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Toyota and Southwest Airlines Success Stories

Introduction

Some companies prevail over their competitors. Businesses are aware it is not a matter of luck, but success in business organizations is a product of many factors, the most important of which is careful and honest planning and implementation of company strategies.

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Strategic management is the work of the CEO or the head of the company. Sometimes s/he is called the strategist – who works the plans and sees the implementation of the plan.

One aspect of strategic management is dealing with change. Change is a part of business, and along with strategic management, it has to be dealt with, and often should the manager look into it. By being successful in coping with change, management becomes successful in business.

Strategic management addresses change in business, issues on strategic developments, and changes in organizations. This involves cross-functional decisions for the organization to achieve long-term objectives.

The Newsletter from Management Intelligence, by Edward de Bono and Robert Heller dated 18 January 2009, says:

“The true change manager starts with redefining the purposes of the organization in the light of fully analyzed external change. Next, come the internal changes required if those purposes are to be met. Then you tackle the people, starting at the top. Will they or won’t they wholeheartedly accept the new purposes and internal reforms? If they won’t or can’t.”

Company management should have one department look out for and guard change. You call it the change management department. That is a part of strategic management.

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It is in this context that this paper will study two industries with their success stories, Toyota and Southwest Airlines. Their brands of strategic management have helped them catapult to business success. They are unique in dealing with people, circumstances, and most especially change.

Objectives of the Study

This study will delve into the many aspects of strategic management, strategic operations, and other relevant factors involving success in business. A great portion is dedicated to research on strategic management, discussion, and case study of successful strategic management for a company.

Moreover, we have selected two successful companies which have prevailed over their competitors despite the odds. Toyota Motors and Southwest Airlines are models in their implementation of strategic management, despite the very competitive world of transportation – the car and airline industries.

Toyota has been successful in many ways. The background of the company is provided; and to briefly say, this was just a small company struggling amidst the difficulties of penetrating the global market. Now, it is a successful business, a threat to the other automakers especially the U.S. companies. This is a success story when it comes to strategic management. Toyota has maintained the lead and will continue to do so with its excellent strategic management.

On the other hand, Southwest Airlines has a brand of management that is unique in the airline industry. Their particular brand of management, especially their customer care and service, is one aspect that other airlines should emulate.

Background

This portion deals with the definition and other important aspects of strategic management.

David (1989) states that strategic management is a combination of art, science, and craft all for formulating, implementing, and evaluating those functions.

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The activities involved in strategic management are the formulation of the organization’s mission, providing emphasis and explanation on external factors like competition, customers, technology, and regulation; formulation and development of competitive strategies to achieve the organization’s mission; creation of a structure employing all possible resources for the success of the formulated strategies; and activities for improvement. All these activities require thorough planning and study by the top echelon including the middle- and low-level managers.

Managers need to know where their roles fit in relation to the whole and how they can contribute to strategic developments and changes (Thompson, 2005, p. 1).

Great corporate strategies come from strong planning and formulation, then implementation, which includes high-quality products and services, strong market positions in attractive industries, and an efficient administrative organization (Collis and Montgomery, 1998, p. 4).

Success in business depends on the strategies that are enforced or to be followed up in the field by ordinary employees or the middle- and low-level managers. They have to be effective, constantly changed and studied, and given a step-by-step procedure in its implementation. The strategies are the energy and lifeblood running through the veins and functions of the organization. Strategies should be given the most and best priority in the operations.

Companies succeed if their strategies are appropriate for the circumstances they face, feasible in respect of their resources, skills, and capabilities, and desirable to their important stakeholders those individuals and groups, both internal and external, who have a stake in and an influence over the business (Thompson, 2005, p. 8).

Management has to assess every situational aspect affecting business and proceed to analyze the strengths and weaknesses of the company. The strategist can get to the causes creating the strengths and weaknesses and identify the company’s posture as to where it stands against the barriers.

Strategic management should have a plan of action to include:

  1. positioning the company so that its capabilities provide the best defense against the competitive force; and/or
  2. influencing the balance of the forces through strategic moves, thereby improving the company’s position; and/or
  3. anticipating shifts in the factors underlying the forces and responding to them with the hope of exploiting change by choosing a strategy appropriate for the new competitive balance before opponents recognize it. (Porter, 1998, pp. 34-35).

Formulating a strategy is similar to a battlefield where one builds defenses and fight against the enemy, this time against competitors in business. This can be effective when the company strategy is able to identify its strengths and weaknesses. It is almost similar to any other competition.

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Knowledge of the company’s capabilities and of the causes of the competitive forces will highlight the areas where the company should confront competition and where to avoid it (Porter, 1998, p. 35).

The ordinary employees and those working in the fields, in the frontier, are the ones who know best the strengths and weaknesses of the company. They should be consulted and have a part in the strategic planning for effective strategic management. The low-level employees act as liaison officers of the organization, sort of. Whatever they do can affect the organization. Moreover, they have to be consulted in any decision-making process of the organization. Ignoring their capabilities is something like ignoring members of a family. The organization should let them feel they are a part of a team, that they own the business. By letting them feel they are a part of the organization, they will do everything for the success of the business.

Employees have to be encouraged and given resources to do their job and manage themselves. They have to oversee their processes and set their strategy. Employees should not be managed. This means they must be given freedom and space in their work, allowing them to be “little managers” in the process. By letting them free, they become creative. If management dictates everything, chances are the employees will become like robots, and they don’t care if the business is successful or not. Employees should feel responsible for their actions.

Literature Review

“The flame of competition has changed from smokey yellow to intense white heat. For companies to survive and prosper they will have to have a vision, a mission, and a strategy. They will pursue the action arising from that strategy with entrepreneurial skill and total dedication and commitment to win.” (Peter B Ellwood, Chief Executive, Lloyds TSB Group, cited in Thompson, 2005, p. 7)

The quote above is something a manager pursuing strategic management should think about. The emphasis is on vision, mission, and strategy – these three go together. Running a business is running an organization, and no matter how small or no matter how big, everything and every activity should be carefully planned and thought of properly, considering all the aligning factors and activities in the course of the operations. Vision is seeing beyond the horizon; mission is looking after people who are the employees and customers, and strategy is how to deal with people, circumstances, and everything.

We can also compare strategic management and strategy formulation to preparing to cook delicious food; we need a recipe. A successful recipe needs exact and careful study, and of course experience. Strategy for business starts at the beginning, along with the vision, mission statement, and so forth. Strategy is building a technique. You plan for work and the ways to handle future problems along the way. Unsuccessful operations result from careless strategic planning and management.

We have two case studies for successful strategic management: Toyota Motors and Southwest Airlines, global organizations on top of the others.

Toyota’s Strategic Management

Toyota Motors is one of the leading automakers of the world, with many branches worldwide, and is a threat to other giant U.S. automakers like Ford, GM, and Chrysler which are struggling in the present worldwide economic meltdown. Toyota has been able to compete with large competitors because of effective strategic management coupled with an effective, efficient, and competitive workforce. Their strategies involve innovations in production, marketing, sales and promotions, and branding.

In the 1950s Toyota was only a small company, averaging 18,000 vehicles per year. As years went by, the management introduced the so-called Toyota Production System. This system introduced a means of achieving mass production efficiencies with small production volumes (Lynch, 2008, p. 772).

Toyota expanded to become export-oriented and began to open manufacturing plants in many countries including the United States, operating in the same strategy. Taiichi Ohno, the chief engineer then, started experimenting to improve production. Along with a determined workforce, he introduced the kaizen and kanban concept of production. Kaizen means “continual improvement” in Japanese. Toyota’s engineers invented this approach to their operations wherein some stages are cut or shortened to save time and provide flexibility (Gourlay, 1994, p7, cited in Lynch, 2008, p. 773).

Research and development are not to be forgotten. Toyota used to research and development in its design stage and came out with combining parts to be produced in one process rather than two. Moreover, the kanban system was used to signal employees when to order or replenish parts or products. The process used colored cards specially designed to give notice to employees on the products’ availability.

The layout strategy provided for cellular layout arrangements of plant machinery rather than ‘linear layouts for production lines’ which allowed workers to operate a number of machines and let them work in teams to provide layout (Lynch, 2008, p. 773).

A US-trained manager also responsible for Toyota’s success was Shotaro Kimaya. He headed a separate marketing company that sold Toyota products. Kimaya introduced many marketing innovations in the company during the 1960s and 1970s. Kimaya and Ohno made the company successful in Japan. They set up dealer networks, cheap financing for customers, and a strong and dedicated salesforce. Export of cars and products was begun and by the 1970s “40 percent of all production was being sold outside Japan, especially in the US” (Lynch, 2008, p. 772).

Lexus is a Toyota subsidiary and part of the luxury segment of Toyota. This is a branding strategy where “the quality and finish on such car[s] are high and the profit margins substantial” (Lynch, 2008, p. 770). It introduced the Prius, a hybrid power vehicle whose engine can work out with petrol and electricity.

The Toyota Production System with its flexible production methods proved effective because Toyota was able to feel the gains when it was still struggling as a small company. Lynch (2008) emphasizes that “it took many years for Taiichi Ohno to develop kaizen and kanban, and to have them adopted across the company” (p. 772).

But, indeed, their objectives were beginning to materialize. The continual improvement concept is, in fact, continuing and commendable. The company went international (global) and established manufacturing plants in many countries including the United States. The continuing improvement is also being implemented and worked out by an effective and loyal workforce composed of expert engineers and technicians. Toyota maintained this workforce, making sure they would remain in the company for a longer period even during the economic crisis.

The strategy of establishing a separate company to sell Toyota products is an innovative and ingenious move in that it propelled Toyota to market leadership. Nowadays, Toyota parts are still the reliable parts car owners buy, and sometimes they use these as substitute components for their cars which are not even Toyota.

Moreover, the question is – in the present global economic crisis, will this still work out? Some of the strategies are already in effect and effective. During the time of its beginning and expansion, they were effective, and there was suitability. Other innovations also were for an increase of market share: dealer networks, cheap car finance for customers, and a strongly dedicated salesforce. Toyota also outsources products. Through outsourcing and a good relationship with its suppliers through an effective communication network via the internet and Information Technology, the company is able to minimize surplus inventory and lower the cost of parts and products.

Toyota penetrated the US market and in the 1980s, it was beginning to grow, with the American company Ford struggling because of “shoddy quality, seat-of-the-pants engineering, manufacturing rework, poor reliability [that] its operating losses totaled $3.26 billion” (Grubb and Lamb, 2000, p. 58). Toyota and General Motors took hold of the opportunity and joined forces by reopening GM’s Fremont, California, assembly plant, posing a threat to Ford in the U.S. market. It was also a strategy, on the part of Toyota, to learn how efficient American workers could become under Toyota’s finely tuned management system (Grubb and Lamb, 2000, p. 58).

The automotive industry is much affected by the global financial crisis as a result of the financial collapse on Wall Street. It is widely said that there will be a big reduction of jobs, and more and more employees in industries and manufacturing plants will be laid off. GM got help from the government. But Toyota has remained in the limelight selling the same branded cars and hybrid cars to the American public – without help from the outside. Its strategic management is in place.

Likewise, Toyota has built its reputation throughout many countries. It can survive politically, and cannot just be a small company to be taken out of competition. It has already remained a threat to other companies. In its headquarters in Japan, Toyota is a brand and an institution. In the United States, competitors are scampering for ways to counter its strategies.

General Motors, Ford and Chrysler, and the other American automakers are finding it hard against Japanese automakers which have penetrated the American market. With the global economic crisis, surely they may turn to do something to make situations harder for Toyota, although this may be remote.

Environmental forces will have to be dealt with, but Toyota has survived through the years. Its programs, strategies, and plans for the future are as strong as ever. The past can build a future for Toyota. Its management is institutionalized as well as the personalities behind the founding and operations.

Toyota production has reduced materials detrimental to the environment. Their vehicles and components are sourced using the U.S. and globally sourced parts. They also see to it that their manufacturing plants are environmentally friendly.

Strategic management played a great role in Toyota’s successes. Its strength is its operational and production strategies and the people behind the system. Its workforce is composed of well-trained engineers and technicians who are trained inside not outside the company thereby maintaining their unique way of building cars. Toyota believes in training its own workforce and not in the university or from other outside sources. Toyota also does not believe in firing employees. As much as possible they maintain their employees in times of crisis, although there are times that downsizing cannot be totally eradicated. Its history is a colorful history of events that started from a simple shop up to the time it went global. Its name alone is its strength.

The Toyota leadership model: “Never fail to reward merit, but never let a fault go unremarked.” (Edward de Bono & Robert Heller’s Thinking Managers, 2006).

Southwest Airlines’ Brand of Management

Southwest Airlines is a genuine American success story. At Southwest Airlines, they “motivate our people crazy about the company they work for, make them extremely enthusiastic about what they do, being intensely involved, even obsessed about providing legendary customer service, making fanatically committed to a cause” (Freiberg & Freiberg, 1998, p. 3).

The employees are well motivated into making their own decisions and doing things that are not ordinary. They hug, kiss, cry, or do comical things, which make customers laugh and enjoy while they are flying. This is another unique brand of customer service, a kind of company strategy making it on top of all the others.

Kevin and Jackie Freiberg (1998) say of Southwest Airlines: “The company has been praised for its leadership and customer service in over a dozen business bestsellers. Management gurus like Tom Peters bring their clients to observe Southwest because they are intrigued with this wacky airline’s way of doing business” (p. 4).

From 1990 to 1994, the airline industry was losing but Southwest was profitable each during the period and was the only airline to earn a profit every year since 1973. The airline also maintains a considerable amount of debt and uses internally generated funds, making it not to worry too much about outside debts.

Findings and Analysis

“Only passions, great passions, can elevate the soul to great things.” French philosopher Denis Diderot

Managing a business or organization must be motivated in high spirits. This is true with managing and leading people. Motivating people and making them in high spirits can be done at the same time.

By following examples of some great managers and leaders, we can have more creative and innovative employees: for example, Daryl R. Conner (cited in Firth, 2002), the undisputed guru of the change management movement, consultant of such giants as Mobil Oil, JC Penney, Pepsi-Cola, and Levi-Strauss, to name a few. Conner’s stance is that what sets winners apart from others is “human resilience” and that the basic characteristics of resilient people are that they:

“Display a sense of security and self-assurance that is based on their view of life as complex but filled with opportunity (positive).

Have a clear vision of what they want to achieve (focused).

Demonstrate special pliability when responding to uncertainty (flexible).

Develop structured approaches to managing ambiguity (organized).

Engage change rather than defend against it (proactive).” (Firth, 2002, p. 74)

Management can make an organization more competitive by avoiding trendy management programs. Southwest Airlines avoid formal documented strategic planning. This means by just letting the managers and employees be creative in the process of delivering services to the customers, a business can become competitive and attractive to the public.

“If you treat employees as if they make a difference to the company, they will make a difference to the company… At the heart of this unique business model is a simple idea: satisfied employees create satisfied customers” (www.sas.com, quoted in Firth 2002, p. 63).

Other businesses like Ernst & Young value their employees so much they forget their customers because the philosophy is that by valuing your employees, you value the customers. Other companies also follow this principle: value your employees more than your customers. To put it in another way: put more importance more to the needs of your employees.

Conclusion

We have discussed in this paper the various ways and methods, aspects, and problem-solving situations on strategic management. Some other subjects involved strategic management and operations of two model companies from two industries: Toyota Motors of the very competitive car industry, and Southwest Airlines. Their strategic management have unique ways of dealing with their operations, their products and services, and employees. These areas of business are so important that dealing with them correctly will lead the company to greater heights and successes.

References

  1. Edward de Bono & Robert Heller’s Thinking Managers, 2006. Toyota Management.
  2. Edward de Bono and Robert Heller Newsletter, Management Intelligence (2009).
  3. Collis, D. and Montgomery, C. (1998). Creating Corporate Advantage. In Harvard Business Review on Corporate Strategy. U.S. A.: Harvard Business Press
  4. David, F. (1989). Strategic Management. Columbus: Merrill Publishing Company.
  5. Firth, D. (2002). Life and Work Express. United Kingdom: Capstone Publishing.
  6. Gourlay, J. (1994). ‘Back to basics on the factory floor’, Financial Times, p. 7, cited in Lynch, 2008.
  7. Grubb, T. and Lamb, R. (2000). Capitalize on merger chaos. New York: Simon & Schuster, Inc.
  8. Jones, D. (2007). Profits from The Lean Business Model. In: Editor Robert Heller’s The Thinking CEO. Web. 
  9. Lynch, R. (2008). Global Automotive Vehicle – Strategy in a Mature Market and Toyota: What is its Strategy for World Leadership. In Strategic Management, 5th edition (Financial Times/ Prentice Hall), pp. 767-775.
  10. Nathan, R. (2009). US economy gets worse. In: Money/Inquirer Columns.
  11. Porter, M. E. (1998). On Competition. United States of America: Harvard Business Review. pp. 21-23.
  12. Sunday Times (2006). Interview: Andrew Davidson: Full Marks for Stuart Rose. In: Times Online.
  13. Thompson, J. with Martin, F., 2005. Strategic Management: Awareness and Change. UK: Cengage Learning.
  14. Toyota (2009). Where we started. Web.

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