Toyota orgenizational structure

The project objective is to investigate the impact of the centralized system in Toyota. Toyota's centralized organization structure hinders informational sharing that contributes to miscommunication

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Executive Summary

Toyota firm has overtaken the general motor cooperation in sales, and it has become
the first automotive manufacturer globally, taking the gold standard of automobile title in the
industry. The firm has managed to expand its operation due to its customer care and quality.
However, it faced a challenge in 2007 due to its organizational management structure, the firm
uses a centralized system that has various challenges such as inflexibility on decision making,
limited communication, bureaucratic leadership, lack of employee loyalty, and stifled
creativity. To solve these findings, the review recommends the firm obtaining a decentralized
managerial system.

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Table of Contents
Executive Summary ...................................................................................................................... 1
1. Introduction .......................................................................................................................... 3
2. Project objectives .................................................................................................................. 3
3. Change objectives and principles ............................................................................................ 4
3.1 Change of management........................................................................................................ 4
3.2 Change plan elements .......................................................................................................... 5
3.3 Rationale for change ............................................................................................................ 6
3.4 Appropriate measures to monitor progress ............................................................................ 6
4. Recommendations ................................................................................................................. 7
5. Conclusion.......................................................................................................................... 11
References ................................................................................................................................. 12

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Toyota Organizational Structure
1. Introduction
Toyota cooperation was founded in 1926 by Sikacho Toyoda to sell and manufacture
automatic looms that he had invented. Since then, the company has promoted diversification,
and it has expanded its operations in different scopes such as electronics, handling equipment,
automobiles, and textile machines. However, in 2009 and 2010, the firm faced quality issues
as 8 million automobiles had unintended acceleration issues (Chikudate and Alpaslan, 2018, p.
32). The issue was based on their just-in-time approach in production, where the supplies and
raw materials are assembled in line at the same time there are to be used. A minor issue with
the system would result in a massive mess in mass production. Analysing this problem will
provide insight into structural, organizational issues in Toyota and design the appropriate
management strategies.
2. Project objectives

The project objective is to investigate the impact of the centralized system in Toyota.
Toyota's centralized organization structure hinders informational sharing that contributes to
miscommunication. The organizational structure makes the management large and complex,
making it a challenge for easy flow of information. For instance, the Asia branch is responsible
for engineering and manufacturing possesses the core operations functions; in case there is an
issue, the manager has to undergo the hierarchy system (Gentile, Torres, and Paul, 2020, p.
1090). The project will enable us to identify if the centralized system is what resulted to the
damages of 2010.

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3. Change objectives and principles
Based on the Toyota analysis, the change process aims to ensure the following:
a. Toyota management acquires balance and shift of great authority and control.
b. The management structure gives power to the subordinate managers in exercising
any decision-making power.
c. The new organizational structure responds to customers complaints in a fast
manner.

3.1 Change of management
Toyota uses a centralized system in its organizational structure, leading to operational and
management issues. In 2008. The firm chose 30 directors to work as the board of directors,
including senior managing directors and the management board (Chikudate and Alpaslan,
2018, p. 34). They were perceived as the highest authority and were responsible for supervision
and communication with the staff members that were under them to facilitate the day-to-day
activities. The arrangement was that the senior managers could connect the operational and
management unit in achieving and solving departmental issues. The organizational structure
also included an international advisory board that comprised oversee advisors who aimed in
advising the management from a global perceptive (Choi and Lee, 2018, p. 9). They were
responsible for approximately 238 subsidiaries in the automotive segment globally, which are
all viewed as a single business entity. The influence of this is that no subsidiary is viewed on a
separate management division, whether the subsidiary is domestic or global. However, Toyota
has set its regional headquarters in Asia, Europe, and North America, which are responsible
for the business entity.
Toyota management system facilitates the managing officers to monitor and supervise the
operations in which they report to the senior managing directors, who are then to review and

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provide feedback (Sun and Shi, 2019, p. 14). Due to such issues of the centralized system,
Toyota fails to have the ability to respond to the crisis when it is first brought up. If
informational sharing was quick, the managers in the different subsidiaries can recognize and
manage the warnings before they turn into a crisis.
3.2 Change plan elements
Toyota's centralized organizational structure delays time to respond to fuelling criticism
that Toyota is unresponsive to their customers. The global hierarchy of Toyota has its main
headquarters in Japan that is concerned with undertaking major decisions (Monden & Talbot,
2019, p. 8). It leaves the individual subsidiaries having no authority to communicate with each
other as the structure discourages indirect horizontal communication. Indirect horizontal
communication is communication between levels of the department. Toyota's centralized
system is set in a way that subsidiary A has no communication with subsidiary B.
In addition, Toyota’s centralized management encourages bureaucracy. The
organizational structure is set in a strict hierarchical structure that promotes secrecy in which
only the people at the top know what goes on. Toyota practices bureaucracy as the authority
delegate’s tasks according to the regulations and rules (Liker, 2019, p. 373). The senior
managers hold the authority to make policies that bind every subsidiary. The structure gives
little power to the subordinate managers in exercising any decision-making power as the
concept of legitimacy lies within the senior managers.
The bureaucracy ensures there is compliance and accountability, but it has some
challenges. Firstly, it does not allow additional competency within the subsidiaries (Liker,
2019, p. 374). For instance, when customers complain about the various issues, the subordinate
managers have no authority in rectifying the issue until they are instructed from the top
management. Secondly, bureaucracy does not improve productivity. It creates many
regulations and policies that the workers need to follow, limiting the potentiality of employees.

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For instance, a worker cannot act on independent decision making outside the set rules without
permission reducing the employee's motivation. Lastly, it reduces the opportunity to adapt to
changing circumstances quickly. Toyota's centralized system emphasizes that activities are
undertaken based on the rules. When the crisis occurred, it took time for Toyota to address it
as there were new rules and regulations to be drafted that would apply to all the subsidiaries.

3.3 Rationale for change

The centralized system in Toyota has led to imbalance and shift of great authority and
control. Toyota centralized its operation in Japan to maximize its results and decision-making
structure in marketing, communication, designing, and development. However, the system
lacks output and behaviour control. The bureaucratic control of decision-making authority
delegated to the employee's limits their actions of operation through the set rules, records, and
procedures
In addition, Toyota organizational structure discourages subsidiary managers from
knowing how other departments are operating, and they only had to take their grievances to the
senior managers. By the time the headquarters realizes that all subsidiaries have similar
challenges and take actions, it is already late. The delayed time to respond can be based on the
challenges of the remote control where the senior management is under tremendous pressure
to formulate decisions for the crisis. Toyota has 30 senior managers with 238 subsidiaries,
enabling poorly implementation of tasks as they lack the capacity to oversee the
implementation (Chikudate and Alpaslan, 2018, p. 35). It resulted in approximately 48.8
million federal fines during the crisis.
3.4 Appropriate measures to monitor progress

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To monitor the change the firm will use management by objective indicator. It is a model
that aims in improving the firm’s performance by clearly defining is objectives that is agreed
by the employees and management. The model facilitates goal settings and action plans and
encourages commitment and participation among the employees. It will monitor progress by
comparing the actual performance and achievements defined by the objective. In our case our
objectives is to ensure a less bureaucratic leadership, a balance and shift of great authority and
control, and consumer satisfaction.
4. Recommendations
For Toyota to avoid such a crisis, it is recommended that the firm adopt a decentralized
management approach. A decentralized system is a type of organizational structure that
delegates its decision making to low-level employees and managers. It provides more authority
and power to lower-level staff to make decisions (Ma et al., 2019, P. 5836) In this structure,
there is more control and a lot of bottom flow of ideas, decisions, and comments concerning
the operations of the firm as the employees act quicker in decisions and problem solving to
have a situation under control. To adopt this, Toyota will be required to follow an innovation
strategy and will have to lose structures of hierarchy management, policy, and formalization.
From a management perceptive, decentralized management will require relieving the
senior management from its responsibility of decision making for all the subsidiaries. As a
result, it will expand its decision making to employees and subordinate members, which will
facilitate growth, a high level of decisions, better control of operations, flexibility, ease of
expansion, work specialization, and human resource development (Kotter, 2001, p. 21). This
is because decentralization management takes some of the responsibilities from the senior
management and transfers them to the lower levels of the organization.
When managers allow others to decide the firm's daily operations, it allows the superior
management to spend resources and time on more serious issues such as focusing on

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operational strategies, making high-level decisions, meeting important consumers, and
planning for developing the firm. For this reason, an employee can make a decision and react
quickly to a situation that requires quick actions and decisions, making a difference in customer
services. For instance, in the Toyota crisis, the employees and subordinate managers did not
have the authority to deal with the situation as they had to wait for the senior manager's
decisions (Choi and Lee, 2018, p. 11). The customers felt neglected as the firm took time to
handle the situation. The decentralized management eliminates this as it allows employees to
perform their duties under maximum potential, which also promotes the sense of competition,
enabling growth.
By Toyota adopting the decentralized organizational structure, there will be flexibility
within the management enabling quick decision making. To achieve this, Toyota will be
required to break down the regional silo structure in that each region makes its independent
decisions (Sun and Shi, 2019, p. 15). For instance, if the North American subsidiary had an
issue, it should be able to handle its own crisis as it is in a better situation of identifying the
relative solutions. For this reason, Toyota should consider appointing chief executives who are
responsible for the regional functionality organization. However, since this might be a dramatic
move, the firm can take advantage of the already existing system where the subordinate
managers have the authority to make decisions, but they will be required to report to the senior
managers. The process will establish an additional cross-silo process and organize the decision-
making teams around the firm (Thummalapalli, 2019, p. 22). Toyota will be creating a flexible
environment for the lower-level employees and managers to interpret different conditions as it
will allow them to make timely and suitable decisions that build competitive strategies.
In addition, Toyota adopting the decentralized management system enables the firm to
eliminate related bureaucratic issues. In the decentralized structure, employees have the
freedom to work and take actions based on their decisions in which they are held responsible

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for the actions within the firm, allowing them to be more cautious (Thummalapalli, 2019, p.
24). The disadvantage of bureaucracy is that only the top management knew what was going
on within the firm. However, this is changed on the decentralized structure acting as a motiving
factor. Every employee within the structure, from the top management to employees, shares
the decision-making process making free flow for information empowering the employees
(Thummalapalli, 2019, p. 25). However, it still upholds different levels of autonomy and
delegations that allow proper team working among the employees. For instance, there are
decisions that the employees can not undertake as it is above their scope; this condition allows
the managers and employees to work together towards achieving the firms' goals.
In addition, the decentralized organization structure will eliminate bureaucratic
management through the delegation and supervisor supporting system. In a decentralized
system, the senior management monitors the subordinate manager and employee performance
of the delegated task and responsibilities. The senior management provides a supportive
relationship under this structure through sharing information showing tangible cooperation and
assistance. It allows creating a safe working environment as they are closer to the actual
operations and can easily identify and solve employees' security and safety concerns.
According to Situmorang, Mukhtar and Yasin (2020, p. 14), a decentralized system, the
employees are 50% more efficient in terms of job satisfaction and 20% in of job performance.
It is a result of the manager and employee's close relationship, which motivates the employees
to be creative and demonstrate high performance (Kotter, 2012). The structure empowers
employees through developing initiative among the subordinates, which allows them to
develop managerial talent facilitates effective marketing and quick decision making.
A decentralized system improves the skills of the employees by providing them with
different tasks to perform independently. It also empowers them by allowing them to undertake
independent and fast decisions, which is suitable as the subordinate managers are constantly in

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touch with the operations within the branches and are in direct contact with the customers. If
the subordinate managers had the authority to deal with customers, they would feel empowered
enhancing self-reliance and confidence among the employees.
Moreover, the decentralized organizational structure strengthens communication. The
Toyota crisis was mainly a result of a lack of communication within the firm due to the
centralized system. The broader scope of decentralized management is that the hierarchy is
minimal, which increases the effectiveness of communication as there is a close relationship
between the senior and subordinate management (Suh, 2019, p. 35). For instance, a
decentralized system implies that there is a delegation of lower and middle subordinated in the
decision making in everyday operations. The wide span of the management under this
organizational structure enables the communication system to be more efficient as there is an
intimate relationship between the subordinate and superior (Harvard Business review on
Change Management, 2011, p. 12). It will also allow strengthening the communication
channels within the global scope. For instance, in a decentralized system, during the reporting
of safety issues, the senior management will not oversee the safety issues in all the regions.
The new decentralized structure allows delegation of the task where the managers of the
branches are in charge of their own reports. As a result, managers within the global regions
will each have its report improving the channels of communication between regional
operations.
Furthermore, decentralized management allows a balance of control within the
organization and innovative behaviour. A decentralized system provides an opportunity for the
employees at each level to develop their expertise and skills while the senior managers are
aware on the capacity and actual potential, enabling them to have control in the operations. It
also allows a balance of control as power, fiscal resources, and responsibilities are redistributed
between the different organizational levels and the different regions. For instance, the senior

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managers can decide to partially transfer functionality to the front managers. By doing this,
they can focus on other issues and functionality.
The decentralization structure can also balance control through horizontal diffusion.
Horizontal diffusion is a movement of authority from the senior managers who are the central
management to the supervision sector. Considering that Toyota has 238 branches with only 30
senior managers it can be overwhelming for the senior managers to move their authority
through the hierarchy (Chikudate and Alpaslan, 2018, p. 36). Horizontal decentralization is
recommendable to Toyota management as it does not allow the senior managers to delegate
some designs to the subordinate managers as they have a better understanding of the operations
undergoing in the respective branches by doing so, considers the senior and subordinate
managers as equal players and the operating system divide work and align strategies that
overarch decisions among themselves enhancing a balance of control in the organization
structure.
5. Conclusion
In conclusion, the centralized organizational structure resulted in the Toyota crisis. The
centralized structure hindered informational sharing that contributed to miscommunication.
The structure also delayed time to respond to fuelling criticism that Toyota was unresponsive
to customers and encouraged bureaucracy. The bureaucracy caused employees' incompetency
and led to imbalance and shift of great authority and control. To solve the issues caused by
centralization, Toyota should adopt a decentralized management structure. The structure
delegates its decision making to low-level employees and managers. It provides more authority
and power to lower-level staff to make decisions. In this structure, there is more control and a
lot of bottom flow of ideas, decisions, and comments. The structure will eliminate bureaucracy
as it allows a balance of control as there is redistribution of power, fiscal resources, and
responsibilities. It will also facilitate flexibility within the management enabling quick decision

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making and open communication. Hence, Toyota should adopt a decentralized system to avoid
another crisis.
References
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perspectives on international business .
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Choi, J. and Lee, S., 2018. Lessons from a crisis: An analysis of Toyota's handling of the recall
crisis. Journal of Public Affairs , 18(2), p.e1688.
https://onlinelibrary.wiley.com/doi/abs/10.1002/pa.1688
Gentile-Lüdecke, S., Torres de Oliveira, R. and Paul, J., 2020. Does organizational structure
facilitate inbound and outbound open innovation in SMEs? Small Business Economics,
55(4), pp.1091-1112. https://eprints.qut.edu.au/129101/19/129101.pdf
Harvard Business review on Change Management, 2011 12 HBR Authors • Harvard Business
School Press –ISBN 0-87584-884-4
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corpu.com/pluginfile.php/40733/mod_folder/content/0/E-Book-DIR/HBR-10-Must-
Reads-on-Change.pdf#page=6
Kotter, J.P., 2001. What leaders really do. In Leadership perspectives (pp. 7-15). Routledge.
https://www.academia.edu/download/53857339/HBRs_10_Must_Reads_on_Leadership_
2011.pdf#page=26
Liker, J.K., 2019. Three crises for Toyota. In Operations Management for Business Excellence pp.
371-376. Routledge.
https://www.taylorfrancis.com/chapters/edit/10.4324/9780367135997-12/three-crises-
toyota-jeffrey-liker

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Ma, Z., Zhang, J., Guo, Y., Liu, Y., Liu, X. and He, W., 2020. An efficient decentralized key
management mechanism for VANET with block chain. IEEE Transactions on Vehicular
Technology, 69(6), pp.5836-5849. https://ieeexplore.ieee.org/abstract/document/8990046/
Monden, Y. and Talbot, B., 2019. The Toyota management system: linking the seven key functional
areas. Routledge. https://doi.org/10.4324/9780203735350
Situmorang, O., Mukhtar, M. and Yasin, M., 2020. The Effect of Organizational Structure, Work
Motivation and Decision Making on Vendor’s Employee performance at Automotive
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Japanese Operations Management and Strategy, 9(1), pp.34-47.
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Thummalapalli, U.S., 2019. The Influence of Green Supply Chain Management on the
Competitive Advantage: Case of Japanese Auto Manufacturing Company (Toyota).
Unpublished Research for the Degree of Master of Business Administration, Ritsumeikan
Asia Pacific University, Japan.
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