Fit between Human Resource Policies and Business Strategies of Toyota

This essay analyzes the fit between Toyota's HR policies and business strategies, discussing the company's competitive position and specific contexts.

Running head: HUMAN RESOURCE MANAGEMENT
A Critical Analysis: Fit between Human Resource Policies and Business Strategies of Toyota
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Introduction
Human resource management (HRM) on a broader aspect creates employment solution
for a company and design best practices to influence its practices. HRM is popularly known for
recruiting the people and designing policies to govern their practices, and aligned to the
organisational goals and objectives (Noe et al. 2017). Indeed, this task is very challenging and
cannot be made to happen without a sufficient support from the management. The support will
obviously be needed to implement these practices, and establishing a fit between these policies
and the company’s business strategies. According to the “Best-fit Approach”, which is in line
with the “Contingency Theory”, HR strategies should be in-line with the context of the
organisation. ‘Best fit’ can be considered in terms of alignment or vertical integration between
the HR state and organisations’ business (Croonen, Grünhagen and Wollan 2016). Based on this
perspective, it can be said that a discussion on HR list of policies would not only be sufficient to
analyse a fit between HR policies and the company’s business strategies. Instead, this would also
require discussing about the organisations’ competitive position and its specific contexts.
Toyota Motor Corporation has been chosen for this essay with intend to analyse a fit
between the company’s HRM choice of policies and its business strategies. This essay also
investigates whether there is any gap between the HRM list of policies and business practices.
The study concludes a fit between the Toyota’s human resources choice of policy and its
business strategy. However, the company should know how to differentiate cultural diversity
from shared values.
The essay first discusses or gives the business overview followed by a business strategy
analysis of the company. It then follows a situation analysis of the Toyota Company. Human
resource strategy analysis then precedes it. It is being followed by discussing the fit between the
company’s HR list of policies and its business-level strategies. This study ends up with the
identification of any gaps and further implications, and the concluding section.
An overview of Toyota
Toyota as of 2018 is the sixth largest company in the world in terms of revenue
(Global.toyota 2019). As of 2017, Toyota is the world’s second largest automotive manufacturer
(Toyota-global.com 2019). Toyota leads the global list of automotive companies in terms of

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selling hybrid electric vehicles (Toyota-global.com 2019). There are few reasons behind the
company’s success. Toyota instead of responding to quarterly business reports and the trends
aims to attain sustainability. One of the best examples is Prius hybrid, which produced a good
response to the world’s growing concerns for fuel economy and gas prices (Toyota-global.com
2019). The speediness to produce cars faster than its competitors makes it an unmatchable
automotive company. However, the speediness never comes at the cost of poor market research
and stakeholders’ agreement on the product (Toyota-global.com 2019). An open-mind that helps
Toyota to adapt to the culture of the country wherever it operates. For an example, Toyota was
able to meet the American customers’ preferences of cars better than Detroit automakers
(Toyota-global.com 2019). Toyota’s “continuous improvement’ is remarkable. The automaker
follows a philosophy to eliminate the waste and be agile in terms of producing quality and
valuable cars (Global.toyota 2019). Toyota prefers teamwork over individual stars. The plant
manager has no separate parking zone in the company. The executive level officers are not
considered as bigger than the customers, the company and the product (Global.toyota 2019).
An Analysis of Toyota’s Business Strategy
According to Porter’s Generic Strategies, business strategy can be classified broadly into
three categories such as “Cost leadership”, “Differentiation” and “Focus” (Lotayif 2016).
Toyota’s generic strategy is to minimise the production cost and thereby attain cost leadership.
Hence, the business strategy of Toyota is “Cost leadership’. The company is able to do so with
the help of just-in-time (JIT) manufacturing method. This is also known as Toyota Production
System (TPS) (Monden 2018).
Toyota Production System (TPS) is a set of tools and principles, which are used to boost
the production efficiency and to continually work on reducing the time consumed to produce the
cars. These tools include but are not limited to understanding the process with value stream
mapping, BVA, CVA, NVA, KaiKaKu, Kaizen, Flow, Kanban, A3, 5S, just in time, 5 whys and
many others (Monden 2018). Such a huge set of tools and principles is followed under one
company. This is truly worth discussing whether the company is actually able to use all these
tools appropriately. Indeed, Toyota’s production system is hugely efficient. They know it well
how to use these tools and principles when needed. They are able to drive their production
system with a method popularly known as one-piece flow (Japan Management Association

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2018). This means avoiding tasks being in a state of “Work-in-Progress”. Indeed, only one item
is allowed to be on queue (Japan Management Association 2018). While there can be some pros
and cons of the one-piece flow approach; however, it still has many positivity to offer. Toyota
with this approach is able to complete the tasks on-time leading to reduced utilisation of
resources and enhanced efficiency to meet the market demands. The Toyota Production System
(TPS) was later on adopted by other companies as well. Boeing learnt about how to apply TPS to
take care of its airplane manufacturing process. ‘737’ probably presents the best example of such
a move from Boeing (Rüttimann and Stöckli 2016).
These pieces of information indicate that Toyota is able to implement these tools in
practice. Undoubtedly, the efficiency to use such a huge amount of tools is because of Toyota’s
people. Toyota appears to have the people who align their practices with the organisational goals
and objectives. Many credits go to the HR personnel of Toyota Company who have a good
understanding of the company’s culture and accordingly design their recruitment process. They
recruit people only those who are skilled and possess a working culture as preferred by the
company. Toyota’s human resources also have policies in place to safeguard its employees from
potential losses and exhaustion. Indeed, Toyota never blames an individual for performance
failure but the entire system. This helps them improve their system failure (Toyota-global.com
2019). Toyota with its effective business strategy and tools has have huge business success in the
United States of America (Hbr.org 2019). It has growing opportunities from economic growth in
developing nations as its customers mainly belong to the mid-scale market and also that wealth
gap in these nations is still on a higher side as compared to developed nations (Mahmoodi and
Mahmoodi 2016).
Situational analysis
In this section of the study, PESTEL and SWOT model have been selected. The findings
of these analysis will help to identify the business environment where Toyota operates.
Moreover, a relationship between the HRM choice of policy and the Toyota’s business strategy
could be established.
SWOT analysis
Strengths  Global supply chain

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 Strong brand image
 Rapid innovation capabilities
Weaknesses  The organisational structure, which is
hierarchical
 Product recalls
 Less transparent organisational culture
Opportunities  Growing developments of emerging
markets
 Weak Japanese Yen vs. U.S. Dollar
 Growing demands for fuel-efficient
automobiles
 Growing interest in advanced models
of electric cars
Threats  Rapid innovation from its competitors
 Increasingly growing market presence
of the low-cost competitors
Table 1: SWOT analysis of Toyota
(Source: Sisson and Elshennawy 2015)
With a resilient global supply chain Toyota is able to minimise risks and attain efficiency
in product delivery. A sync between the human resources choice of policy and business strategy
helps Toyota achieve this feat. One of such policies is “Work Systems”. The work systems is
aligned to lean practice leading to a lean working environment. This removes unnecessary part
and keep only the valuable part of the systems. Under the work systems, the human resources
personnel arrange extensive training on diverse skills to help employees adapt to the work
culture in Toyota. Those who are not fit for the process, and carry negative and unchangeable
attitude are removed. This is how the HRM personnel does the filtration of the workforce and
retain only the skilled employee (Sisson and Elshennawy 2015).
The company has one of the strongest brand image in the world. This will help furthering
its intensive growth strategy with minimum risks. The hierarchical organisational structure is
never considered good for an effective inter-organisational communication. Product recalls can

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be an indication towards its decreasing efficiency in technological advancement. Growing
markets in developing countries can provide a boost to its revenue. Rising demand for fuel-
efficient cars and electric cars is an opportunity considering that the company is already a
leading name in producing the hybrid vehicles. Weak Japanese Yen vs. U.S. Dollar can be
capitalised through increased exporting of Japan-based manufactured cars. Growing market
presence of many other low-cost competitors can be a threat to Toyota. Rapid innovation from its
competitors can also cause worries to the company.
PESTEL analysis
Political  Toyota enjoys political stability in
most major markets
 It also enjoys free trade agreements in
Japan and many other countries
 Toyota is a world leading automotive
manufacturer for hybrid vehicles.
Indeed, ecofriendly cars are growing
to popularity
Economic  Weaker Yen vs. U.S. Dollar
(opportunity)
 A gradual growth of the U.S. economy
(opportunity)
 Rapid and continuous growth of
developing countries (opportunity)
Social  A growing demands for hybrid cars
(opportunity)
 Similarly, increasing consumers’
interest in electric cars (opportunity)
 A widening wealth gap (threat)
Technological  Growing popularity and usage of e-
commerce (opportunity)
 Cybercrime (threat)

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 The growing usage of smartphones
(opportunity)
Environmental  Climate change (opportunity)
 A growing global concern on business
sustainability (opportunity)
 Declining oil reserves at the
international level (opportunity)
Legal  The intellectual property laws is
getting improved (opportunity)
 Increasingly complex nature of
consumer laws (opportunity)
 Increasingly complexity of
environmental laws (opportunity)
Table 2: PESTEL analysis of Toyota
(Source: Rüttimann and Stöckli 2016)
The political stability in major markets is an opportunity for Toyota as it can facilitate its
growth strategy with minimum political impact on it. Free trade agreements in Japan and many
other countries is an opportunity for improved market penetration. The global governmental
supports for ecofriendly products is an opportunity for the company to promote the production of
such products. In context to the political dimension of Toyota’s PESTEL analysis, the company
has opportunities from the external political factors.
The weaker Japanese Yen is an opportunity for Toyota to increase the exports of its
Japan-based manufactured cars. The company has potential growth opportunities in the United
States of America, which is the second largest market for the company after Japan. An
increasingly growing development of emerging nations is also an opportunity to increase
Toyota’s market shares in these nations. Hence, the external economic factors mainly present
business opportunities to Toyota.
Toyota has the opportunity to satisfy the growing consumers’ preferences of hybrid and
electric vehicles. However, the widening wealth gap could be a threat to Toyota. This will result
in a declining middle class, which is the main source of revenue for the company. Hence, in

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context to the Toyota’s social external factor, widening wealth gap could be a major concern for
the company.
Toyota has the opportunity in form of its e-commerce capability. The company can also
collaborate with the third party e-commerce service providers for selling some of its products
like spare parts. Toyota can work on its mobile app to enhance customer engagement and
improve customer loyalty. The company should address the cybercrime threat especially the
corporate cyber-espionage. Hence, in regards to technological external factor Toyota should be
aware of the cybercrime threat.
Toyota has opportunities to provide more environment friendly products like electric
cars. By increasing its business process efficiency the company can improve its sustainability
performance. Hence, the external environmental factors mainly present opportunities to Toyota.
Toyota has the opportunity to prosper its growth strategy with reduced concern for
infringement of its intellectual property rights. It is because the global governments is working
on improving the intellectual property protection. Toyota has opportunities to produce the
products that do not violate the environmental laws and consumer laws. Hence, external legal
factors present opportunities to the firm.
An analysis of Human Resources Strategy of Toyota
The human resource strategy of Toyota can be analysed by using the “Harvard Human
Resource System”. This framework can be applied to analyse the four major areas of HRM.
These are “Work systems’, “Rewards”, “Human resource flow’ and “Employee influence”
(Matsuo 2015).
Work systems
The work environment in Toyota is lean. They do it by communicating the values and
including these in their performance management system. The work environment is adaptable to
majority of employees. Those who refuse to adapt to the work culture they are fired. Toyota put
so much to the training by constantly identifying solutions to a set of challenges. The way
Toyota nurture its employees it becomes easier for them to understand and adopt the work
culture. Toyota correlate training to the employee performance in number of ways. With the help

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of Zoola Analytics, the managers create actionable reporting. Customised reports and dashboards
help the management correlate training to the individual’s performance (Matsuo 2015). These
insights enable the management differentiate between the performers and under-achievers.
Moreover, this is how they are informed on underachievers and prepare learning programs for
them. This is also how the management is able to know about the employees and the respective
courses they are undergoing. Indeed, Toyota was able to derive an accurate ROI picture. The
company was also able to expand their training programs to introduce and officially provide the
certification training to their employees (Sisson and Elshennawy 2015).
Rewards
Toyota has different policies when it comes to the reward system. Toyota does not give
much of an importance to monetary benefits. Instead, intrinsic motivation is what given the
greatest importance. Toyota does not want its people driven by money. Instead, the company
wants its people driven by the desire to undergo a continuous learning process and thereby
contribute to the improvement of organisational process. The list of intrinsic rewards include like
valuing constructive and diversity differences (Moore, Calvo-Amodio and Junker 2016). Toyota
believes that the productivity can be boosted by promoting team building and facilitating reward
management policies. The company apart from intrinsic motivation also offers Reward based
pay incentives to its employees. Some of the extrinsic rewards include parental leave,
superannuation, overseas career development, employee assistance program and discounted
spare parts and vehicles (Moore, Calvo-Amodio and Junker 2016). It appears as if Toyota’s
reward policies are in fit with the organisational goals and objectives. Notably, one of the
organisational goals of Toyota is to work towards benefitting its stakeholders and improving the
communities.
Human resource flow
Toyota gives emphasis to both shared values and capabilities. Indeed, it recruits for
attitude and train for skills. This means those who are in fit with the organisational work culture
are only recruited (Netland 2016). The workplace environment is lean. This means it gives
importance to creating knowledge through training and learning programs, respecting the people
and delivering fast to meet the scaling market demands. There is a culture to “do not blame any
individual for an issue”. Instead, the process is blamed, so that, people understands the

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importance to correct it (Netland 2016). Toyota provides career development opportunities to
employees at the overseas location. It appears as if Toyota is very much aware of the importance
to have trained employees who understand diverse culture and possess multiple skills. The
company has its operations at various global locations. It was able to succeed in the world’s
largest market for automakers in form of the United States of America. It indicates that the HRM
in Toyota understands its role-play in creating solutions for the attainment of the organisational
goals and objectives.
Employee influence
Employee influence is one of the core to human resource management issues. Toyota
appears like very concerned in this regard. Individuals in the company are given the respect. No
one is encouraged to sought on and blame the individuals for a problem. Indeed, any problem is
considered to have originated due to the process failure. In this way, Toyota is able to keep its
process aligned to its organisational goals. It also creates positivity in employees. In this Toyota
is able to create a sense of belonging in their employees. Toyota gives importance to shared
values that it promote by being open to cultural diversity and offering work opportunities to
people of all ethnic groups. It also offers work opportunities to the physically challenged people
(Nicholas 2015). The human resource policy in regards to employee influence appears to be in-
line with the Toyota’s business strategy.
Analysing the fit
Think local, Act global
Toyota already has its presence in across a number of countries. However, Toyota with
its intensive growth strategy aims to penetrate deeper into the current market and enhance its
global customer base with its product development strategy (Jo 2018). The HRM in Toyota has
policies to encourage cultural diversity in the workplace. This is already being stated in the
‘Human Resource flow’ section of this essay. This HRM policy is in fit with Toyota’s business
strategy and seems like supporting its global expansion. With its huge global presence Toyota
faces cultural diversity issue. However, its success in the United States of America and many
other developed nations indicate its capability to think local and act global.
Think innovative, promote innovation

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Innovation is everywhere in the company. The use of just in time (JIT), Toyota
Production System (TPS) and many other tools support the fact. Toyota may be a slow mover
towards a new concept; however, once it is set to go with a concept there is no other automotive
company to match its speed to produce cars. It shows that the workforce is agile in the company
and is hugely responsive to meet the rising demands. The agility is more due to the lean work
environment in the company and its reward system (Pascu et al. 2016). The lean work
environment has already been discussed under the ‘Human Resource flow’ section whereas the
rewards system under the ‘Rewards’ section. Hence, the human resource choice of policy is in
correlation with the Toyota’s business strategy.
Provide flexibility, Drive for the goals and objectives
Toyota uses an advanced reporting and dashboard system to identify its performers and
underachievers. Underachievers are put to learning programs. This is already being stated under
the ‘Work systems’ heading. Employees are also encouraged and sent to overseas locations to
avail the extensive courses on related subjects of organisational context. It promotes the lean
work environment (Khamidullina and Puryaev 2016). The HRM is not just indicating the needs
to promote learning at the organisational level but also showing the path to attain it. In this way,
the HRM’s policies for a flexible work environment correlates to the business goals and
objectives of Toyota.
The gaps and its impact
As being found under the fit section, the HR choice of policy in Toyota is in fit with its
business strategy. However, cultural diversity also create challenges that cannot be managed with
just the policy. Instead, Toyota should ensure a strategic implementation of human resources
policy for the cultural diversity to be away from such issue (Lambert 2016). Again, innovation
requires the exchange of knowledge at the organisational level, which is difficult to be retained.
Moreover, employees have growing opportunities in the form of many other cost-effective
automakers (Wirtz and Zeithaml 2018). Toyota along with keeping a sync with the human
resources policy must also be able to retain its workforce. The company’s tendency to promote
both shared values and cultural diversity is contradicting. Ideally, one at a time can only exist
(Beugelsdijk and Klasing 2016).

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Conclusion
To conclude, it can be said that a fit between the Toyota’s human resources policy and its
business strategy was found. The human resources choice of policy and business strategy are in
sync. Toyota’s business strategy is to retain its leadership position in providing cost-effective
services to its customers. The company is being able to support its cost-effective approach with
continuous nurturing of its people who possess excellent job skills and aggressive thinking
towards the production system. The company with its superior adjusting capability with diverse
culture in and across countries has effectively managed its cost-effective approach. This is quite
true considering its global success especially in the United States of America. As being found in
this essay, the United States of America is the second largest market for the company. There is
perhaps no match to the speediness that Toyota brings to its manufacturing capability. This is
what makes the company more competitive. However, there are areas of concerns for a much
controlled business practice. Toyota should understand the difference between cultural diversity
and shared values. Toyota promotes cultural diversity in the workplace as it is evidenced from its
operations in overseas countries. It also encourages shared values, which appears conflicting
considering the company’s intend to promote cultural diversity in the workplace. In addition, the
company should give emphasis on retaining the knowledge management in the workplace and
sustaining the employee commitment to the organisational goals and objectives.

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