DIGITALIZATION FOR OPERATIONAL IMPROVEMENT

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DIGITALIZATION FOR OPERATIONAL IMPROVEMENT Executive Summary Organizations in today’s business environment find themselves managing more than employees, products and customers, they are also forced to keep up with new technologies, how they communicate with customers and identifying new opportunities. In the last few years, there has been a drastic transformation in the way organizations operate, and how people work. Now, more than ever, there is a need for businesses to enhance their competitiveness and futurereadiness to be able to survive in the era of constant changes and challenges. Being change-ready also enables the organization to promptly take advantage of opportunities for growth. To achieve this, digitalization is imperative.

This paper uses Toyota Motors as an example of the organizations that have had to undergo a drastic transformation due to changes in technology. It summarizes the key insights on the meaning of digitalization and the role it plays in change management. These insights are based on comprehensive research into the company's current practices, and how they can be enhanced by implementing new technologies across the organization.

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The paper is divided into six subtopics; these are forces of change, the current area of operations, digitalization rationale and benefits for operational improvement, risks, barriers and enablers of digitalization, recommendations and conclusion. It finds that Toyota must keep track of current technologies in order to retain its market share in the hypercompetitive motor industry. To truly become a digitalized corporation, digital transformation must be embraced at all levels of the organization. The paper also finds that Toyota has, to a large extent, been efficient in adopting digitalization and this enables it to do things better, cheaper and faster than its competition.

Forces of Change and Digitalization for Operational Improvement Introduction The modern-day business environment is fast-paced and constantly changing, thus companies seeking to stay afloat and successful need to adopt appropriate change management strategies. The digitalization of business process is one of the primary strategies that organizations and businesses are using to drive change. Digital transformation impact various aspects of a company such as; its internal operations, the company’s interactions with customers, employees’ job descriptions and the relations and partnerships it forms with other companies.

Digitalization includes any activity that involves the incorporation of digital technology.

1. Force of Change The incorporation of modern technologies, digitalization and automation is part and parcel of the automobile industry. As such, this industry is one of the most digitalized industries in the world. Digitalization from a business perspective is the use of digital technologies to

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realize a profound transformation of business processes, to improve the company’s products and facilitate a better customer experience. The primary objective of digitalization is to create customer satisfaction, which in turn, makes the business more competitive (Bayraktar, Jothishankar, Tatoglu, & Wu, 2007).

Changes in the market have an impact on how each of the companies in the industry operate and perform. Technological advancements in the automobile industry include artificial intelligence (AI), machine learning, Internet of Things (IoT), cloud computing, data analytics, mobile applications, and robotic process automation, among others (Rüttimann, 2019). These digitalization necessitate quick implementation and execution to ensure the organization stays abreast. Digitalization presents an opportunity for businesses and organizations to perform an indepth analysis of their current operational models.

Digitalization varies from industry to industry and from business to business. However, in general, it can be defined as the incorporation of digital technology into all areas of the organization’s operations, resulting in a major transformation in how the organization operates and how it delivers value to its various shareholders (Cotteleer, Mahto, & Sniderman, 2017).

There are several forces of change in the automotive sector that have increased the need for digitalization. These forces of change include global uncertainties such as a steep increase in price wars, the COVID-19 pandemic and rapid advancements in technology. The pressure for change is also driven by the need to digitalize the supply chain in order to reduce production downtime and costs and enhance operations (Flynn, & Zhao, 2014). Additionally, there is a higher need to digitalize in order to create products and structures that comply with the environmental regulations and user safety regulations. Changes in customer needs have also

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increased the need for digitalization. The modern features that customers expect vehicles to have include; autonomous driving (AD), smart cities, sharing economy and green powertrain.

It is crucial for Toyota to accelerate the pace of its digitalization to facilitate its continuity and success within the highly competitive automotive market (Wada, 2020). An effective way of embedding digitalization at all levels of the company is to create a culture of embracing innovation and rapid change.

Toyota is deemed to be a company whose rate of digitalization is significantly high due to its ability to create and develop products and processes that redefine the industry. The company’s implementation of digitalization enables it to proactively seek and optimize opportunities, as opposed to simply reacting to threats in the external environment (Olsen, & Tomlin, 2020). However, despite having achieved an adequate level of digitalization, there are still challenges that Toyota can solve by further developing its digitalization. These include; using technology to ensure product quality thus reducing the number of cars that are recalled, and positioning itself to take advantage of the opportunities presented by technological advancements.

2. Current Area of Operations A significant area of its operations that Toyota needs to address through digitalization is its quality control department. From 2009, after a fatal accident caused by a major flaw in a Toyota vehicle design, the automobile manufacturer began to recall hundreds of thousands of vehicles due to various issues. Over the years, the design and safety of Toyota has been questioned as a result of this constant recall of faulty vehicles. This has caused the company to receive negative publicity. As recently as January 2020, for instance, the company recalled approximately 700,000 Toyota and Lexus vehicles in the US alone due to issues with the fuel

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pumps. In the statement recalling the cars, the company admitted that the fuel pumps had a fault that could make them stop working, thus leading to engine failure. In the same year, Toyota also recalled 44,000 vehicles due to the possibility of cracks in the engine that could cause oil or coolant leakages. These and thousands of other product recalls by Toyota demonstrate that there are quality issues that should be addressed promptly.

Like any other automobile, the order winner for a Toyota car is its high quality safety features, as well as the optimal condition of its software and hardware. Customers choose Toyota over other automobile models because they are assured that it is well-designed and manufactured according to the industry’s quality and safety standards. Order qualifiers, on the other hand, include variety and price. It is essential for the customers’ and the company’s perception of what constitutes order winners and order qualifiers to match. Therefore, if quality and safety are the priorities for Toyota customers, it is essential for the corporation to make these a priority.

Since its inception, Toyota has built its reputation on its ability to manufacture topquality products. However, the frequency with which it has recalled faulty motor-vehicles since 2009 brings to question whether the company indeed has issues in consistently manufacturing good quality and safe cars. The product faultiness is a process-related issue. Over the years, as Toyota’s market share expanded, it outsourced the production of the majority of its vehicle parts (Wada, 2020). It also increased its production capacity so much that it was sometimes unable to keep up with the process of assessing the quality standards for each of the parts it outsources to external manufacturers. Therefore, if one of the vehicle parts is faulty, a huge number of vehicles would be affected, thus leading to the massive product recalls.

Product recalls have a severe negative impact on any company. Product recalls affect the company financially, and also have a lasting effect on its market reputation. It indicates that the

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company is unable to manage its people, processes and products, thus it cannot be relied upon to consistently produce a good-quality product. Customers purchase goods and services from companies that they can trust. Frequent product recalls, such as Toyota’s, further aggravate the matter and the company has to work harder to win back the market’s trust. Product recalls have a direct negative impact on shareholders because it often leads to a reduction in the company’s share price (Wada, 2020). Additionally, it affect the company’s and shareholders’ wealth due to the losses it incurs in the process of replacing the faulty parts (Muller, Kiel, & Voight, 2018).

3. Digitalization Rationale and Benefits for Operational Improvement Anticipating, adopting and adapting changes in digital technology is a necessity in modern-day business. Companies that intend to retain and expand their market share, and also remain relevant must work on becoming digitally compliant. There are a myriad of benefits of embracing digital transformation. Key among them are; the positive transformation of customers’ experience, provides access to accurate data-based insights, and it encourages change adoption, agility and innovation (LaValle, et al., 2011). Digitalization is also crucial in bringing together the workforce, process and operations of a company. This makes it possible to keep track of the organization’s entire architecture.

Businesses undergo the digitalization process for various reasons, but it is mostly a survival strategy that they otherwise would not adopt due to its costliness. In the automotive industry, multinational corporations such as Toyota are under high competitive pressure, and to retain their market share, they have to reduce their costs while maintaining and even improving the quality of the product. To accomplish this, it is imperative to deeply adopt digitalization at all levels of the organization (Sestino, et al., 2020).

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In the case of Toyota’s issue of constant product recalls, digital transformation will enable the company to reorganize its processes and keep up with the quality of each of the parts that constitute the finished automobile (Wada, 2020). It will achieve this by facilitating collaboration across the entire organization and its partners. All the processes, from the top to the bottom of the organization can be synchronized digitally. This makes it possible for Toyota’s quality control department to communicate effectively with the suppliers of the vehicles parts and supervise the quality of the manufactured products at each stage. The quality control process can be further enhanced through various digitalization strategies such as Robotics and Artificial Intelligence. The smooth alignment of the company’s departments helps to identify defects in product quality faster, and seals the loopholes that would lead to the release of substandard products into the market. Digitalization, therefore, is an effective solution to Toyota’s quality issues.

4. Risks, Barriers, Enablers and Digitalization There are various risks, barriers and enablers that organizations encounter in the process of becoming digital. One of the key barriers is change resistance. Implementing change, whether negative or positive, is often a challenging process. People's reluctance to embrace change might hinder the effective execution of the digital transformation. For many organizations, the high cost of digitalization also inhibits their ability to embrace the process fully. Digitalization occurs more effectively in organizations that are able to experiment and implement changes quickly. For organizations that lack this ability, the digitalization process may not be effective (Austen-Smith, Diermeier, & Zemel, 2016).

Digitalization exposes the organization to a wide set of risks such as cybercrime, highly pervasive business disruption, gaps in the change management process, lack of employees who

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are skilled enough to implement the new technologies and third-party risks. Similarly, there are three main enablers of a company’s digital transformation journey; the people, partnerships and governance. When all three work in sync, it leads to a congruent and well-implemented digitalization process as well as lasting change.

Before embarking on the digitalization process, it is important for organizations to ensure that it has adequate financial resources, human resources, supportive structures, the right partnerships, and adequate governance. Creating the right digitalization framework is also a necessity because it acts as the company’s guide before, during and after the process.

5. Key Recommendations This study reveals a gap in Toyota’s quality control processes that should be handled urgently to address the safety and quality concerns caused by its product recalls. The first step in sealing the loopholes is to digitalize the quality control process from end to end, such that any fault in product quality will be identified and resolved promptly enough.

The following steps will make the process of digitalizing the quality control department smoother: -

Providing the resources required for the digitalization of the department

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Increase access to the data that will guide decision making in these departments

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Continuously engage and train the workforce to make them digitally compliant

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Perform regular audits to identify and correct weaknesses in the digitalization

process 6. Conclusion The exponential growth of Toyota’s market share, coupled with the outsourcing of the production of some of the automobile components presents a challenge to the company’s ability

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to ensure that its products consistently meet the required quality standards. The frequent recall of faulty vehicles further highlights a significant issue in the quality control process. This problem can be addressed by fully digitalizing the quality control department, such that, there is effective communication and coordination between the company and the manufacturers of vehicle components. If properly implemented, digitalization would increase the safety and quality of Toyota automobiles, thus increasing its market share and profitability.

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Reference List Austen-Smith, D., Diermeier, D. & Zemel, E. 2016, Unintended Acceleration: Toyota's Recall Crisis. SAGE Bayraktar, E, Jothishankar, MC, Tatoglu, E & Wu, T 2007, 'Evolution of operations management: past, present and future', Management Research News, vol. 30, no. 11, pp.

843-871.

Cotteleer, M, Mahto, M & Sniderman, B 2017, 'Forces of Change: Industry 4.0, Deloitte Insights', Deloitte Insights, pp.1-15. https://www2.deloitte.com/content/dam/insights/u s/articles/4323_Forces-of-change/4323_Forces-ofchange_Ind4-0.pdf Flynn, B.B. & Zhao, X. 2014, Global Supply Chain Quality Management: Product Recalls and Their Impact. CRC Press. https://doi.org/10.1108/01409170710832278 LaValle, S, Lesser, E, Shockley, R, Hopkins, MS & Kruschwitz, N 2011, ‘Big Data, Analytics and the Path from Insights to Value’, MIT Sloan Review, vol. 52, no. 2, pp.1-13. http://tarjomefa.com/wpcontent/uploads/2017/08/7446-EnglishTarjomeFa.pdf Muller, J, Kiel, D & Voight, KI 2018, ‘What Drives the Implementation of Industry 4.0? The Role of Opportunities and Challenges in the Context of Sustainability’, Sustainability, vol. 10, no. 247, pp. 124. https://www.mdpi.com/2071-1050/10/1/247 Olsen, T & Tomlin, B 2020, 'Industry 4.0: Opportunities and Challenges for Operations Management', Manufacturing & Service Operations Management, vol. 22, no. 1, pp. 113122. https://doi.org/10.1287/msom.2019.0796 Rüttimann, B.G 2019, Transactional Lean: Preparing for the Digitalization Era: A Systematic Approach to Industrialize Office Processes. Springer Sestino, A, Prete, MI, Piper, L & Guido, G 2020, 'Internet of Things and Big Data as enablers for business digitalization strategies', Technovation, vol. 98.

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Wada, K. 2020, The Evolution of the Toyota Production System : Studies in Economic History.

Springer Nature