Corporate Purpose

Why It Matters More Than Strategy

Shankar Basu

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351676557
• Edition: 1
• Topic: Business
• Subtopic: Automobile Industry
• Index: Business

Originally published in 1999 after a decade of research and extensive interviews with some of Toyota's top executives, this book examines organizational purpose: what it is, how it is crafted, how does it relate to strategy and objectives and how does it relate to decisions and actions that ultimately produce organizational results. The author explains why Toyoto Motor Corporation was selected to study corporate purpose and examines the various factors that influence purpose. An overview is given of Toyota in the 1990s and its operating environment, particularly outlining the importance of the Japanes motor industry to Japanese society. Operational objectives of Toyota are analyzed and research findings, data and analysis related to Toyota's purpose are presented and the implications described. In the appendix, the detail of the research methodology of this study is included.

CHAPTER ONE

Introduction

Management journals abound in articles on operational effectiveness. They describe the benefits of total quality management, benchmarking, time-based competition, outsourcing, partnering, reengineering¹, change management and so on. Some of the articles prescribe firms to outsource aggressively while others urge firms to focus on a few core competencies.²

For the past few decades, management experts have researched and contributed generously to the field of organizational structures³, management practices, management styles^4,5,6, organizational behavior⁷, as well as management’s tasks⁸, functions, process⁹ and corporate performances. They have prescribed what excellent companies ought to do, do and how do they become excellent¹⁰.

Some experts believe that instead of focusing on the structure or style of successful or enduring companies, the answer to business success lies in learning from the successful habits of visionary companies. They claim that these visionary companies are more than successful companies.¹¹

But why do organizations take the actions and make the decisions that produce outstanding results? Why do they form such success generating habits? They do so to satisfy the very reason for their existence. If so, then what are the reasons for their existence, their raison d’être? In other words, what are their corporate purposes – the ultimate, irreducible end objectives?

The obsession of executive management now is corporate strategy and competitive strategy.¹² Should these be the beginning points of corporate decisions and actions? Alternatively, should an overarching corporate purpose be the focus of this group? This would be critical if there is a linkage between a Corporation’s purpose, through its objectives, to its strategic decisions and actions. Is there a linkage?

The answers to the above questions are complex. They can only be derived from analyzing actual practices of organizations. One approach to answer the above questions would be to analyze the corporate results. Stock prices, price earning ratios, profitability, sales growth, rate of innovation, employee development and other measures can be analyzed to determine which organizations have superior results and which have inferior results. The next step would be to investigate their corporate purpose if one exists, and then check if there is any correlation between corporate purpose and performance. The other approach would be to choose a company that qualifies as a superior performer. Then analyze in depth its actions, decisions, and investigate what the driving forces of such actions are. In other words, are these key decisions and actions linked to their corporate purpose? This book and the research work are based on the later approach.

SELECTION OF TOYOTA AS THE BASE MODEL OF A SUPERIOR PERFORMER

Only a decade ago, Japan, the second largest economy in the world, was feared for its economic might. Today, it is feared for its economic weakness. What harm will the ailing Japanese companies and banks do to the rest of the world, especially Asian economies?

Japanese Government has been unstable, leaderless. As a direct result of the Japanese people’s lack of confidence in the current political system, Prime Minister Hashimoto resigned in July 1998. International Monetary Fund has poured billions into the region. Drastic economic, taxation and banking reforms have been put in place. The new disclosure rules will require banks to reveal their return-on-equity both for overseas and domestic operations.¹³ Japan’s Diet approved a 60 trillion yen package aimed at strengthening lenders and shoring up the ailing economy.¹⁴ Yet, many believe that these remedies may not to work.¹⁵ The yen has fallen 20 percent in value over a twelve month period between July 1997 and July 1998. By August of 1998, the Nikkei stock index was down more than 17 percent from a year ago. Japan’s gross domestic product fell by an annualized rate of 5.3 percent in the first quarter of 1998. By early 1999, Japan was in full recession for two consecutive years – a first since early fifties – with very little sign of sustained recovery. Many believe that Japan will continue to be in economic depression in the coming years.¹⁶ The much acclaimed Japanese economy, unemployment, management system and processes are no longer grabbing the newspaper and magazine headlines.

Amidst this devastating environment, one Japanese company earned the recognition of being among the world’s most admired companies two years in a row – in 1997 and then again in 1998.¹⁷ It is the only Japanese company that earned the number one position in their business category in the list of Worlds’ most admired companies. It is in the same honor roll with corporations such as Boeing, British Airways, Coca-Cola, Microsoft, General Electric, Federal Express, Procter & Gamble and a few others. Fortune magazine named Toyota Motor Corporation as the most admired company in the motor vehicles and parts industry globally in 1997 and 1998. (Table 1)

Our research indicates that Toyota is driven by its corporate purpose. It indicates that the senior management of Toyota clearly understands and has internalized this corporate purpose. The ideologies embodied in its purpose provide a strong and unifying mechanism. It stimulates the energies and efforts of its employees, and provides a moral compass to attain that meaningful, value-laden purpose of the organization.

Experts have attributed Toyota’s spectacular performance in the competitive and mature auto industry to many factors. Some of them are Toyota’s corporate culture, Kaizen or continuous improvement philosophy in process and management, Kanban and Just-In-Time production system, zero defect goal, invention and perfection of a lean production system, faster product cycle, ringi or consensus bottom-up decision making, pursuit of highest customer satisfaction, and high quality products.

It is a fact that all these measures contributed to the outstanding performances of Toyota over the decades. However, research indicates that they are not the drivers of Toyota’s decisions and actions.

Table 1: Motor Vehicles and Parts: The World’s Most Admired Companies

1998	1997	Company	Score
1	1	Toyota Motor	7.69
2	2	Daimler-Benz	7.56
3	n/a	BMW	7.05
4	3	Honda Motor	6.98
5	5	Ford Motor	6.82
6	4	General Motors	6.81
7	6	Volkswagen	6.59
8	7	Chrysler	6.20
9	n/a	Volvo	6.09
10	10	Fiat	5.25
11	8	Nissan Motor	4.89
12	n/a	Mitsubishi Motors	4.78
13	9	Renault	4.75
14	n/a	Peugeot	4.71
15	11	Daewoo	3.49

Source: Fortune, October 26,1998 p.205

Then what made Toyota successful and what are the drivers behind sustaining success over such a long period? Toyota’s ability to adapt to the changing environment and excel has been truly amazing. It has done so while many “excellent” companies sited in Peter’s and Watermann’s “In Search of Excellence” moved from the “excellent” category to the mediocre to the extinct category within the past ten to fifteen years.

Research also indicates that Toyota’s purpose is crafted in its stakeholders power structure and its cultural values and assumptions. Toyota’s purpose is to be a well-balanced global corporation that is a contributing member of the lo...