This paper 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.

Introduction

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 over 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). Instead of outlining the far-reaching implications in detail this paper will focus on the relevant Japanese peculiarities and try to bridge the gap between Japanese culture and applied management.

Consequently, the second part will provide the reader with an overview over the specific Japanese characteristics of management. In order to understand the case of Toyota a concise summary of the Japanese features relevant to the case will be given. The third part will then outline the economic history of Toyota Motor. The specific historical features of this case need to be reviewed in order to set the stage for a more in-depth analysis. Part four then examines the Japanese features of the management of Toyota. Although some factors correspond to the Western approach of management, some principles are shown to be special for Japan and those will be the main points of interest in this part. The fifth part will then shift the focus to the more recent developments in history and examine the famous “brake-incident”. Japanese influences in dealing with it will be pointed out. This part also suggests improvements for the future. The last part concludes.

Japanese Management Characteristics

Rooted in the deep cultural geographical differences, Japanese corporations have shown structurally disparate form of management compared to those of Western management. Not only as a pivotal supplier and competitor, Japanese management 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 of 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 answers of the question follow the definition. Such kind of process may be frustrating, taking considerable amount of time to the Westerners who are trying to reach a deal with Japanese. Only when all the people engaged in making agreement 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 ‘lifetime employment system’ as follows: ‘At whatever level of organization in the Japanese factory, the worker commits himself on 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 own 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.

Background of Toyota

The name tag ‘made in Japan’ was not the favorable description to have for the automobile company back in 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 a 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 own systems such as Just In Time (JIT) management which brought significant decreases in stock and resource wastes. Moreover, the failure in export market stimulated Toyota to improve its quality with “Kaizen” (Japanese word for continuous improvement) and “Total Quality Management (TQM)”. As it is stated by Rogerson, TQM is the management that sets the goal at each stage in the operational supply chain in order to define and meet the customer requirements. Thus it maximizes customer satisfaction while maintains the rigorous cost control.

As a result, the company showed brilliant performance during 60’s and 70’s, and it even earned the description of ‘Quality Toyota’. Furthermore, the Oil shock in 70’s brought a golden opportunity to Toyota which made over 28millions of sale with 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 compare to other luxury brands brought a huge success and it still remains to be the one of the leading luxury line in automobile business.

Meeting its 73rd Anniversary, Toyota now sells in over 170 different countries and it is one of the largest automobile manufactures of the world.

Evaluation of the Toyota Management System

1) Operational factor

a. “Pull” system & “Level out the work load(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 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 are not needed to immediately use would be stacked up in warehouse and it causes unnecessarily high cost to manage inventory.

To avoid such an overproduction problem, Toyota tries to eliminate inventory by adopting “Pull” system & “Level out the work load”. 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 management system of Toyota that applies successfully Japanese virtue of rejecting overproduction and waste to manage inventory.

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 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 about market environment and appropriate management philosophy for Toyota itself.

2) Organizational Culture Factor

a. Tidiness of 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 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 organization by emphasizing the importance of ‘Tidiness’ in the process.* They believe the tidiness of organization in terms of both appearance and system process as a great power of Toyota’s growth. By making working environment nice and neat and eliminating unnecessary part of process, they could draw higher efficiency of working process, and the Tidiness of Toyota became a great momentum that made Toyota as leading corporation of world .

b. 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, 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 extend.

3) Toyota’s philosophy to support Globalization

After the oil crisis, Japanese’s 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 the 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 the Toyota considers protecting environment when they do manufacturing.

However, Toyota never comprised with some values which were generally applied to Japan. In transaction situations, Japanese put more weigh on long-term stability and affiliation. Consequently, Toyota disapproves of conflict between management and unions. Furthermore, Toyota does not make a tied contract with unions because for 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 process and direction with managers to reduce asymmetric information. In this harmony with local people, Toyata has been keeping high quality of automobiles.

Strategical Issues: Beyond the Brake Incident

Unfortunately, there was a big issue about Toyota 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 from 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 on November 2008. As a late reaction of the situation, Toyota lost their reputation and their market share dropped considerably.

Even though Toyota is well known as 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 for bribing to conceal the incidents arose during the investigations. Compared to Toyota’s weight on preventive inspection, their followed-up service was too indifferent.

With respect to this tragic incident, Toyota’s drawback is exposed and generally, 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 defect 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 managerial manner, Toyota needs to improve recall system, secure emergency capital and systematic communication channel with customer. For example, there were 7 death who took dose of Tylenol medicines in 1982. At that time, the managers of Tylenol made 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.

Conclusion

This paper reviewed Japanese characteristics of management using the case of Toyota Motor. 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 extend. Especially the priciples of lifetime employment and concensus-based decision-making are of great importance in the Japanese context. Toyota Motor can look back on a long history of economics development and success and many Western companies strive to adopt 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 to the culture it is applied and although there is much to learn from Toyota there remain aspects that might not be transferable. For the future, this paper suggests a slightly altered strategy for Toyota Motor. This recommendation is based on the identified Japanese influences on how the “brake-incident” in the US was handled.