Toyota has a divisional organizational structure where business operations are centered around the market, product, and geographic groups. Therefore, Toyota organizes its corporate structure around global hierarchies (most strategic decisions come from Japan’s headquarter), product-based divisions (where the organization is broken down, based on each product line), and geographical divisions (according to the geographical areas under management).
Understanding Toyota’s organizational structure
For decades, Toyota’s organizational structure was based on a traditional Japanese business hierarchy where only the most senior executives held decision-making power. This structure, which we know today as hierarchical, is characterized by the one-way flow of information from top to bottom and very little subordinate autonomy. However, this structure transformed in 2013 in response to safety issues, product recalls, and a broader strategy to make Toyota more competitive and responsive in the global market.
Efforts were made to streamline the board of directors and scale down the system that allowed executives to make decisions. The company also afforded overseas affiliates more decision-making power, with power until that time concentrated in Toyota’s Japanese headquarters. Finally, Toyota made significant changes to its organizational structure to ensure that outside or external opinions were considered in earnest and, where feasible, incorporated into new management practices.
Today, Toyota has a divisional organizational structure. It retains aspects of its traditional hierarchical structure, but the initiatives mentioned above have decentralized decision-making power to some extent.
Key components of Toyota’s organizational structure
While Toyota headquarters in Japan is responsible for making most decisions, some power was also given to business unit and regional heads. The company’s processes are now more decentralized, but these leaders are nevertheless required to report to headquarters.
Product-based divisions
In 2016, Toyota made further structural changes to streamline decision-making and increase production efficiency. In essence, the company moved from a function-based strategy to a product-based strategy.
Seven product divisions were created, with each able to collaborate with other divisions while reporting to head office. These divisions, which Toyota calls companies, include:
Innovative R&D and Engineering Company.
Toyota Compact Car Company.
Mid-size Vehicle Company.
CV Company.
Lexus International Co.
Power Train Company.
Connected Company.
Full responsibility and authority rest with the president of each company.
Geographic divisions
As part of the changes made in 2016, Toyota created two more divisions that help it carry out its strategy across nine international regions. These include:
Business Unit Toyota No. 1 – North America, Europe, Africa, and Japan.
Business Unit Toyota No. 2 – China, Asia, Middle East & North Africa, East Asia & Oceania, Latin America & Caribbean.
Each is run by a divisional head who makes decisions for their respective region while remaining accountable to headquarters.
Key takeaways:
Toyota has a divisional organizational structure where business operations are centered around market, product, and geographic groups. For many years, Toyota’s processes were based on a traditional Japanese business hierarchy where only the most senior executives held decision-making power
While Toyota headquarters in Japan is responsible for making most decisions, some power now rests with business unit and regional heads. Toyota introduced seven, product-based divisions to increase production efficiency and streamline decision-making.
There are also two additional divisions, or business units, which are responsible for managing operations in nine geographic regions around the world.
In a functional organizational structure, groups and teams are organized based on function. Therefore, this organization follows a top-down structure, where most decision flows from top management to bottom. Thus, the bottom of the organization mostly follows the strategy detailed by the top of the organization.
In a flat organizational structure, there is little to no middle management between employees and executives. Therefore it reduces the space between employees and executives to enable an effective communication flow within the organization, thus being faster and leaner.
Project portfolio management (PPM) is a systematic approach to selecting and managing a collection of projects aligned with organizational objectives. That is a business process of managing multiple projects which can be identified, prioritized, and managed within the organization. PPM helps organizations optimize their investments by allocating resources efficiently across all initiatives.
Harvard Business School professor Dr. John Kotter has been a thought-leader on organizational change, and he developed Kotter’s 8-step change model, which helps business managers deal with organizational change. Kotter created the 8-step model to drive organizational transformation.
The Nadler-Tushman Congruence Model was created by David Nadler and Michael Tushman at Columbia University. The Nadler-Tushman Congruence Model is a diagnostic tool that identifies problem areas within a company. In the context of business, congruence occurs when the goals of different people or interest groups coincide.
McKinsey’s Seven Degrees of Freedom for Growth is a strategy tool. Developed by partners at McKinsey and Company, the tool helps businesses understand which opportunities will contribute to expansion, and therefore it helps to prioritize those initiatives.
Mintzberg’s 5Ps of Strategy is a strategy development model that examines five different perspectives (plan, ploy, pattern, position, perspective) to develop a successful business strategy. A sixth perspective has been developed over the years, called Practice, which was created to help businesses execute their strategies.
The COSO framework is a means of designing, implementing, and evaluating control within an organization. The COSO framework’s five components are control environment, risk assessment, control activities, information and communication, and monitoring activities. As a fraud risk management tool, businesses can design, implement, and evaluate internal control procedures.
The TOWS Matrix is an acronym for Threats, Opportunities, Weaknesses, and Strengths. The matrix is a variation on the SWOT Analysis, and it seeks to address criticisms of the SWOT Analysis regarding its inability to show relationships between the various categories.
Lewin’s change management model helps businesses manage the uncertainty and resistance associated with change. Kurt Lewin, one of the first academics to focus his research on group dynamics, developed a three-stage model. He proposed that the behavior of individuals happened as a function of group behavior.
Airbnb follows a holacracy model, or a sort of flat organizational structure, where teams are organized for projects, to move quickly and iterate fast, thus keeping a lean and flexible approach. Airbnb also moved to a hybrid model where employees can work from anywhere and meet on a quarterly basis to plan ahead, and connect to each other.
eBay was until recently a multi-divisional (M-form) organization with semi-autonomous units grouped according to the services they provided. Today, eBay has a single division called Marketplace, which includes eBay and its international iterations.
IBM has an organizational structure characterized by product-based divisions, enabling its strategy to develop innovative and competitive products in multiple markets. IBM is also characterized by function-based segments that support product development and innovation for each product-based division, which include Global Markets, Integrated Supply Chain, Research, Development, and Intellectual Property.
Sony has a matrix organizational structure primarily based on function-based groups and product/business divisions. The structure also incorporates geographical divisions. In 2021, Sony announced the overhauling of its organizational structure, changing its name from Sony Corporation to Sony Group Corporation to better identify itself as the headquarters of the Sony group of companies skewing the company toward product divisions.
Facebook is characterized by a multi-faceted matrix organizational structure. The company utilizes a flat organizational structure in combination with corporate function-based teams and product-based or geographic divisions. The flat organization structure is organized around the leadership of Mark Zuckerberg, and the key executives around him. On the other hand, the function-based teams based on the main corporate functions (like HR, product management, investor relations, and so on).
Google (Alphabet) has a cross-functional (team-based) organizational structure known as a matrix structure with some degree of flatness. Over the years, as the company scaled and it became a tech giant, its organizational structure is morphing more into a centralized organization.
Tesla is characterized by a functional organizational structure with aspects of a hierarchical structure. Tesla does employ functional centers that cover all business activities, including finance, sales, marketing, technology, engineering, design, and the offices of the CEO and chairperson. Tesla’s headquarters in Austin, Texas, decide the strategic direction of the company, with international operations given little autonomy.
McDonald’s has a divisional organizational structure where each division – based on geographical location – is assigned operational responsibilities and strategic objectives. The main geographical divisions are the US, internationally operated markets, and international developmental licensed markets. And on the other hand, the hierarchical leadership structure is organized around regional and functional divisions.
Walmart has a hybrid hierarchical-functional organizational structure, otherwise referred to as a matrix structure that combines multiple approaches. On the one hand, Walmart follows a hierarchical structure, where the current CEO Doug McMillon is the only employee without a direct superior, and directives are sent from top-level management. On the other hand, the function-based structure of Walmart is used to categorize employees according to their particular skills and experience.
Microsoft has a product-type divisional organizational structure based on functions and engineering groups. As the company scaled over time it also became more hierarchical, however still keeping its hybrid approach between functions, engineering groups, and management.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
