Japanese car companies like Toyota and Honda Motor Company are pioneering the auto industries truly global manufacturing system
Japanese car companies like Toyota and Honda Motor Company are pioneering the auto industries truly global manufacturing system
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Case 1:
Want to be More Efficient, Spread Risk, and Learn and Innovate at the same Time? Try Building a “World Car”
Japanese car companies like Toyota and Honda Motor Company are pioneering the auto industries truly global manufacturing system. The companies aim is to perfect a cars design and production in one place and then churn out thousands of “world” cars each year that can be made in one place and sold worldwide. In an industry where the cost of tailoring car models to different markets can run into billions of dollars, the “world car” approach of Toyota and Honda – and which Ford is hoping to emulate – is targeted at sharply curtailing development costs, maximizing the use of assembly plants, and preserving the assembly line efficiencies that are a hallmark of the Japanese “learn” production system.
As for Honda, the goal is to create a “global base of complementary supply,” says Roger Lambert, Honda’s manager of corporate communications. “Japan can supply North America and Europe, North America can supply Japan and Europe, and Europe can supply Japan and the United States. So far, the first two are true. This means that you can more profitably utilize your production bases and talents.”
The strategy of shipping components and fully assembled products from the U.S. to Europe and Japan couldn’t have come at a more opportune time for the Japanese car companies, especially when political pressures are intense to reduce the Japanese trade surplus with the United States. The task was made easier due to the strength of the Japanese yen, which has risen about 50 percent against the U.S. dollar. That has made production of cars in the United States cheaper, by some estimates, by $2500 to $3000 per car. That saving more than compensates for the transportation costs for a car overseas. For the first time, Toyota is creating a system that will give it the capability to manage the car production levels in Japan and the United States. It is moving toward a global manufacturing system that will enable it to enhance manufacturing efficiency by fine-tuning global production levels on a quarterly basis in response to economic conditions in different markets.
Questions:
- Discuss the strategies implemented by Toyota and Honda to achieve greater efficiency in car production.
- How do the automobile companies plan to simultaneously manage risk and gain efficiencies?
- Discuss how the car companies use national differences to gain a strategic advantage in the global car industry.
Case 2: Can Little Fish Swim in a Big Pond? Strategic Alliance with a Big Fish
Globalization and the Internet have created unprecedented opportunities for small and medium-sized businesses in Canada – an environment where competition is fierce. To take advantage of these opportunities, while avoiding some of the competitive obstacles often faced by the little fish in the big ocean, many of these businesses are forming partnerships or, more precisely, strategic alliances.
“There are various advantages to forming strategic alliances,” says Estelle Metayer, president of Montreal-based Competia Inc., a leading competitive intelligence and strategic planning company and publisher of Competia Online. “One is the ability to penetrate markets that would be too costly to develop on your own. For example, if you form an alliance with an America partner who can take on your products and distribute them through their network, you could save a lot of money on the marketing side.” Another big advantage comes from joining forces with a business that can provide your enterprise with access to expensive technology you might not be able to afford otherwise.
Management-based strategic alliances are also advantageous, Ms. Metayer says. “Often, smaller companies don’t have big management teams. So if they need someone who has a certain expertise, but they really can’t afford to hire such a person, then they can form an alliance with a company that has that management expertise.”
Forming an alliance with a larger company is sometimes the only way to have access to the type of capital and resources they need to be able to grow, says Gary Shiff, a partner at the Toronto-based law firm Blake, Cassels & Graydon LLP. “For example, we have a client, a very small company of two people, and the only way it could get its product into the marketplace was to establish an alliance with a large company, which it did. The large company will give them a large sum of money. In return, our client will give up a lot of its equity – it will only own 30% or 40% -- but over time, if the product is successful, our client can repurchase some of that equity,” Mr. Shiff says.
Strategic alliances also benefit the big companies. “With large corporations, one of the problems often is the inability to move quickly, because of bureaucracy and more complicated internal politics. Smaller companies are able to react more quickly to changes in the marketplace. So from both parties perspectives, it serves their needs,” he says.
Although the concept of a strategic alliance can sound so appealing to a struggling small business that they might be tempted to run out and get one, experts warn businesses should not rush into partnerships, especially if another company comes courting.
“As a small company, we get five or six requests for alliances a week from companies I don’t know anything about, and suddenly they want to form an alliance. So my advice is not to rush into an alliance. You have to be proactive,” Ms. Metayer warns.
The first step is to examine your business and determine what gaps need to be filled. “Say I’m a small company that is in textile products and I’m finding that to penetrate the U.S. market, I need to be very close to a furniture manufacturer, since they are the ones who will use my textiles. I might want to build an alliance with a big player in the U.S. , and thus be able to penetrate the large distribution channels.”
Once need is determined, the search for a partner can begin. “Alliances don’t work when you don’t know each other well,” Ms. Metayer says. Thorough research of a potential partner is critical. Check out a potential partner’s current viability, look into the company’s management style to see if it is compatible with yours, contact former partners, current and past clients and suppliers. “The way a company treats its suppliers can be indicative of how they will treat their partner.”
She also suggests a small business position itself as a client of a potential partner, to experience how the candidate treats its clients. Even after thorough research, do not rush into an alliance, she says. “Do a project together, for example, work together so you can really see if it works before you go on a larger scale. You also need to make sure legally you have a very tight agreement, in particular one that allows the alliance to dissolve easily. If it doesn’t work, you need to make sure you’ve planned for that.”
Besides legal advice, businesses entering into an alliance should seek out professional accounting advice, Mr. Shiff says. “A strategic alliance will have tax implications, and those tax issues need to be addressed right at the beginning.”
While rushing into an alliance can court a nasty breakup, choosing a partner that is so similar it could be a competitor is courting disaster, Ms. Metayer and Mr. Shiff concur.
“Go back to the example of the textile business—if you build an alliance with someone who builds the frames for the chairs, you’re never going to compete. But if you form an alliance with someone in the U.S. who also makes upholstery textile, eventually one or the other is going to say, ‘hey, I can do this by myself,’” Ms. Metayer says. The last thing any company needs is a rival who has intimate knowledge of its internal operations.
Questions:
- Why would small companies want to form alliances with much bigger companies?
- What risks do small companies face in forming such alliances?
- Discuss how a company should approach the opportunity to form an alliance with another company.
Case 3: The new Organizational Structure of Sumitomo Mitsui Financial Group
Sumitomo Mitsui Banking Corporation [SMBC] announced its plan for the organization structure of Sumitomo Mitsui Financial Group (SMFG), the holding company, which will be established on December 2, 2002. It also announced its plan for the reorganization of SMBC’s head office, which will become effective on December 2, 2002.
SMFG will be responsible for corporate strategy and management, resource allocation, financial accounting, investor relations, IT strategy, nomination of executives, risk management and audit of the group as a whole with ten departments as follows: Public Relation Department, Corporate Planning Department, Investor Relations Department, Financial Accounting Department, Subsidiaries & Affiliates Department, IT Planning Department, General Affairs Department, Human Resources Department, Corporate Risk Management Department and Audit Department. The Risk Management Committee, Compensation Committee, and Nominating Committee will be established within the Board of Directors and be responsible for supervising the operations of the Group as a whole. Regarding the Organizational Revision of SMBC, the following changes will be instituted:
An Asset Restructuring Unit will be established and the following departments will be integrated into the Unit in order to focus further on reengineering and restructuring of SMBC’s corporate customers businesses. This realignment will accelerate the improvement in the SMBC’s loan portfolio in advance of the implementations of the New Basel Accord:
(a) Credit Administration Department (Transferred from Corporate Service Unit)
(b) Credit Department I and II (Transferred from Middle Market Banking Unit)
(c) Credit Department II and III (Transferred from Corporate Banking Unit)
Talented staff with essential know-how for corporate revitalization, such as securization, debt-equity swaps, and DIP (Debtor in Possession) finances, and those with accounting and legal expertise from throughout SMBC will be gathered under the Planning Department of the Asset Restructuring Unit in order to strengthen SMBC’s commitment to rengineering and restructuring of its corporate customers’ businesses.
Regarding the reorganization of Existing Departments, in the Corporate Staff Unit, the Investor Relations Department of SMBC will be abolished and the Investor Relations Department of SMFG will have a comprehensive responsibility for the Group’s investor relations activities. The Portfolio Management Department, Market Risk Management Department, and Kobe General Affairs Department will be abolished and functions of these departments will be transferred and consolidated into their related departments. The Equity Portfolio Management Department will be placed under the Financial Accounting Department. In the Corporate Service Unit, the Operations Planning Department will be reorganized to reflect the completion of adjustment and integration of operational processes after the merger. The International Market Operations Department and Settlement & Clearing Services Department within the Operating Planning Department will be abolished and a new department, Operations and Administration Department, will be responsible for managing the Group’s operational subsidiaries.
The E-Business Planning Department will be integrated into the Electronic Commerce Banking Department along with the Investment Banking Unit’s e-Business, Media and Telecom Department, and the e-Business Patent Department will be abolished and some of its functions will be transferred to the Corporate Staff Unit’s Legal Department. In the Internal Audit Unit, the Audit Department and Inspection Department will be merged and become Audit Department, and the planning function of the Group’s entire Audit Department will be transferred to SMFG. The Audit Departments for the Americas and for Europe will be integrated as part of the Internal Audit Department and Credit Review Department, strengthening their functions.
In the Consumer Banking Unit, the Products & Marketing Department will be reorganized into the following three departments: Financial Consulting Department (responsible for advisory businesses for investment products such as mutual funds, foreign currencies deposit; and insurance); Consumer Loan Department (responsible for businesses such as housing loans); and Consumer Finance Department (responsible for business such as personal loans, personal short-term deposits, and settlement).
In the Middle Market Banking Unit, the Kobe Public Institutions Banking Department will be integrated into the Public Institutions Banking Department in order to unify and fortify the promotion of business to the public institution market. The Credit Department I and Credit Department II, in charge of credit monitoring in the eastern region of Japan, will be merged to form a new Credit Department I, and the Credit Department III, in charge of the western region, will be renamed Credit Department. The Operations & Systems Department will be abolished and certain functions will be transferred to the Branch Operations Department of the Consumer Banking Unit. The Business Reengineering Department and New Business Promotion Department within the Business Promotion Department will be abolished and the Business Promotion Department will become directly responsible for their functions.
In the International Banking Unit, the Asia Pacific Department will be abolished and its planning and administrative functions concerning office operations in Asia will be transferred to the Planning Department. The Operations & Systems Department will be reorganized and become Systems Department. In the Investment Banking Unit, the Syndications Department will be integrated into the Securitization & Syndication Department. Certain functions of the Securitization & Syndication Department will be transferred to a new department. Structured Finance Department, which will be established to promote business such as project finance, real estate finance, lease finance, insurance finance, and management/ leverage-buy-out finance. The Asset Management Planning Department will be abolished and its functions for defined contribution pension funds will be transferred to the Corporate Employees Promotion Department of the Consumer Banking Unit.
Japanese car companies like Toyota and Honda Motor Company are pioneering the auto industries truly global manufacturing system
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| Japanese car companies like Toyota and Honda Motor Company are pioneering the auto industries truly global manufacturing system |
Questions:
1. Why is Sumitomo Mitsui Banking Corporation changing its organization structure?
2. What type of structure is Sumitomo Mitsui Banking Corporation implementing? What are the main characteristics of the design?
3. In your opinion, does the proposed structure fit with the global environment in which the company is operating? Why or why not?
Case 4 conflict Resolution for Contrasting Cultures
An American sales manager of a large Japanese manufacturing firm in the United States sold a multi-million-dollar order to an American customer. The order was to be filled by headquarters in Tokyo. The customer requested some changes to the product’s standard specifications and a specified dead-line for delivery.
Because the firm had never made a sale to this American customer before, the sales manager was eager to provide good service and on-time delivery. To ensure a coordinated response, she organized a strategic planning session of the key division managers, that would be involve in processing the order. She sent a copy of the meeting agenda to each participant. In attendance were the sales manager, for other Americans, three Japanese managers, the Japanese heads of finance and customer support, and the Japanese liaison to Tokyo headquarters. The three Japanese managers had been in the United States for less than two years.
The hour meeting included a brainstorming session to discuss strategies for dealing with the customer’s requests, a discussion of possible timelines, and the next steps each manager would take. The American managers dominated, participating actively in the session and discussion. They proposed a timeline and an action plan. In contrast, the Japanese managers said little, except to talk among themselves in Japanese. When the sales manager asked for their opinion about the Americans’ proposed plan, two of the Japanese managers said they needed more time to think about it. The other one looked down, sucked air through his teeth, and said, “It may be difficult in Japan.”
Concerned about the lack of participation from the Japanese but eager to process the customer’s order, the sales manager sent all meeting participants an e-mail with the American managers’ proposal and a request for feedback. She said frankly that she felt some of the managers hadn’t participated much in the meeting, and she was clear about the need for timely action. She said if she didn’t hear from them within a week, she’d assume consensus and follow the recommended actions of the Americans.
A week passed without any input from the Japanese managers. Satisfied that she had consensus, she proceeded. She faxed the specifications and deadline to headquarters in Tokyo and requested that the order to be given priority attention. After a week without any response, she sent another fax asking headquarters to confirm that it could fill the order. The reply came the next day: “Thank you for the proposal. We are currently considering your request.”
Time passed, while the customer asked repeatedly about the order’s status. The only response she could give was that there wasn’t any information yet. Concerned, she sent another fax to Tokyo in which she outlined the specifications and timeline as requested by the customer. She reminded the headquarters liaison of the order’s size and said the deal might fall through if she didn’t receive confirmation immediately. In addition, she asked the liaison to see whether he could determine what was causing the delay. Three days later, he told her that there was some resistance to the proposal and that it would be difficult to meet the deadline.
When informed, the customer gave the sales manager a one-week extension but said that another supplier was being considered. Frantic, she again asked the Japanese liaison to intercede. Her bonus and division’s profit margin rested on the success of this sale. As before, the reply from Tokyo was that it would be “difficult” to meet the customer’s demands so quickly and that the sales manager should please ask the customer to be patient.
They lost the contract. Infuriated, the sales manager went to the subsidiary’s Japanese president, explained what happened, and complained about the lack of commitment from headquarters and Japanese colleagues in the United States. The president said he shared her disappointment but that there were things she didn’t understand about the subsidiary’s relationship with headquarters. The liaison had informed the president that headquarters refused her order because it had committed most of its output for the next few months to a customer in Japan.
Enraged, the sales manager asked the president how she was supposed to attract customers when the Americans in the subsidiary were getting no support from the Japanese and were being treated like second-class citizens by headquarters. Why, she asked, wasn’t she told that Tokyo was committed to other customers?
She said: “The Japanese are too slow in making decisions. By the time they get everyone on board in Japan, the U.S. customer has gone elsewhere. This whole mess started because the Japanese don’t participate in meetings. We invite and they just sit and talk to each other in Japanese. Are they hiding something? I never know what they're thinking, and it drives me crazy when they say things like ‘It is difficult’ or when they suck air through their teeth.
“It doesn’t help that they never respond to my written messages. Don’t these guys ever read their e-mail? I sent that e-mail out immediately after the meeting so they would have plenty of time to react. I wonder whether they are really committed to our sales mission or putting me off. They seem more concerned about how we interact than about actually solving the problem. There’s clearly some sort of Japanese information network that I’m not part of. I feel as if I work in a vacuum, and it makes me look foolish to customers. The Japanese are too confident in the superiority of their product over the competition and too conservative to react swiftly to the needs of the market. I know that headquarters react more quickly to similar request from their big customers in Japan, so it makes me and our customers feel as if we aren’t an important market.”
Said the U.S.-based Japanese: “The American salespeople are impatient. They treat everything as though it is an emergency and never plan ahead. They call meetings at the last minute and expect people to come ready to solve a problem about which they know nothing in advance. It seems the Americans don’t want our feedback; they talk so fast and use too much slang.
“By the time we understood what they are taking about in the meeting, they were off on a different subject. So, we gave up trying to participate. The meeting leader said something about time-lines, but we weren't sure what she wanted. So, we just agreed so as not to hold up the meeting. How can they expect us to be serious about participating in their brainstorming session? It is nothing more than guessing in public; it is irresponsible.
“The Americans also rely too much on written communication. They sent us too many memos and too much e-mail. They seem content to sit in their offices creating a lot of paperwork without knowing how people will react. They are so cut-and-dried about business and do not care what others think. They talk a lot about making fast decisions, but they do not seem to be concerned if it is the right decision. That is not responsible, nor does it show consideration for the whole group.
“They have the same inconsiderate attitude toward headquarters. They send faxes demanding swift action, without knowing the obstacles headquarters has to overcome, such as request from many customers around the world that have to be analyzed. The real problem is that there is no loyalty from our U.S. customers. They leave one supplier for another based solely on price and turnaround time. Why should we commit to them if they aren’t ready to commit to us? Also, we are concerned that the sales force has not worked hard enough to make customers understand our commitment to them.”
Questions:
1. How are the managers of the Japanese manufacturing firm different from the American managers in the way they approach conflict resolution and decision making?
2. Why do the Japanese consider the Americans managers impatient?
3. What would you do to increase the amount of cooperation between the two parties?
4. Why did the Japanese not respond to the e-mails and written messages from the Americans?
Case 5 All Eyes On the Corner Office
After more than a decade at the head of Siemens, the icon of German industry, Chief Executive Heinrich von Pierer is something of an icon himself.
In 2003, his name was floated briefly as a candidate for the German presidency. After years of investor criticism that he moved too slowly to transform the $93 billion electronics conglomerate into a global competitor, von Pierer is getting the last laugh. While competitors such as Netherlands-based Philips Group suffered losses during the recent economic downturn, Siemens remained profitable. The share price had doubled over the past year, to almost $87 on the New York Stock Exchange. “He has done good work,” allows shareholder advocate Daniela Bergdolt, a Munich lawyer who once told von Pierer at a stockholders’ meeting that he should leave the company.
Now Bergdolt is worried about what will happen when von Pierer does just that. The 63-year-od executive’s contract expires in September. He is widely expected to accept a two-year extension, but the question of who will succeed one of Germany’s most important executives is fast becoming a hot topic in Germany—and elsewhere in Europe, where a new generation of CEOs is fast taking over. The race to succeed von Pierer, in fact, has already started in earnest. Von Pierer and Siemens supervisory board members are now closely watching a handful of candidates. Front-runners include former U.S. division chief Klaus Kleinfeld and Thomas Ganswindt, who runs the fixed-line telecom equipment business.
The oddmakers currently favor 46-year-old Kleinfeld. Last November, he was promoted to the seven-member central committee of the management board in recognition for his work as CEO of Siemens’ $20 billion U.S. operations from January, 2002, until December, a post seen as good training for the top slot. Like Siemens worldwide, the U.S. operations are a collection of fiefdoms that often need to be strong-armed into cooperating. But there are other credible candidates, including 47-year-old Johannes Feldmayer, another central committee member.
Whoever prevails, a new generation of managers is already moving into Siemens’ top echelons. In just a year, the average age of top management has fallen from 58 to 53, J.P. Morgan Chase & Co. calculates. While rising fortysomethings won't foment revolution at consensus-driven Siemens, they are likely to speed the company’s shift away from its conservative German roots. The new managers will focus more intensely on profit, move faster to unload underperforming units, and shift more production to cheaper locations abroad. “Obviously, von Pierer will be a tough act to follow,” says Henning Gebhardt, head of German equities at DWS, the fund management arm at Deutsche Bank. “But after 10 years, sometimes a change at the top is good.” von Pierer wrought mighty changes, even if his slow-but-steady pace didn’t always satisfy investors. When he took over in 1992, Siemens relied heavily on government contracts, rarely disciplined managers who delivered poor results, and employed 61% of its workforce in high-wage Germany. Transparency? The company published no profit figures for its divisions, and often even employees didn’t know if their units were making money.
POLITICIAN’S TOUCH. Now Siemens gives detailed company and divisional results quarterly and has sacked numerous underperforming managers. Net return on sales has risen from 2.4% in 1993, the year after von Pierer took charge, to 4% in the latest quarter. Von Pierer responded to criticism that Siemens, which makes everything from locomotives to X-ray machines, had too many moving parts. He spun off dozens of units, including chipmaker Infineon Technologies and the electronic components unit known as Epcos. Now, 60% of employees work outside Germany and the domestic workforce has been cut by a third, to 167,000. Von Pierer, an engineer with a politician’s touch, managed that without provoking extensive labor unrest—no small feat in a land where layoffs are deemed unpatriotic.
The new generation of managers, though, is likely to be more willing to bust heads. Consider the way Ganswindt turned around the company’s $8.9 billion Information & Communication Networks division. He cut the workforce by nearly 40%, or 20,000 workers, to reduce costs by $4.4 billion. He shifted production to Brazil and China. From a loss of nearly $865 million in the fiscal year that ended Sept. 30, 2002, ICN returned to a profit of $64 million in the last quarter.
Despite the improvements, Siemens still gets heat for mediocre margins. Ganswindt and the other young managers are sensitive to the criticism. “You can't innovate if you don’t have money to invest,” he says.
Rising managers will also continue pushing the engineer-dominated company to focus more on customer’s needs. They will maintain Siemens’ steady drive to globalize—not only by investing in Asia and the Americas but also by importing non-German ways of doing business back to Munich.
There is no question, however, of Siemens transforming itself into something other than a German company. “A new CEO will mean change, but I don’t expect a radical departure from the existing philosophy and strategy,” says analyst Roland Pitz of HVB Group in Munich. The fear is that some company directors will try to keep things too German. The supervisory board could name a lower-profile candidate such as Kurt-Ludwig Gutberlet, head of BSH Bosch & Siemens Household Appliances, a profitable joint venture with Stuttgart-based Robert Bosch. “It could be someone who is not the strongest but has the strongest consensus among the gray heads,” says a source who works closely with Siemens. Still, it’s clear that at Siemens, gray heads are becoming ever more scarce.
Questions:
1. What leadership skills have contributed to the success of the incumbent CEO, Heinrich Von Pierer? Describe his leadership style.
2. Siemens faces challenges in the global marketplace. The company will likely require a different leadership style than Von Pierer’s to face these challenges. What style would you recommend to Siemens?
3. Why would the age of the leader be an important consideration in a global company? Would it be important in your consideration of the candidates for CEO of Siemens? Why?
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