovation A new meditation division a new communication system introduction of new procedures.Management innovation TQM systems Business Process Re-engineering (BPR) which are explained in enlarge later.Production innovation Quality circles Just In Time (JIT) milieual Innovation These are the authors views (see section 2.1.6).Among the various types of innovations mentioned, the author will discuss some crucial management and environmental innovations which will help in tracing down the factors behind Toyotas success.2.1.3 Management Innovation 1 rack up Qual ity Management (TQM) TQM can be defined as An in effect(p) system for integrating the eccentric development, reference maintenance and quality improvement efforts of the various groups in an organization so to enable production and service at the most economical levels which allows for extensive customer satisfaction (Feigenbaum, 1986).An efficient TQM approach demands all the employees in an organization to be involved. It regards quality as the responsibility of everyone and not limited to a manager or a particular department. Quality and employee improvements are therefrom inextricably linked and should be part of a regular cycle. TQM is an ongoing process of continuous improvements and incremental innovations. The impact of small, relatively easy to achieve improvements can be very confirming. Much of the improvement in the reliability of cars over the past 20 years has been attributed to a very large number of improvements initiated by thousands of employees in all the manufacturing companies involved (Trott, 2005).Toyotas commitment to quality can be apprehended by this example. If there is even a small defect like a seatbelt not fitted properly, the workers can tweak a cord and stop the production line until the chore is resolved. Workers at the Toyota plant in Georgetown, Kentucky, pull the cord 2,000 times a hebdomad and their care is what makes Toyota one of the most reliable, and most desired, brands in the US. In contrast, workers at Fords brand-new truck plant in Dearborn, Michigan, pull the cord lonesome(prenominal) twice a week indicating the legacy of generations of mistrust between shop-floor workers and managers (Schifferes, 2007).Toyotas relentless cost engineering creates efficiencies that Detroit can chase but not match. Its philosophy of continuous improvementrethinking the thousands of steps that go into building each modelallows Toyota to constantly trim material costs and production time. For example, the company lowered the base price of its 1997 Camry by 4%, later taking steps that allow ind streamlining the front-bumper assembly from 20 parts to 13 and reducing the number of steel body fasteners from 53 to 15. Such improvements enable Toyota to assemble a car in 21 hours, vs. 25 for Ford, 27 for Chrysler and 29 for GM (Greenwald et al., 1996). (See also appendix 4)However, in pursuit of continuous improvement, there could be some stages where a radical change may involve complete withdrawal of a procedure leading to effectiveness job losses for the employees. So the employees would be reluctant to pursue that idea. The very feeling of process ownership by the employees may obstruct radical change, i.e. TQM may not support major(ip) innovation (Giaver, 1998).2.1.4 Management Innovation 2 Quality Function Deployment (QFD)QFD is another important management innovation. devising design finales concurrently rather than sequentially requires superior coordination among the parties involved marke ting, engineering, operations and most importantly, the customer. Quality function deployment is a structured approach to this problem that relates the voice of the customer to every stage of the design and delivering process. It get alongs better correspondence of customer demands and design interactions.For a company to achieve its own quality goals it must include and consider the quality programmes of its suppliers and customers. Identifying the causes of uncertainty, determining how this affects other activities in the supply chain and formulating ways of reducing or eliminating the uncertainty is essential to the management of all the processes involved. Here is an example to illustrate this. McDonalds built a restaurant in Moscow. To achieve its requisite and expected level of quality and service, the company set up an undefiled supply chain for growing, touch and distributing the food. McDonalds made sure that all parties along the whole chain go awayless its expectat ions of performance and closely monitored performance (Upton, 1998).The QFD approach requires trust between all parties. As in the modern world, the competition between organizations effectively becomes competition between supply chains. Only by innovating within the organizations supply chain, in terms of product and service, will the organization die hard.2.1.5 Management Innovation 3 Business Process Re-engineering (BPR)This is a completely opposite approach to that of incremental innovation preached in TQM. Slack et al. (2004) defines BPR as The fundamental rethinking and radical plan of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service and speed.This approach is quite similar to that of Peters (1997) who suggests total destruction of company systems, hierarchy and procedures and replacing them with a multitude of single-person business units working as professionals. He argues that small modes t improvement enshrined in TQM detracts effort from the square need to reinvent the business, i.e. Incrementalism is an enemy of innovation. He argues that a radical approach is the only way organizations can be sufficiently innovative to survive in the twenty-first century.But BPR is criticised as one of the major lay off as wellls common in 1980s and 1990s. The combination of radical downsizing and design can mean the loss of core image from the operation. If taken too far (e.g. if the short term improvement was achieved at the expense of support for RD expenditure) the resulting organization could become hollow and die. Also, the core business has to be sound otherwise BPR is akin to flogging a dead horse (Trott, 2005). So, an organization has to take care that their core knowledge is passed on and they do not suffer due to BPR.2.1.6 Environmental InnovationThe author has found a gap in literature in the form of environment innovation. It is not limited to any product or proc ess innovation, but it is the holistic process companies have to follow to keep pace with the changing environment (also see section 2.2.1). Companies round the world are making more fire efficient cars and alternative fuels to reduce the burden on dodo fuels. GM has realized this a little late and now their full attention is towards environmental innovation. This is because fancy designs and add-ons are not sufficient to contest in the environment-conscious market. Auto makers are under pressure to produce more efficient cars that use less fuel and thus pollute less, in part because petrol prices have soared in recent years in the US, but also because they will soon be required to do so by law. In December 2007, US President George W Bush signed an energy bill that will force the industry to cut average emissions from all vehicles. By 2020, the average must have been slashed by 40% to 35 miles per gallon, and the industry is convinced they will be able to deliver though it will not come cheaply (Madslien, 2008).Today, a fuel called biodiesel, which is derived from vegetable oil, is used throughout Europe. While it has been used in the United States in fleet vehicles for decades, only recently has it become more widely available to the general public.With the worlds oil supply declining and the increasing effect of greenhouse gases on global warming, the push for alternative-fuel vehicles will only continue to grow. In addition to increased production of the types of vehicles discussed here, the next step in alternative-fuel vehicles is fuel cells. A fuel cell vehicle is essentially a hybrid vehicle that is powered by an electric car motor, which gets its power from a fuel cell stack rather than an immanent combustion engine. There are only a handful of fuel cell vehicles in use today because the technology is still being developed. In addition, there are relatively few fueling displace with hydrogen, the fuel used to power the fuel cell stack.The U.S . Department of Energy, the delegacy that oversees a federally funded program to pursue fuel cell development, will decide by 2015 whether fuel cell technology is viable. Even if the decision is made to move forward, hybrid vehicles and gasoline-powered vehiclesas well as those powered by diesel and ethanolwill most likely remain in use for many years (JDPower, 2008).2.2 small Success FactorsCritical success factors are those product features that are particularly valued by a group of customers and, therefore, where the organization must excel to outperform competition (Johnson et al., 2006). A firm require to have the threshold capabilities and core competencies to meet the critical success factors. Threshold capabilities are the bare minimum required for an organization to be able to compete in a market without which, an organization cannot survive. The threshold levels rise over time as critical success factors change and as new competitors enter the market. So a company has t o keep on reviewing and improving its threshold capabilities just to go on in the market. But this is not sufficient to create competitive advantage. That can only be achieved by unique resources and core competencies which the competitors cannot imitate. Whereas unique resources are those resources that critically underpin competitive advantage and core competencies are the activities and processes through which resources are deployed to achieve competitive advantage. So, even if a company has unique resources, without having the requisite core competencies, it cannot achieve competitive advantage.Lynch (2003) refers to CSFs as KFS or Key Factors for Success. Lynch states that KFS are those resources, skills and attributes of the organisations in the industry that are essential to deliver success in the market place. There are unceasing issues that can be explored by an organization, but due to limited time and resources, it is better to narrow them down to KFSs and focus the res ources on the most important matters. KFS are common to all organizations in an industry but they do vary from industry to industry. They are dependent on customers expectations, quality of competition and corporations own resources and skills. The author agrees with Lynchs view of the need to concentrate the organizations resources to KSFs. But the author also feels that they are not easy to pin-point and measure. Moreover, an organization should also create new CSFs through innovation and invention. For example, the creation of digital cameras completely changed the CSFs in that industry.Another point of view is provided by Sousa et al. (1989), who call it shared experience view. The shared experiences school maintains that the area of business strategies is amenable to research aimed at finding nomological statements. It is believed to be possible to find out how different strategy types are linked to business success under various conditions. This school can be called the shared experience school, because it builds on the expectation that, if experience on business strategies is shared, it becomes possible to build up general, empirically based theoretical knowledge, which then can guide the selection of business strategy. For this school, business success is governed by causal relationships, which exist as an objective truth, and which little by little can be uncovered by research.2.2.1 Strategic Drift and Scenario Planning.Johnson et al. (2006) describes strategic drift as the stage where strategies progressively fail to address the strategic position of the organisation and performance deteriorates (see figure 2 below). For example, GM find themselves far behind in the environment innovation sector. Therefore, the organization needs to pull in and address the contemporary issues that are challenging them. The figure shows environmental change and strategic change. An organization has to keep pace with the changing environment via incremental changes a nd when required, transformational changes. If it fails to do so, the organization is at the risk of completely failing.Johnson et al. (2006) provides a possible solution to prevent these risks through scenario planning. Scenarios are detailed and pat views of how the business environment of an organization might develop in the future based on groupings of key environmental influences and drivers of change about which there is a high level of uncertainty. While it is not possible to decently predict the future, but it is valuable to have different views of possible futures. Managers should form multiple, equally plausible futures and develop contingency plans for each scenario. They have to do so by limiting the number of assumptions and uncertainties to minimum by focussing on factors that are uncertain but can have a high impact. Such scenario planning will no doubt look at some resources currently, but it can prevent huge losses in the future by limiting the number of shocks a nd surprises and help create a pro-active organization which moves with the changing environment.2.3 Other Factors2.3.1 National competitive advantage Porters rhombus It is argued that some nations provide better environment to foster innovation than others. Porter (1990) devised a baseball field to explain the four main factors helping a country build and maintain competitive advantage These arePorters whiz diamond framework1. Factor conditions These include the human resources physical resources such as land, water mineral deposits, infrastructure etc nations stock of knowledge resources such as scientific, technical and market knowledge which can affect the cadence and quality of goods and run and finally, the cost of capital and availability. Although Japan was low on natural resources, they more than made that up with their excellent human resources. Morita (1992 cited by Trott 2005) argues that you will notice that almost every major manufacturer in Japan is run by an eng ineer or technologist. However in the UK, some manufacturing companies are run by CEOs who do not understand the technology that goes into their own products. Indeed, many UK corporations are headed by chartered accountants whose major concern is statistics and figures of past performance. How can an accountant reach out and catch up with the future if he or she is always looking at last quarters results? Therefore, it is important for an innovative firm to have the right leadership at the top who can guide the firm into the future.2. Demand conditions These include the composition of demand in the home market, size and growth rate of home demand, ways through which domestic demand is internationalized and pulls a nations products and services abroad. The demand for cars in Japan was low, so Toyota ventured into US shores to feed their ever-growing ambitions.3. link and supporting industries These include the presence of internationally competitive supplier industries which can c reate advantage through speed and efficiency. Also related industries which are internationally competitive can create value when competing or by complementary products. Toyota was competing in Japan with the likes of Honda and Nissan who themselves, were very effective in their production methods. Moreover, Toyotas JIT was successful due to efficiency of their suppliers and their ability to keep up to Toyotas high standards.4. Firm strategy, structure and rivalry This includes the way in which firms are managed and claim to compete companys goals and their employees motivation and the amount of domestic rivalry and the creation of value in the respective industry.Apart from the above four main factors, two other variable play an important role.1. The role of chance Some unexpected, odd events can sometimes nullify the advantage of competitors and change the entire competitive position of a market. These could be new inventions, political decisions, wars, drastic changes in economy , oil price surges and major technological breakthroughs. Toyotas innovations like JIT, lean manufacturing, TPS and hybrids were all responsible for its meteoric rise among soaring oil prices and environmental concerns in the USA.2. The role of government Government can influence all four of the major determinants through actions like subsidies, policies, regulation of market, product regulations, value laws and antitrust regulations. While some countries like Japan, provided extensive support and subsidies to promote industrial innovation, others such as United States, have aimed to create positive effects in the economy by letting the market achieve the most efficient allocation of resources with minimal possible intervention. The so-called shekels school paradigm for promoting competitiveness and innovation, which created a belief in the sinless market to maximise innovation and productivity has, for more than two decades, been the supreme perspective in the United States (Ro senthal, 1993).Critique of Porters DiamondAlthough Porter diamond provides us a useful tool to study national factors in competitive advantage, it has some shortcomings according to Rugman et al. (2003). First, it was constructed on the basis of aggregated data on export shares for ten countries Denmark, Italy, Japan, Singapore, South Korea, Sweden, Switzerland, UK, USA and West Germany. And it took only grimace studies from four industries. Therefore, it cannot be applied in every case without modification. Second, it fails to accept the notion that sometimes governments action can end up protecting a domestic industry excessively and in turn, make it less competitive internationally. Third, it considers chance as an important factor but it fails to acknowledge that it very hard to predict any such events and therefore not possible to include in an organizations strategy. Although a solution to this problem is scenario planning. (See page 14)2.3.2 Lean and Multiple-project approac hMichael Porter, could encapsulate the lean manufacturing strategy as being one which comprised (amongst other things) a wide line of models offering multiple features, based on standard products with a wide prevail of options (Porter et al., 2000).