Marshall School of Business
University of Southern California
Revised 10/30/06
Toyota Motor Sales, U.S.A., Inc.
Teaching Notes
Purpose of Case
The Toyota Motor Sales, U.S.A. Inc. (TMS) case can be used for any of many purposes. First, it
can be used in conjunction with Chapter 7 (Financial Responsibility Centers) to discuss issues
related to managerial authority and financial responsibility. The key issue posed in the case is
whether TMS regional general managers should be held accountable for profits, rather than
primarily sales.
The TMS case has been included in Chapter 16 of this text because it can be used to motivate a
discussion as to how the competitive environment affects the financial responsibility center
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Finally, the case can be used with Chapter 12 (Using Financial Results Controls in the Presence
Suggested Assignment Questions
2. Should TMS implement the proposal for change? If so, who should take the lead in bringing
about the change, and what should be the process and timing for change? If not, why not?
Case Analysis
Critical Success Factors and Authority Structure
I like to start the discussion of the TMS case by having the students identify the companys
critical success factors. Then I have them indicate who in the organization, corporate managers
(C) or regional managers (R) has the authority in each of the critical areas. This list should look
something like this:
Critical success factor Who has the authority?
Accurate sales forecasts to TMC C
Short-term sales (units) (total and market share) C,R
 incentives
The Current System
The next discussion, then, should be to clarify TMSs existing system for evaluating the
regional general managers. The current system is subjective, but the subjective judgments are
based on many numbers.
1. Actual sales versus sales objective (Exhibit 4)
3. Customer satisfaction (as a precursor of long-term sales) (Exhibit 5)
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4. Dealer profit
Observations on this system:
1. Because evaluations are subjective, there is potential for bias and unfairness. But subjective
evaluations are consistent with the Toyota corporate culture.
2. TMS used to do a ranking of regions on sales performance, but they stopped doing this as is
4. They smooth rewards so there is no feast or famine.
5. The rewards are not solely monetary.
The Proposal for Change
The proposal for change involves changes in both the responsibility and authority of the
The arguments for change are:
2. The regions are quite different. For example, Japanese cars have 65% of the California
3. Develop manager abilities.
5. More motivation (running own show).
7. Increased ability to deal with growth.
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The arguments against change:
1. Will regional GMs become excessively short-term oriented? Incentives have a particularly
2. Port operating costs are difficult to allocate to regions. (Consider them corporate costs?)
3. Create game playing. For example, pressure at the port to ship cars early to meet sales
targets?
4. Most regional GMs are salesmen. Lack experience to be profit center managers (could be
solved in long-term through hiring and placement)
6. Lose economies of scale in the functions? The proposal adds another layer of bureaucracy
7. Are TMS managers willing to give up some authority?
What Happened?
In the 7 years after the case was written, TMS made no changes to their region authority/
responsibility system.
Why was it so difficult to change? TMS managers who came to class blamed the inaction on the
Conditions that Would Eventually Lead to Making the Regions Profit Centers
Trends in the market might eventually cause TMS to make its regions profit centers. Consider
the trends that took place after the time of the case. The exchange rate variation working against
Japanese manufacturing firms peaked in 1995.
1991 1995
Exchange rate 150 yen = $1 100 yen = $1 (The low was 79:1)
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Some other trends:
1. In the world automobile market, competition is up sharply.
3. Automobile manufacturers have adopted lean structures. Information technologies are
becoming more important.
4. The dealer structure is threatened. For example, customers can now order a car off the
Internet. Mega dealers are emerging. And some dealers (e.g., Saturn) are offering cars at a
6. Lifetime employment is disappearing even at the large Japanese companies.
7. Toyota suppliers are on razor-thin margins.
The combination of these trends has shown Toyota that it must become more market-focused,
rather than production-focused, and to do this will require decentralization. Power is shifting to
the customers. Toyota is reconsidering its whole marketing concept. Starting in late 1997, the
issue as to whether the regional general managers should be profit center managers was again
being explicitly considered.