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Business Case Study: Toyota's Organizational Structure

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  • 0:00 Customer First, Quality First
  • 0:58 Centralized Decision Making
  • 1:42 Advantages & Disadvantages
  • 2:28 Production Problems
  • 3:24 Global Organizational…
  • 4:11 Lesson Summary
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Lesson Transcript
Instructor: Juan Bernal

Juan is a senior editor and media expert with over 25 years of experience executing the technical aspects of video production and post-production for Univision, NBC and more.

Toyota has long been praised for its efficiency and effectiveness, but there were some glitches in the early 21st century that caused the company to reexamine its organizational structure, which we'll explore in this lesson.

Customer First, Quality First

'Customer first, quality first' is the policy that drives Toyota. How is it that the company's able to make both the customer and quality a priority? Toyota would say the answer is in its organizational structure. A company's organizational structure describes how an organization accomplishes its goals, decides the tasks that need to be performed, and who makes the decisions.

Toyota's production system and its organizational structure had long been lauded as the most efficient and effective, which created a culture of excellence. They use what they call a just-in-time (JIT) production system, which means raw materials are delivered to the production facility just as they are needed. This level of production is possible because of Toyota's organizational structure, and that structure has undergone some significant changes since 2013. Let's look more closely at the organizational structure of the company before 2013, and then take a look at what has changed and why.

Centralized Decision Making

For most of its existence, Toyota's organizational structure was based on a traditional Japanese business hierarchy in which the most senior executives make all of the decisions for the entire organization. It is typified by little delegation of authority, and all information flows one way: from the top down. For example, executives in U.S. plants are closely monitored by a Japanese counterpart who makes sure the American executive is following structured protocols. This is called centralized decision making. While centralized decision making supports the business goals and strategies identified by the board of trustees, it also means that as a whole, the organization reacts slowly to external threats or internal weaknesses.

Advantages & Disadvantages

There are many advantages to having a centralized organizational structure. It stands to reason that if one group of people knows exactly what is happening in the facilities across the world, they can ensure that each factory has exactly what it needs when it needs it. Therefore, capacity to produce is used at its maximum efficiency. Other advantages of this type of structure include a global supply chain, a strong brand image, and the ability to put into play innovative concepts on multiple fronts.

The disadvantage to this type of organizational model is that such a strict hierarchical structure tends to promote secrecy; only the people at the top know what is going on. This can be hugely damaging when there are massive product recalls, such as what happened with Toyota in the late 2000s.

Production Problems

Historically, Toyota and its brand were synonymous with quality. In fact, in 1989 when there were problems with Toyota's Lexus lines, the cars were recalled and fixed efficiently, showing the customer first policy in action.

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