Wednesday, April 6, 2011

Operational Agility adopted by Toyota

In this week’s article ‘Competing through organizational agility’, Professor Donald Sull talks about three types of agility that will enable a company to succeed in turbulent times: Strategic Agility, Portfolio Agility and Operational Agility. He mentions that operational agility allows a company to “exploit opportunities within a focused business model.” In his blog available at http://blogs.ft.com/donsullblog/2010/01/27/operational-agility-at-toyota/ the professor cites the example of Toyota and how it has employed operational agility to “create economic value and do so more quickly than rivals.” Opportunities create economic value by either increasing the customer’s willingness to pay or by decreasing costs.
Toyota’s success as a global leader in the automobile industry has been attributed to its lean production system. The system has enabled Toyota to be highly flexible and respond quickly to the emerging needs of its customers. The system reduces costs by identifying activities that do not add any value to the customer. The company has managed to foresee its customer’s needs and preferences and responded by coming up with new car models. In 1960s Toyota introduced the high quality Corolla and Corona cars since customers were vexed with quality issues and unreliability in other cars. It also anticipated the need for a high quality luxury car in 1989 and launched the Lexus. It was during this time that Chrysler and Cadillac were declining. When environmental issues were a huge concern for many customers, Toyota launched the Prius – a very fuel efficient electric car.

Apart from anticipating customer needs and reducing non value adding activities, Toyota has demonstrated operational agility by exploiting opportunities to increase revenue and lower costs not only during an economic downturn but throughout the economic cycle. Many companies cut costs during a recession and strive to increase revenues during a boom. Toyota has maintained its “cost discipline” during both an economic downturn and boom. During a boom it has tried to minimize costs and has looked for opportunities to increase revenues during an economic downturn.

Toyota has thus leveraged both the opportunities to create economic value and emerged as a market leader in the automobile industry.If operational, strategic and portfolio agility had been adopted by companies could they have sailed smoothly through the economic crisis of 2008?

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