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Toyota Company Management: Applying Balanced Scorecard Report


Introduction

The Toyota Motor Company started by building trucks in Japan. It was founded by a visionary man named Sakichi Toyoda in 1933 when he first introduced his invention known as the Toyoda Model. It was sponsored by the Japanese Imperial Army in support of its military conquest throughout Asia. Toyoda introduced many car models, surpassing its rivals in efficiency and sales.

Toyota has introduced a type of management that is knowledge based. Toyota’s management style is simply traditional; the traditional has evolved into a modern way of encapsulating the teachings of the past and the new system of management. Because of this management innovation, Toyota has led the global car manufacturing industry while keeping its production system unique; unique in the sense that its managers and employees know how to implement a system and continuously improve it. Other organisations may have known this system but making it a successful one depends on the people managing and implementing the system. The Toyota production system (TPS) is composed of kaizen and Jishuken processes. These are original management disciplines, copied but never equaled by the Western style of management.

As a small company in Japan, Toyota started to manufacture and sell about 18,000 vehicles a year, but it raised production when the company decided to become international. Toyota is now a global firm and the leading car manufacturer of the new millennium. The Toyota Production System is applied on all of its plants internationally including those of the United States.

In 1945, Toyota was granted license by the US military to enter into automobile manufacturing. Toyota built the Toyopet, a cheap car having a speed of 55 mph and a 27 horsepower engine. In 1965, Toyota had manufactured 600,000 Toyopet automobiles. Toyota took the opportunity offered by the American industrial training programs, developed in the United States during the war, which focused on process improvement, and employee training and development. The training programs evolved into the concept of kaizen and the Toyota production system used by the company until today.

In 2001, Toyota management formulated a Code of Conduct, known as the “Toyota Way 2001” which provided 14 principles, serving as guidelines for all employees. The 14 principles emphasised:

  • management based on the traditional philosophy, even sacrificing short-term financial goals;
  • continuous improvement so that problems could be identified;
  • lean management to avoid overproduction;
  • simplicity of workload;
  • a culture where employees can solve problems by their own;
  • providing standards as the basis for continuous improvement and allowing employees as part of decision making process;
  • visual control to expose the problem;
  • tested and reliable technology to serve customers and the people;
  • developing leaders from among the workforce who have the capability to understand the job, discern and live the philosophy, and share it with others;
  • valuing partners and suppliers by supporting them;
  • personal analysis and understanding of the issues so that problems can be solved;
  • collective decisions of the team, thoroughly examining all issues and knowing the options, and then conduct decisions at an instance; and,
  • a knowledge based organisation through continuous learning and continuous improvement (Heller & Darling 2012, P. 158).

The need for a Balanced Scorecard

Toyota’s knowledge infrastructure and intangible assets are ideal to become parts of a Balanced Scorecard. However, there are departments that need focus and emphasis; thus the need for a Balanced Scorecard.

A problem emerged involving quality. This seldom occurs because Toyota has been known for its quality cars and parts. At a time when Toyota was on top as the world’s number one automobile manufacturer, a problem on quality occurred. Toyota has to recall millions of Lexus cars because of alleged quality flaws. Toyota hybrid cars, which ran on petrol and gas, were ordered recalled by the United States government because of the many accidents that occurred involving a sudden acceleration of the gas pedals. Customers complained of “no breaks” and other malfunctions. The quality flaws needed to be corrected even if Toyota has been known for its quality products and traditional but effective management.

Toyota has a unique management style; it is known for its application of the Toyota production system along with the concepts of kaizen and Jishuken. But it needs innovation and the usual strategy of continuous improvement. Toyota needs a BSC matrix during emergency recalls so that managers and their teams automatically know how to handle the situation. Many commented that what happened during the recent recall of millions of cars was a failure of top management when cars with questioned car pedals were continuously sold even when the recall was still going on. It was said to be a question of management because there was no coordination between top management and the dealership.

The strategic evaluation of balanced scorecard enables organisations to attain an integrated and straightened balanced attention on the established perspectives of the organisation which collectively emphasise the success of the organisation’s vision. All decisions made by managers must have the right strategies; they use this as basis for long-term goals and in making strategic planning. Managers provide changes to organisational plans, especially if they are new to the organisation. New managers are chosen very carefully by top managements because of this reality.

Methodology

This essay was conceived to answer the question ‘why’? It is not the question of why there was a recall. The Toyota production system is known for its quality strategy in production and management. The question is why it involved millions; the subject of recall could have reached 9 million Lexus cars. As mentioned repeatedly here, recall is not uncommon in the car industry. There are always complaints as there are also defects and flaws in the system that need to be continuously innovated and applied with quality functions.

We examined the literature on BSC and the organisation Toyota. Toyota literature can be consulted on many aspects of quality management, while the BSC is also about quality management. The company Toyota has a unique and long history of quality management. So-called ‘quality lapses’ on Toyota hybrid cars are only one of a kind and can be considered a remote occurrence.

After gathering information on the company Toyota, we sourced out concepts and theories on the BSC, how it came into existence and used by organisations, and how this has become a perfect instrument for strategic management. The problem of the Toyota recalls emerged as a perfect example in the application of the BSC. Although BSC is already in the Toyota system, some innovations and improvement need to be introduced into the system to avoid further recalls, and if recalls are needed, how to deal with it. BSC is a must in management.

Complex factors in formulating the BSC have to be considered with respect to the structure of the organisation. The organisation is a place or a situation facing daily challenges of innovation, social responsibility and constant changes. (Chavan 2009)

The Balanced Scorecard is about strategy. Organisations should not rely solely on financial indicators as this focuses on ‘short-term behavior that sacrificed long-term value creation for short-term performance’ (Chavan 2009, p. 394). Financial measures are only one of a few perspectives that an organisation should focus on. If financial measures can lead to wrong goals for the organisation, the best way is to measure the strategy. The Balanced Scorecard is a tool in dealing with the organisation’s strategy (Kaplan & Norton 2001, as cited in Chavan, p. 395).

Background of the BSC

The BSC first appeared in 1992 in the Harvard Business Review article of Robert Kaplan and David Norton. Traditional ways of measuring performance emphasised financial indicators but the Balanced Scorecard focuses on several perspectives. The essential information needed in a Balanced Scorecard emphasises financial and nonfinancial measures which are considered composites of a system that provide information to every aspect of the organisation (Brewer & Speh, 2000 as cited in Chavan, 2009). The BSC is a strategic management tool to manage long-term strategies (Poll as cited in Chavan, p. 395).

The BSC is effective in: clarifying and translating vision into strategy; communicating and linking strategic objectives and measures; planning, setting targets and aligning strategic initiatives; and enhancing strategic feedback and learning. Traditionally, organisations focused on short-term financial assessments, but the BSC includes perspectives, like performance associated with customer service, internal processes, and learning and growth needs of employees (Latshaw & Choi, 2002 as cited in Chavan, 2009, p. 396).

The BSC has the purpose of focusing on long-term objectives and providing a strategic plan for the organisation. The organisation can also measure its performance in providing key capabilities required in its long-term survival. Companies that want to achieve longer-term superior returns and are pursuing new strategies because of the new threat in the competition, and where lack of organisational performance threatens its long-term sustainability, need the beneficial advantages of the BSC (Hagood & Friedman, 2002 as cited in Chavan, 2009, p. 396).

The CEO and top-echelon are tasked to provide the specific performance for the middle- and lower-level management and employees and what they should do to attain success at their level and for the organisation. These processes and measures are transferred to individuals in the entire organisation and are encapsulated in the Balanced Scorecards. A significant part of the Balanced Scorecard is the feedback and learning process wherein an organisation can measure where it is going in its strategic capability as reflected by its current performance, and other changes that the organisation might encounter in the near future.

This process will provide a mechanism for the organisation to know where it is going and what changes are to be made, if necessary. Should the processes need changes, it will depend on ‘the definition of the destination, the pace of the journey, or the redesign of the initiatives designed to build the capability’ (Chavan 2009, p. 396). The BSC should be tailored for each part of the organisation to allow each to contribute in a holistic way to the corporate objectives.

BSC matrix for Toyota

Financial perspective for Toyota

To show financial success, shareholders should see how capital returns, how shares increase, and how assets are being used.

Customer perspective

  • Improve customer interaction;
  • Quality is of prime importance;
  • Serving the community is the ultimate priority.

Internal business processes

We have to continuously improve our products and deliver with benchmarked quality.

According to Toyota’s website, we can achieve quality if we integrate the various perspectives of development, design, marketing, and manufacturing and the various aspects of sales. Each of these factors is important in customer satisfaction.

Learning and growth perspective

  • Capabilities of employees should be on top;
  • Information system should be in place;
  • Employees are motivated and empowered.

Lexus is a product of long years of research and development by a team of Toyota engineers. The people behind Toyota and the system are well-trained technicians and engineers, ‘educated’ inside not outside the workplace, and their capabilities are unquestioned. Toyota believes in training their own workforce and not in the university or from other outside sources. The company values their employees and as much as possible, they retain their employees even in times of crises such as recessions or economic downturns. This company culture and strategy should remain as part of the BSC matrix. Toyota culture built through years of continuous innovation has been refined every time it needs refinement. It needs no correction because it is part of the system.

Although Toyota is known for its quality cars, the company receives complaints from customers every now and then. The complaints are considered suggestions or comments from valued customers. Employees are also considered customers by co-employees. The logic behind is for employees to provide solutions to problems posed by fellow employees. Toyota uses research and development (R&D) in designs and creating car parts. When Toyota introduced the Prius, a product of Toyota subsidiary Lexus, everyone in the company thought they had built a perfect hybrid car that could run on petrol and electricity. Something went wrong when complaints on the gas pedals and breaks kept coming in from the customers. Accidents were also attributed to the malfunctioning breaks. Toyota had to recall the millions of Lexus cars, costing billions of dollars for the company. (Evans & Lindsay 2012)

Toyota’s crisis (also known as the pre-crisis state) began in September 2007 when Toyota recalled 55,000 automobile floor mats because they were risky and had trapped the gas pedal (Auto Channel as cited in Heller & Darling 2012). The floor mat issue and the breaks became a public concern when an accident occurred in August 2009 involving a Lexus, which suddenly accelerated out of control. Before impact, one of the occupants managed to call 911, saying that the car did not have brakes (Heller & Darling, p. 159).

It was as if Toyota admitted its fault when it recalled the floor mats and this was done to 4.2 million Lexus cars. The investigation of the National Highway Traffic Safety Administration (NHTSA) supported the floor mat concept but their report said that this was true to only 16 percent of the automobiles investigated (MSNBC, 2010 as cited in Heller & Darling 2012). In other words, there was no evidence to fully support the accelerator allegation. Toyota denied the report and said that it was sticking to its recall repairs. They however reasoned that they would continue to monitor the acceleration problem including other factors. (Heller & Darling, p. 161)

The Toyota Production System

The Toyota Production System is also known as lean management. There are many concepts or talks about the TPS and so commentators also give different views. The question lurking in the minds of investigators is: did TPS fail as the millions of Lexus cars had to be recalled?

Jishuken is an application of kaizen. A definition of Jishuken states that it is an activity in production applied with speed, just like ‘kaizen blitz model’ (McNichols et al., 1998; Bicheno, 2000 as cited in Marksberry, Badurdeen, Gregory, & Kreafle 2010, p. 671). Jishuken aims to provide learning, at the same time to improve production. It also aims to improve managers’ ability to solve management problems in cooperation with a team. Jishuken is applied to all cars manufactured in every Toyota plant. It was used on all Lexus cars recalled for their malfunction. Jishuken cannot be faulted for the malfunctioning parts because each part is examined and each team, along with the entire production department, is responsible for any fault.

Safety recalls are not uncommon in the car industry despite the application of discreet quality controls, like that of Toyota. In their website, Toyota CEO Aki Toyoda apologized about the incident. But Mojonnier (2012), in his blog, asked why Aki Toyoda ordered to continue selling Lexus when there was an order of recall. Added to this management failure is the production side of the problem, which many commentators pointed to be the main cause of the problem.

The complexity of the problem provides several versions, as explained by a number of comments. One is that a car, like the Lexus, is so full of wires and sensors embodied in a computerized box, that the complexity allows it to commit faults. A small electronic error will impact on the car’s performance.

Many said it is a question of management. In the course of the Lexus problem, Toyota improved its management system by focusing on Jishuken and the Toyota production system. It did not have to change the system because the system itself promotes continual improvement. With the Lexus debacle as its background, Toyota managers examined Jishuken in their TPS activities.

Jishuken aims to solve production problems necessitating management focus. It also aims to improve, correct and enlighten managers on the many features of TPS by enhancing managers’ involvement of problem-solving by ‘using hands-on activity and coaching’ (Marksberry et al. 2010, p. 672). This is not similar to other problem-solving activity as this one is conducted by management teams to pinpoint the problems and implement solutions through continuous trouble-shooting techniques (Toyota Motor Manufacturing Kentucky, 2009 as cited in Marksberry et al., p. 672).

Managers perform their roles as mentors for team members solving the problem. Jishuken therefore involves technical and managerial activity, and it has to be stressed that it is different from other problem-solving activity as the ones doing it are managers from the different departments involved in the different aspects of the problem. Jishuken develops the managers’ interpersonal skills, building their attitude toward coaching the right method in production and supporting kaizen (Alloo, 2009 as cited in Marksberry et al., p. 672). Jishuken adds more weight to the many concepts of TPS, for examination in waste elimination.

When the Lexus problem occurred, Toyota managers examined every aspect of the problem. Managers were one in saying that it was the problem of the floor mats although the accelerator pedals could not be disregarded. Why the million of recalls was involved is another case in point. The production side of the problem was pinpointed and so there was a solution, i.e. to recall and to fix. Another problem was the top management’s decision to continuously ship cars to the United States with the same defective parts (Mojonnier 2012), that is why the recall involved millions.

Conclusion

The BSC is ingrained in the Toyota system. Toyota cars and products are applied with the highest quality innovations. When problems occur in its plants and workplaces, managers and employees already know what to do; this is part of a unique management that is built through years of innovation and continuous improvement. This is the aim of the BSC, to be able to solve problems which appear time and again. Toyota has applied quality and strategic management to its millions of cars and other Toyota products. What is remarkable in this company is that it has its own unique management only Toyota managers and employees know how to perform. This is also part of the intangible asset the company has. Intangible assets are unique in any company or organisation.

In this paper, the BSC was not introduced, it was improved. BSC is already a part of the system, a unique management system only Toyota has it. Problems always occur and questions from competitors keep coming in. What Toyota has been doing is to apply continuous improvement. The Lexus problem was dealt with this kind of solution, and Toyota has been able to surpass the situation with an open mind and a commitment to apply more quality solutions even in the presence of an almost perfect strategic management.

References

Chavan, M 2009, ‘The balanced scorecard: a new challenge’, Journal of Management Development, vol. 28, no. 5, pp. 393-406, 2013, via ABI/INFORM Complete, ProQuest database, Evans, J & Lindsay, W 2012, Managing for quality and performance excellence, Cengage Learning, United States of America. Web.

Heller, V & Darling, J 2012, ‘Anatomy of crisis management: lessons from the infamous Toyota case’, European Business Review, vol. 24, no. 2, pp. 151-168, 2013, via ABI/INFORM Complete database. Web.

Marksberry, P, Badurdeen, F, Gregory, B, & Kreafle, K 2010, ‘Management directed kaizen: Toyota’s Jishuken process for management development’, Journal of Manufacturing Technology Management, vol. 21, no. 6, pp. 670-686, 2013, via ABI/INFORM Complete, ProQuest database. Web.

Mojonnier, T 2012, Business theory: best practices of great managers, 2013. Web.

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