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Toyota vs. Ford: A Comprehensive Analysis on Business Performance in the US Market

Abstract

This report is intended to make a comprehensive analysis on the business performance of two automakers; Toyota and Ford. The business performance of the two companies is evaluated through success measures i.e. revenue and net profit. Further, the report went on to check which company has outperformed the other in the US market. In order to check this, the market share and the market capitalisation of both companies were calculated. In addition to that the reason for differences in both the companies was identified. It was noted that both the companies have different workplace practices. Toyota is using Kaizen philosophy whilst Ford is using Six Sigma philosophy. This report explains the theoretical relevance of both theories whilst analysing in depth how they are being implemented. The differences in practices of the companies are identified and it is recommended to Ford at the end of this report to incorporate the Kaizen philosophy at its workplace.

Introduction

Citizens from most of the older industrialised countries have become obsessed when Japanese cars started selling well. Vulnerability has replaced invincibility as the word many would use to describe once firmly established international companies. But this disquiet obscures the steady achievements a number of corporations have made against competition from companies based outside their countries (Hout, Porter, & Rudden, 1982). This globalisation has enabled many countries to enter into the era of industrial specialisation for the booming international trade. In this regard, the Japanese Automobile sector is viewed as one of the key influence and toughest competition to many Automobile manufacturers globally. One of such companies is Toyota, the world’s largest Automakers in 2016, that has provided a particularly tough competition to US Automaker Ford in its home country (Forbes, 2016).

Company Background

Toyota

Toyota Motor Corporation (TM.), a Japanese company, was established in 1937 by Kiichiro Toyota and can be located at its headquarters in Toyota City, Japan. Currently, it is producing the highest volume of cars in the world. In 1957, Toyota decided to enter the foreign market; it used exporting as a mode of entry into the United States. At present, it has entered into 170 countries and has established its manufacturing facilities in 28 countries around the world. Toyota entered into the US much later than the mainstream automakers of the US such as Ford Motor Company but it nevertheless became the world’s largest automaker (Toyota Motor Corporation, 2012).

Ford

Ford Motor Company, incorporated in 1903 by Henry Ford, has its headquarters in Dearborn, Michigan. Ford is a more traditional brand of vehicle which some may describe as trustworthy.  The operations of Ford include manufacturing and marketing lines of Ford cars, sport utility vehicles, trucks and Lincoln luxury vehicles. It has two major vehicle brands, Ford and Lincoln (Ford, 2015).

Success and Outperformance

This study attempts to differentiate between Toyota and Ford on the basis of success, analysing which organisation outperforms the other. In order to measure the success of the organisations, net revenue and net profit are calculated. The criteria to check which organisation has outperformed the other are taken as market share and a market capitalization of both the companies.

Market Share

In the United States Ford is the second largest automaker, however, in the global market it is the sixth largest according to its market share. The figure below depicts the market share of the 12 largest automakers in the US.

Toyota vs. Ford

Figure 1. Market Share of Auto Makers

Source: Schmitt (2016)

Figure 1 shows the market share of 10 automakers in 2015. It shows that Toyota has the highest market share of 11.7%, however, Ford has the fifth largest market share of 6.7% (Schmitt, 2016). Toyota, therefore, owns almost double the global market share of Ford, despite Ford being a major brand in North America.  A reason for this may be the popularity of the F-Series pickup trucks as well as other commercial vehicles which are a staple of Ford’s US market and which may be significantly less popular in the rest of the world.  In contrast, Toyota’s innovative technology appeals to the mass market.

Market Capitalisation

The market capitalisation of Toyota Motor is higher than the top automaker brands of the US such as General Motors and Ford.  In 2016 the market capitalisation of Toyota is $199.26billion, however, for Ford the market capitalisation figure is $49.23 billion (YCHARTS, 2017).  Again, a reason for this may be the target market of both companies in the US, with Ford capitalising on commercial vehicles.  There may also be a difference in profit margins for both companies in contrast to the volume of sales which each company achieves.

Net Revenue

The net revenue of Toyota is also higher than Ford; in 2016 the net revenue of Toyota was $252.8 billion however for Ford it was $151.8 billion (Nasdaq, 2017). It is important to note that Toyota trades in yen and so may have benefitted from sales in North America against the weakened yen.  As Toyota has outperformed Ford and is more successful than Ford, there is a need to analyse the practices that are used in the workplace of both the companies. The workplace practices of the organisations are most crucial in defining its success. Toyota utilises Kaizen philosophy whilst Ford uses Six-Sigma philosophy.

Theories of Managerial Implication

Six Sigma

The focus of Six Sigma is to meet the requirements of the customers. It attempts to improve customer retention and works towards enhancing and sustaining the products and services provided by the business. The main goal of Six Sigma is to improve the business process; it works towards avoiding the causes of error that creates defects into the product or service (Pyzdek & Keller, 2014).

Six-Sigma defines a statistical benchmark for measuring efficiency. It states that if the business process is able to achieve less than 3.4 defects per 1million, it is effective. It offers training programs and certifications to the participants; the training is responsible for educating regarding the core principles of Six Sigma (Harmon, 2010).

Methodologies of Six Sigma

Six-Sigma uses two main methodologies DIMAC and DMADV; each of this methodology consists of five sections. The methodology DMAIC is mainly used to improve the existing processes of the business. The acronym DMAIC stands for define, measure, analyse, improve and control (General Electric (GE), 2017).

Managerial Implications at Ford:  Six-Sigma

In the 1990’s the CEO of Ford, Jacques Nasser stressed that in order to achieve this mission customers should be intensely focused and their satisfaction should be made a high priority (Paton, 2017). In order to improve the customer satisfaction, Nasser knew that improvements were required at the bottom line. Thus, Ford turned to Six-Sigma in late 1999, particularly when the truck business of Ford started looking for ways to improve their quality (Jacobsen, 2011).

The Six-Sigma projects of Ford attempts to focus on three main benchmarks. The projects must result in driving customer satisfaction, they must reduce the flaws by 70 per cent and lastly the cost-saving achieved from each project should be on average $250,000. The projects are identified and then assigned by Ford then the Black Belts starts to work through DMAIC cycle (Henry Harvin Education, 2015).

The DMAIC cycle at Ford works as follows:

Define

Defining the customers is the first stage at Ford and once the customers are identified it is important to find what matters to them. The project goals are defined and a team is formed. Further, the time frame is also defined to accomplish the project and the gains that are to be achieved from the project. Some of the tools used by Ford are process mapping, process scope contract, CT matrix (WARDSAUTO, 2001).

Measure

Ford measures the current performance of the process in order to compare it with the desired process performance. The variables that may cause deviation in the process performance are also identified. Ford understands the process and how it may impact the customer, it also identifies which inputs may cause a huge impact on the outputs. Finally, it recognises the best practices that are required in performing the process. Some of the tools that are used at Ford are effect analysis, process mapping, and gage R&R etc. (Paton, 2016).

Analyse

In the third stage Ford make a priority list of the input variables that may affect the customer. They then move forward to analyse data in order to recognise the main cause of the problems and what opportunities there are for improvement. They change the input variables and check the degree of impact it has caused on the performance. The most common tools used at Ford are graphical techniques, hypothesis testing etc. (Ford Motor, 2016).

Improve

At this stage, Ford is ready to provide solutions to the problems defined and one best solution is chosen to address the main cause of the problem. The most common tools used at Ford are the design of experiments, optimisation etc. (Ford Motor, 2016).

Control

The last stage involves completing the control plan; this requires documenting the project and then decoding the identified opportunities across the whole organisation. Finally, systems and structure are made to implement the improvement. The most common tools used at Ford are poka yoke, statistical process control etc. (Bossert, 2015).

Kaizen

Kaizen is a management philosophy that aims to improve productivity as a steady and systematic process. Kaizen is a Japanese word that means “change for the better”. The Kaizen philosophy aims at eradicating waste and quality controls checks. It provides just-in-time delivery, a consistent workforce and efficient equipment usage.

The objective of Kaizen is to make improvements in the company; the improvement is generally conducted by making minor changes over a period of time. These minor changes can usually bring huge impacts in the future. The employees of the company have a free will to point out improvements, thus providing the whole organisations’ personnel with a stake in the success of the company. They all strive towards making the business a better model because their opinions and views count (Jakubiec & Brodnicka, 2016).

Managerial Implication at Toyota

Kaizen

Kaizen is the heart of Toyota Production System (TPS). TPS is defined as the expression of Toyota’s employees and the philosophy that revolves around the consumer (Spear, 2004). The Kaizen process at Toyota requires that all the operations and tasks of the organisation must be defined in a precise manner; whether the task is human or mechanical it must be standardised. Toyota believes that it would guarantee the highest quality and would also result in improving the efficiency and waste at production levels. Kaizen believes that the people who are closest to the process will be able to depict inefficiencies and the problems in the procedure (Jacobson, McCoin, Lescallette, & Slovis, 2009).

Toyota is continually working with its members and the team leaders to make day-to-improvements in the workplace practices and the equipment used at work process.

Conclusion

The Six Sigma methodology and Kaizen both have their pros and cons; however, the current management practices and process controls are complex which requires the combination of both the systems to work simultaneously. The “continuous improvement” notion of Kaizen methodology involves an inclusive culture within a workplace that ease the top-down communication on making strategic decisions for the company, whereas Six Sigma aims to optimise the business process by keeping a keen eye at each stage to manufacture the final product with zero errors. The Japanese orientation towards Kaizen has actually enabled them to be a perfectionist in all the production industries they entered into, and it translated into better, affordable and durable products for the end consumer. Toyota is now positioned as one of the best automobile makers globally that have outperformed against competition in many foreign markets by incorporating Kaizen and continually improving its internal processes. Kaizen is indeed a strategically better methodology for process optimisations, immediate action items and quality controls to ensure an error-free product to the consumer along with an inclusive learning approach within the workplace.  However, there are some benefits to the utilisation of Six Sigma such as attempting to reduce costs, increase productivity and competitiveness although in my opinion Kaizen methodology provides faster results and better efficiency (Erturk at al., 2016).

It is submitted that whilst Kaizen provides Toyota with better workplace practices, there is more than just one factor contributing to the success of Toyota in comparison with Ford.  Whilst Kaizen certainly helps improve the business performance and success of Toyota, other factors including branding, promotions, marketing, target markets, investment and innovative technology all play a part in making Toyota become the successful company it is today.

 

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