toyota-organizational-structure

What is Toyota’s Organizational Structure? Toyota Organizational Structure In A Nutshell

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

Toyota’s revised organizational structure now consists of the following three components.

Global hierarchy

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:

  1. Innovative R&D and Engineering Company.
  2. Toyota Compact Car Company.
  3. Mid-size Vehicle Company.
  4. CV Company. 
  5. Lexus International Co.
  6. Power Train Company.
  7. 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:

  1. Business Unit Toyota No. 1 – North America, Europe, Africa, and Japan.
  2. 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.

Read Next: Organizational Structure.

Read Also: Toyota Business Model, Toyota Production System, Gemba Walk, Poka-yoke.

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