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14.1 Organizational Structure: The Case of Toyota

Figure 14.1

Mike Mozart – Toyota – CC BY 2.0.

Toyota Motor Corporation (TYO: 7203) has often been referred to as the gold standard of the automotive industry. In the first quarter of 2007, Toyota (NYSE: TM) overtook General Motors Corporation in sales for the first time as the top automotive manufacturer in the world. Toyota reached success in part because of its exceptional reputation for quality and customer care. Despite the global recession and the tough economic times that American auto companies such as General Motors and Chrysler faced in 2009, Toyota enjoyed profits of $16.7 billion and sales growth of 6% that year. However, late 2009 and early 2010 witnessed Toyota’s recall of 8 million vehicles due to unintended acceleration. How could this happen to a company known for quality and structured to solve problems as soon as they arise? To examine this further, one has to understand about the Toyota Production System (TPS).

TPS is built on the principles of “just-in-time” production. In other words, raw materials and supplies are delivered to the assembly line exactly at the time they are to be used. This system has little room for slack resources, emphasizes the importance of efficiency on the part of employees, and minimizes wasted resources. TPS gives power to the employees on the front lines. Assembly line workers are empowered to pull a cord and stop the manufacturing line when they see a problem.

However, during the 1990s, Toyota began to experience rapid growth and expansion. With this success, the organization became more defensive and protective of information. Expansion strained resources across the organization and slowed response time. Toyota’s CEO, Akio Toyoda, the grandson of its founder, has conceded, “Quite frankly, I fear the pace at which we have grown may have been too quick.”

Vehicle recalls are not new to Toyota; after defects were found in the company’s Lexus model in 1989, Toyota created teams to solve the issues quickly, and in some cases the company went to customers’ homes to collect the cars. The question on many people’s minds is, how could a company whose success was built on its reputation for quality have had such failures? What is all the more puzzling is that brake problems in vehicles became apparent in 2009, but only after being confronted by United States transportation secretary Ray LaHood did Toyota begin issuing recalls in the United States. And during the early months of the crisis, Toyota’s top leaders were all but missing from public sight.

The organizational structure of Toyota may give us some insight into the handling of this crisis and ideas for the most effective way for Toyota to move forward. A conflict such as this has the ability to paralyze productivity but if dealt with constructively and effectively, can present opportunities for learning and improvement. Companies such as Toyota that have a rigid corporate culture and a hierarchy of seniority are at risk of reacting to external threats slowly. It is not uncommon that individuals feel reluctant to pass bad news up the chain within a family company such as Toyota. Toyota’s board of directors is composed of 29 Japanese men, all of whom are Toyota insiders. As a result of its centralized power structure, authority is not generally delegated within the company; all U.S. executives are assigned a Japanese boss to mentor them, and no Toyota executive in the United States is authorized to issue a recall. Most information flow is one-way, back to Japan where decisions are made.

Will Toyota turn its recall into an opportunity for increased participation for its international manufacturers? Will decentralization and increased transparency occur? Only time will tell.

Based on information from Accelerating into trouble. (2010, February 11). Economist . Retrieved March 8, 2010, from http://www.economist.com/opinion/displaystory.cfm?story_id=15498249 ; Dickson, D. (2010, February 10). Toyota’s bumps began with race for growth. Washington Times , p. 1; Maynard, M., Tabuchi, H., Bradsher, K., & Parris, M. (2010, February 7). Toyota has a pattern of slow response on safety issues. New York Times , p. 1; Simon, B. (2010, February 24). LaHood voices concerns over Toyota culture. Financial Times . Retrieved March 10, 2010, from http://www.ft.com/cms/s/0/11708d7c-20d7-11df-b920-00144feab49a.html ; Werhane, P., & Moriarty, B. (2009). Moral imagination and management decision making. Business Roundtable Institute for Corporate Ethics . Retrieved April 30, 2010, from http://www.corporate-ethics.org/pdf/moral_imagination.pdf ; Atlman, A. (2010, February 24). Congress puts Toyota (and Toyoda) in the hot seat. Time . Retrieved March 11, 2010, from http://www.time.com/time/nation/article/0,8599,1967654,00.html .

Discussion Questions

• Do you think Toyota’s organizational structure and norms are explicitly formalized in rules, or do the norms seem to be more inherent in the culture of the organization?
• What are the pros and cons of Toyota’s structure?
• What elements of business would you suggest remain the same and what elements might need revising?
• What are the most important elements of Toyota’s organizational structure?

Organizational Behavior Copyright © 2017 by University of Minnesota is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

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BMW’s Organizational Structure (An Analysis)

BMW’s organizational structure represents business operations primarily in the automotive industry, although the company’s hierarchy and structural divisions also address the management of financial services and motorcycle manufacturing. The main support of this company structure is for automotive manufacturing, distribution, and sales. Nonetheless, as BMW’s mission and vision emphasize mobility and transportation products, the corporate structure ensures the strategic growth and development of all segments of the business. The company’s organizational design and structural characteristics influence business growth in the automotive industry. BMW’s organizational structure provides a backbone for implementing business growth strategies.

BMW (Bayerische Motoren Werke/Bavarian Motor Works) implements its competitive strategies with its organizational structure’s support for resources and processes. This business structure enables competence against competitors, including automakers, like Toyota , Tesla , Ford , and General Motors , as well as motorcycle manufacturers, like Harley-Davidson . This competition involves innovative technologies and marketing campaigns, as demonstrated in the Five Forces analysis of BMW . The company’s corporate structure helps keep the integrity of the automotive business organization despite competitive pressure.

Characteristics of BMW’s Structure

BMW’s organizational structure is designed to enable multinational business growth in automotive and motorcycle markets. The company’s structural characteristics support strategic management that buttresses business growth and development in these vehicle markets. The characteristics of BMW’s structure are:

• Departments for corporate functions
• Product segments
• Regional divisions

Departments for corporate functions indicate the global centralization of BMW’s organizational structure and its hierarchy. This structural characteristic allows managerial control that encompasses international operations in the automotive, motorcycle, and financial services markets. In this company structure, the corporate headquarters and their officers are responsible for directing BMW’s generic competitive strategy and intensive growth strategies for multinational operations. Also, human resource development approaches are designed based on communication channels, lines of authority and command, and business processes inherent in this automotive business structure. For example, the department for labor relations implements strategies and programs for BMW’s organizational culture (work culture) through leaders, groups, and teams in the corporate structure. The structural design ensures that the company’s culture is developed throughout the business and its human resources. The following are the departments for corporate functions in BMW’s structure:

• Office of the Chairman
• Customer, Brands & Sales
• People, Real Estate & Labor Relations
• Purchasing & Supplier Network
• Development

Product segments in BMW’s structure are based on the types of products that the company offers to its target markets. The business is known for its automobiles, but also manufactures motorcycles and provides financial services. The persistence and profitable operations of these segments depend on the effective use of business strengths, such as the company’s brands and other competitive advantages mentioned in the SWOT analysis of BMW . The following are the product segments in BMW’s organizational structure:

• Motorcycles
• Financial Services

Regional divisions in BMW’s company structure account for market differences. For example, the European and Asian markets differ in terms of customer preferences and expectations regarding cars and other vehicles. The geographic divisions of this corporate structure support BMW’s marketing mix (4P) involving strategies and tactics based on the characteristics of regional markets. Strategies for distribution and sales in regional and local automobile markets are fine-tuned through the regional divisions of this organizational structure. The following are the regional divisions in BMW’s business structure:

• Other regions

BMW’s Organizational Structure & Business Strategy

BMW’s structure continues improving to support and enable business strategies. The regional divisions in this organizational structure relate to the strategic factors influencing vehicle markets. For example, the performance of these divisions depends on how the industry trends examined in the PESTEL/PESTLE analysis of BMW influence market demand for different types of cars and motorcycles. Moreover, management decisions depend on the characteristics of the automotive and motorcycle business structure. For example, this company structure affects the goals and targets in BMW’s operations management , such as in productivity management, product design, quality management, job design, and layout design.

• Albert, D. (2023). What do you mean by organizational structure? Acknowledging and harmonizing differences and commonalities in three prominent perspectives. Journal of Organization Design , 1-11.
• BMW Group – Brands & Business Segments .
• BMW Group Leadership & Governance .
• BMW Group Report .
• Gandrita, D. M. (2023). Improving Strategic Planning: The Crucial Role of Enhancing Relationships between Management Levels. Administrative Sciences, 13 (10), 211.
• Muzzio, M. (2023). Imagined futures of the automotive industry stemming from uncertainty. Joule, 7 (6), 1099-1100.
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14.1: Organizational Structure: The Case of Toyota

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Toyota Motor Corporation (TYO: 7203) has often been referred to as the gold standard of the automotive industry. In the first quarter of 2007, Toyota (NYSE: TM) overtook General Motors Corporation in sales for the first time as the top automotive manufacturer in the world. Toyota reached success in part because of its exceptional reputation for quality and customer care. Despite the global recession and the tough economic times that American auto companies such as General Motors and Chrysler faced in 2009, Toyota enjoyed profits of $16.7 billion and sales growth of 6% that year. However, late 2009 and early 2010 witnessed Toyota’s recall of 8 million vehicles due to unintended acceleration. How could this happen to a company known for quality and structured to solve problems as soon as they arise? To examine this further, one has to understand about the Toyota Production System (TPS).

TPS is built on the principles of “just-in-time” production. In other words, raw materials and supplies are delivered to the assembly line exactly at the time they are to be used. This system has little room for slack resources, emphasizes the importance of efficiency on the part of employees, and minimizes wasted resources. TPS gives power to the employees on the front lines. Assembly line workers are empowered to pull a cord and stop the manufacturing line when they see a problem.

However, during the 1990s, Toyota began to experience rapid growth and expansion. With this success, the organization became more defensive and protective of information. Expansion strained resources across the organization and slowed response time. Toyota’s CEO, Akio Toyoda, the grandson of its founder, has conceded, “Quite frankly, I fear the pace at which we have grown may have been too quick.”

Vehicle recalls are not new to Toyota; after defects were found in the company’s Lexus model in 1989, Toyota created teams to solve the issues quickly, and in some cases the company went to customers’ homes to collect the cars. The question on many people’s minds is, how could a company whose success was built on its reputation for quality have had such failures? What is all the more puzzling is that brake problems in vehicles became apparent in 2009, but only after being confronted by United States transportation secretary Ray LaHood did Toyota begin issuing recalls in the United States. And during the early months of the crisis, Toyota’s top leaders were all but missing from public sight.

The organizational structure of Toyota may give us some insight into the handling of this crisis and ideas for the most effective way for Toyota to move forward. A conflict such as this has the ability to paralyze productivity but if dealt with constructively and effectively, can present opportunities for learning and improvement. Companies such as Toyota that have a rigid corporate culture and a hierarchy of seniority are at risk of reacting to external threats slowly. It is not uncommon that individuals feel reluctant to pass bad news up the chain within a family company such as Toyota. Toyota’s board of directors is composed of 29 Japanese men, all of whom are Toyota insiders. As a result of its centralized power structure, authority is not generally delegated within the company; all U.S. executives are assigned a Japanese boss to mentor them, and no Toyota executive in the United States is authorized to issue a recall. Most information flow is one-way, back to Japan where decisions are made.

Will Toyota turn its recall into an opportunity for increased participation for its international manufacturers? Will decentralization and increased transparency occur? Only time will tell.

Based on information from Accelerating into trouble. (2010, February 11). Economist . Retrieved March 8, 2010, from http://www.economist.com/opinion/displaystory.cfm?story_id=15498249 ; Dickson, D. (2010, February 10). Toyota’s bumps began with race for growth. Washington Times , p. 1; Maynard, M., Tabuchi, H., Bradsher, K., & Parris, M. (2010, February 7). Toyota has a pattern of slow response on safety issues. New York Times , p. 1; Simon, B. (2010, February 24). LaHood voices concerns over Toyota culture. Financial Times . Retrieved March 10, 2010, from http://www.ft.com/cms/s/0/11708d7c-20d7-11df-b920-00144feab49a.html ; Werhane, P., & Moriarty, B. (2009). Moral imagination and management decision making. Business Roundtable Institute for Corporate Ethics . Retrieved April 30, 2010, from www.corporate-ethics.org/pdf/...magination.pdf; Atlman, A. (2010, February 24). Congress puts Toyota (and Toyoda) in the hot seat. Time . Retrieved March 11, 2010, from www.time.com/time/nation/arti...967654,00.html.

Discussion Questions

• Do you think Toyota’s organizational structure and norms are explicitly formalized in rules, or do the norms seem to be more inherent in the culture of the organization?
• What are the pros and cons of Toyota’s structure?
• What elements of business would you suggest remain the same and what elements might need revising?
• What are the most important elements of Toyota’s organizational structure?