Assignment 1: Individual Assignment (20%)

Case Study
Case - 1:
The Smartest Company of the Year
And the Winner Is ... Toyota
Hot cars. Hot brands. Hot technology. Here's how Japan's largest automaker keeps firing
on all cylinders.

Nothing says smart like great results, and during the past year Business 2.0's smartest company
certainly delivered. After leapfrogging Ford to become the No. 2 automaker worldwide, Toyota
saw profits soar to a record $11.1 billion. Behind the numbers were intelligent moves in every
corner of the operation, from product design and marketing to manufacturing and leadership. On
the following pages, we spotlight some of the winning practices that put Toyota at the top of our
list. Take a look—you might find an idea or two to make your own business smarter.

1. Know the limits of your brand.

It was a strange place to hype a new car: Last June, just outside iMi Jimi, a hipster clothing shop
in Denver, stood four new coupes from Toyota, a brand better known for Camrys than cool. The
hope was that young fashionistas would take time away from trying on Vans sneakers to go for a
spin.

That's just what they did, by the hundreds, at iMi Jimi and other trendy clothing and record
stores, cafes, and pubs nationwide. The attraction wasn't mega-rebates or zero-percent financing.
It was the tC coupe, a stylish hatchback from Toyota's new youth-focused marque, Scion.
Thanks to clever positioning, smart marketing, and a trio of edgy-looking, sub-$20,000 vehicles,
Scion sold some 100,000 cars last year—about as many as Gen Y-targeted competitors Honda
Element and Mini Cooper combined.
Toyota launched Scion because it recognized the limitations of its existing brands. The average
Toyota driver is 50, and buyers of the company's big Lexus sedans are even older. But Scion is
attracting an entirely new cadre of customers with a median age of only 35, extending Toyota's
reach to the 63 million-strong "echo boomer" generation. "You have to be who you are," says
marketing consultant John Winsor, author of Beyond the Brand. "If you're going to switch
directions, you'd better start fresh."

That includes creating a completely new approach to selling cars. Because its target market is
notoriously skeptical of advertising, Scion relies more on experiential marketing. Thus the
informal test-drives at youth-centric hangouts as well as sponsorships of events like hip-hop
concerts and graffiti art shows. Even Scion's showrooms look different: tuck within larger
Toyota dealerships, they're outfitted with flat-screen TVs and industrial-chic brushed metal. As a
result, the new line isn't cannibalizing its parent: 85 percent of Scion owners have never
purchased a Toyota. Of course, the company hopes that Scion drivers will become Toyota
customers for life. "It's a good toe in the water," says Brian Bolain, Scion's national sales
promotions manager. "Toyota gets a lot of experience with a group of consumers that's going to
be around for a long time." Exhausting genius

2. Making great products means going the extra mile (or 53,000).

An old Toyota proverb goes something like this: To make a better product, get off your rear end
and experience the marketplace. Charged with revamping the Sienna minivan for 2004, Toyota
chief engineer Yuji Yokoya did just that. To improve on the previous Sienna—small and
underpowered—Yokoya embarked on a 53,000-mile North American minivan road trip that
included five cross-continent treks, visits to every Mexican state and Canadian province, and
loops around Puerto Rico, Hawaii, and the Virgin Islands. "When we asked Mr. Yokoya about
his vision, he got very prophetic," recalls Mark Amstock, a Toyota marketing manager. "He said,
'The road will tell us.'"

Driving to the beat of the Pet Shop Boys' "Go West," Yokoya had many epiphanies. In Santa Fe,
N.M., narrow downtown streets convinced him that the new Sienna should have a tighter turning
radius. On the gravel of the Alaska Highway, he understood the need for all-wheel-drive. After
squinting/looking/ in the Mississippi sun along the Gulf Coast, he ordered roll-up sunshades for
the second- and third-row side windows. There were small triumphs as well: On Utah's
Bonneville Salt Flats, he tried to make the minivan fishtail. He was happy to report that "it's
difficult to put the Sienna into a spin."

Soon after its debut, the 2004 Sienna became the car critics' darling. Through the first 11 months
of last year, Sienna sales were up 60 percent over the same stretch in 2003, moving it into second
place in the U.S. minivan race behind the perennial top seller, the Dodge Caravan. While
Yokoya's trek took product testing to new extremes, it's also emblematic of Toyota's
unswerving/reliable/ focus on the nitty-gritty/fundamentals or details/ of the user experience.
"Occasionally he'd stop to take a breather/rest/ or shoot a picture of something pretty," Amstock
says. "But mostly it was to fix a flat or because he was lost."

3. Study their mistakes—and your own.

The first hybrid car sold in the United States, the wedge-shaped Honda Insight, certainly stood
out. But weird looks plus a teeny cabin that could barely contain two early adopters added up to
a tough sell. Between 1999 and 2004, Honda moved fewer than 13,000 of the vehicles. Figuring
that consumers wanted something more conventional, Honda did somewhat better in the 2003
model year with a Civic hybrid that's indistinguishable from its gas-only twin. But it took
Toyota's 2004 Prius, a car that walks the line between Honda's futuristic and familiar extremes,
to make six-month waiting lists for hybrids a reality.

Mining niches pioneered by others is a Toyota specialty. In 1989, Toyota introduced its high-end
Lexus line, which within three years outsold BMW and Mercedes-Benz to become the No. 1
luxury import. The company's family-oriented Camry sedan out-Taurused the Taurus in quality
and function and is still a perennial chart topper. With hybrids, Toyota stumbles out of the gate:
The first Prius, a four-door introduced in the United States in 2000, suffered from a lack of cargo
space, poor acceleration, and plain-Jane looks.

But the slow and steady path to success is signature Toyota. For the 2004 Prius, Toyota set out
to deliver the power and roominess of a family sedan in a design that screams eco-friendly. To
make the $20,000 car perform better, Toyota engineers packed 50 percent more power into the
electric motor and modified the engine so it could switch power sources 50 times faster.
Meanwhile, the Prius's sloped, aerodynamic contours ensure that drivers look PC while they're
getting high MPG. Soaring gas prices make the design seem all the more brilliant. "Honda's
hybrid appeals on a rational basis," says Jim Hossack, a vice president at AutoPacific, an
automotive market research firm in Tustin, Calif., "while the Prius says, 'look at me!'"

As a result, the Prius outsells the Civic hybrid two to one and has ignited a mania/desire/ for
hybrids. Toyota's new Lexus RX 400h, scheduled to start shipping in April already has more
than 10,000 confirmed orders. Back in 2001, people laughed at Toyota president Fujio Cho when
he predicted that Toyota would sell 300,000 hybrids by 2005. Turns out he wasn't far off: The
Company expects to sell 228,000 worldwide by the end of the year.

4. To export quality, first export company values.

Don't be fooled by the leather furniture, rich brown walls, and giant chrome Lexus symbol
perched proudly on gleaming hardwood floors. This isn't a swanky/high class/ Lexus showroom;
it's the lobby/entrance hall/ of the automaker's new plant in Cambridge, Ontario. But the
similarity is absolutely intentional. "It remind our workers of what customers expect from
Lexus," says Ray Tanguay, president of Toyota Motor Manufacturing Canada.

Toyota has long manufactured cars outside Japan. But to do so for Lexus, the company had to
export the brand's culture of perfection—a level of expectation that surpasses even that of the
exacting mother brand. On a Toyota, for instance, a 1-millimeter gap between hood and grille is
acceptable; on a Lexus, the separation can't be thicker than an eyelash. Cambridge workers
receive special training in Lexus manufacturing processes, and if no one on the floor responds to
computer-detected manufacturing flaws within 15 minutes, upper management is paged by
BlackBerry. "'Can I prevent it, can I predict it, can I see it?' That's the mentality we're always
reinforcing to the staff," Tanguay says.

Before launching the new plant, Tanguay, a 13-year veteran/expert/ of Toyota Manufacturing,
toured every Lexus factory in Japan, looking for ways to improve on what he saw. The
upscale/expensive and fashionable/ entrance is one of his innovations, as are the quality-control
systems that triple-check every stage of the Lexus-making process. Tanguay also extended the
drive for improvement to suppliers, inspiring a Michigan-based maker of wood steering wheels
to turn to a piano manufacturer for better lacquering techniques.

The impeccable execution of Cambridge's very first Lexus product—a 2004 RX 330 sport utility
vehicle—should be the envy of any company competing in the global marketplace. That's
because replicating manufacturing success across borders is easier said than done: When Nissan
opened its Canton, Miss., plant in 2003, it experienced manufacturing glitches galore. Still,
Tanguay believes that a better measure of his $470 million facility is how well it stacks up
against other Lexus plants. An April 2004 J.D. Power & Associates quality survey showed that
the differences are indeed minimal. "The only way to distinguish a Japanese RX 330 from a
Canadian one?" Tanguay says. "The sticker."

A case by Andrew Tilin, 2005

Case Questions (What Can We Learn From Toyota)

1. What are the strategies used by TOYOTA to maintain the quality of its products?
Answers :-
2. What is the product strategy employed by TOYOTA?
3. Evaluate the success of TOYOTA in the light of the six characteristics of successful
companies.
Case -2
A Case on James Dyson

James Dyson Feted by the UK Government and with Honorary Doctorates from 11 UK
universities, the designer, James Dyson, is a man who likes to make things work better. His first
product, the Sea Truck, was first launched in 1970 while he was studying at the Royal College of
Art. Subsequently it has netted sales in excess of $500 million. Shortly after, in 1974 he designed
the award-winning Ball barrow, an “easy to steer” wheelbarrow that can get to places normally
inaccessible to the more traditional wheelbarrow. In addition, there have been the Whaleboat, the
Trolley ball and even the integral hose found on most upright vacuum cleaners. However, he is
probably most famous for his revolutionary “bag less vacuum cleaner”.

Reputedly he got the idea when he noticed that the air filter in the Ball barrow spray finishing
room in his factory in Malmesbury, Wiltshire, was constantly clogging with powder particles. He
recognized that the problem was very similar to that which every household experiences, when
its vacuum cleaner clogs with dust. So, having designed the solution to his industrial problem, a
cyclone tower that removed the powder particles by exerting centrifugal forces 100,000 times
greater than those exerted by gravity, he transferred the technology to the domestic vacuum
cleaner. However, it took him 5 years and 5,127 prototypes before his invention, the “G Force”,
won the1991 International Design Fair prize in Japan and the first units were sold, initially at a
price of $2,000 each. Despite having developed a proven, disruptive or revolutionary technology,
with a “killer” application, Dyson discovered that none of the leading manufacturers was
interested in moving away from the traditional technology. Accordingly, in June 1993, using
income from his Japanese licence, he established a research Centre and manufacturing plant and
started producing the Dyson Dual Cyclone vacuum cleaner. This was the first breakthrough in
vacuum cleaner technology since its invention in 1901. The traditional bag was replaced by two
cyclone chambers that cannot clog with dust. The outer chamber spins out the larger dust and dirt
particles before the inner chamber accelerates the air so that the small, often health-threatening,
particles are removed. In the first year of production, sales were in the order of £2.4 million.
These rose in 1994 to £10 million and by February 1995 the “Dyson”, as it had become known,
had become the fastest selling vacuum cleaner in Britain, so that by 2000 the company was
selling nearly £300 million worth of units a year and was claiming to have secured half of the
British market by volume. By contrast, the previous brand leader, Hoover, had seen its market
share drop to 10 per cent. In an attempt to regain market share, it had introduced its own bag less
cleaner, the Triple Vortex, reportedly using technology first developed for oil wells to separate
gas or sand from crude oil. Dyson saw this move as an infringement of his technology and sued
Hoover for breach of patent.

Hoover argued that Dyson’s technology was not innovative – that it involved nothing that was
not already known inside the industry. The Court decided, however, that there was no evidence
to suggest that a bagless cleaner had been considered previously and in October 2000 the judge
ruled that Hoover had infringed the patent and ordered that it may not sell or manufacture any
more of its Triple Vortex cleaners within the UK and should pay an advance of £200,000
towards Dyson’s costs. “I am very pleased to see Hoover now found guilty of patent
infringement”, Dyson is reported to have said. “Hoover showed no interest in the technology
when we were looking for backers. Then they rubbished it when we brought out the bagless
cleaner, insisting bags are best. Finally they came out with a blatant copy”. Hoover responded to
the judgment by recalling all of its triple Vortex models from the dealers, and announcing that it
intended to appeal and to launch a new cleaner (Vortex Power) that relied on a single cyclone
mechanism and did not infringe Dyson’s copyright. The recalled models would have the
offending mechanism taken out and the new system would be installed. Dyson’s QC, Peter
Prescott, claimed that while the new machine did not infringe the patent, it profited from the
reputation of the now banned Triple Vortex and this should not be allowed to happen. The judge
reserved judgment on whether to bar Hoover from using the trade mark, Vortex, but in January
2001 ruled that Hoover could continue to use it. However, he also recognized that the company
had gained commercial advantage over other competitors by infringing the patent and granted
Dyson a six-month extension. In order to prevent Hoover from gaining unfair advantage. In
October 2002, after losing its appeal against the judgment in the Court of Appeal, and having its
request to appeal to the House of Lords turned down, Hoover agreed to pay Dyson £4million
damages for infringing the patent and £2million in legal costs. “I spent 20 years developing this
technology and I am very pleased to see Hoover, who made a lot of false claims about their
product, can’t just rip off our designs and copy us”, Dyson is reported to have said. “It is wrong
for companies to be able to come in and copy other people’s inventions. This case shows that this
can be stopped”.

While all this was going on, Dyson and his colleagues at Malmesbury were striving to maintain
their competitive advantage by continuing to develop new innovations. Determined to create
vacuum cleaners with even higher suction, they developed an entirely new cyclone system. By
dividing the air into 8 smaller cyclones they developed a new product that gave 45 per cent more
suction than the Dual Cyclone. At the same time, Dyson developed the DC06 robot cleaner that
would not only make cleaning easier but would guide itself even more logically than a human
being would. The end-product involved over 60,000 hours of research, 3 on-board computers and
50 sensory devices. Then, in November 2000, he launched the world’s first two drummed
washing machine, the contra rotator. Dyson’s engineers constantly reexamine products of all
types, including the washing machine. They found that in the traditional automatic washing
machine the fabric is not flexed all that much and that washing by hand gave better results than
the single drum machine. So, Dyson developed a machine that would “even improve on hand
washing”. Reputedly, it took four years, a million man hours and £25 million to develop the
machine, which comes with a built-in jack and trolley and a coin trap to capture buttons and
loose change. However, the Consumers’ Association magazine “Which?” branded his new
£1200 Contrarotator washing machine as “poor value” and rival Electrolux beat him to market
with a robotic vacuum cleaner.

Despite such setbacks, Dyson is one of the wealthiest men in Britain. His ideas have brought him
a personal fortune of £600 million and an annual income in 2002 of something in the order of
£6.145 million (made up of a salary of £490,000 and share dividends in Dyson Technology of
£5.655 million).

Case Question

1. Thinking about the issue of core competency and strategic capability, what is the secret of
James Dyson’s competitive advantages?
2. Has he been able to appropriate the rewards of the value he has added?