Toyota VRIO Analysis – Competitive Advantages, Core Competencies

Toyota VRIO Analysis, Value, Rarity, Inimitability, Organization, competitive advantages, core competencies, capabilities, resources, automobile business management
A Toyota Concept Car in the Nagoya Motor Show in 2017. A VRIO analysis of Toyota Motor Corporation establishes the importance of technological innovation in core competencies for competitive advantages for profitable cars and related products in the global automotive market. (Public Domain Image)

Toyota Motor Corporation’s core competencies enable strong competitive advantages that apply to automotive business development in the long term. These core competencies, such as the ones discussed in this VRIO analysis of the company, include resources and capabilities that promote technological advancement, which is necessary to compete in the saturated and highly competitive international automobile market. For example, Toyota competes against Tesla, General Motors, Ford, Honda, BMW, Mitsubishi, Hyundai, and Nissan. These competitors employ innovative technologies to compete in the market. Even firms like Alphabet Inc. (Google) and Apple are developing self-driving and driverless car technologies. Jay B. Barney developed the VRIO analysis model as a tool for internal analysis of business organizations’ capabilities and resources that function as core competencies for competitive advantages, within the resource-based view (RBV) of the organization, and as part of the strategic planning process. In this VRIO analysis of Toyota Motor Corporation, the business is considered in terms of how it fares relative to competing automakers, and how its core competencies provide sustainable competitive advantages to secure the company’s future as a major player in the transportation sector.

VRIO Analysis Table – Toyota Motor Corporation

The core competencies of Toyota are based on its history of innovating business processes for high-efficiency automobile and parts manufacturing. Such business development history yields long-term competitive advantages that the company uses for maintaining its profitable operations in markets that have strict regulatory requirements, such as the United States and the European Union. Toyota Motor Corporation may have competitive advantages from core competencies other than the resources and capabilities pointed out in the following VRIO table for the automotive business:

Toyota’s Organizational Resources & CapabilitiesVRIO
– High efficiency manufacturing processes
– High production capacity
– Global network of manufacturing facilities in strategic locations
– Partnerships and alliances with complementary companies
– Capacity for intelligent driving technology
– Rapid innovation in research and development
Sustained Competitive Advantage(s):
– Technological expertise based on a history of relevant R&D
– Access to support from diverse businesses via the Toyota Group
– Capacity to compete based on cost and price via the Toyota Way (includes the Toyota Production System)
– High brand popularity

* This VRIO table is best viewed using HTML5-compatible browsers.

Non-core Competencies. In the VRIO analysis model, the non-core competencies are the organizational resources and capabilities that satisfy only some of the VRIO requirements (value, rarity, inimitability, and organization). In this case of Toyota, for example, high efficiency in manufacturing processes is an organizational capability that contributes to the company’s competitiveness. However, this capability is not a core competency because other automobile manufacturers have developed their own high-efficiency production processes. In relation, the company’s high production capacity is a capability that is imitable through automation and related technologies, and through best practices in operations management. Thus, as the VRIO table illustrates, high production capacity is a non-core competency that provides competitive parity or equality, even though it could support Toyota’s competitive advantages.

Toyota’s non-core competencies also include its global network of manufacturing facilities, which are strategically located. The company’s international expansion has led to the establishment of such facilities. In the VRIO analysis model, this manufacturing network is a resource that is valuable, but not rare, as other automakers have a similar strategic approach in developing their manufacturing networks. Thus, this resource is not among Toyota Motor Corporation’s core competencies. It supports competitiveness, but does not offer strong advantage to the company, relative to other automotive businesses. This VRIO analysis also considers the resource of partnerships and alliances with complementary companies. In this internal analysis of Toyota, partnerships and alliances are organizational systems and initiatives involving businesses that benefit the company. For example, an alliance with Panasonic helps Toyota access batteries that are used in the automaker’s electric and hybrid vehicles. Based on the VRIO table, these resources are valuable for business competitiveness. However, they are not among the core competencies of Toyota Motor Corporation because partnerships and alliances are imitable and not rare. These resources (and the associated capabilities) do not provide competitive advantage. Instead, they create competitive equality relative to other firms in the global automobile market.

The capacity for intelligent driving technology is a non-core competency in this VRIO analysis of Toyota’s business. This competency refers to the development and integration of information technologies that assist or at least partially automate driving. Such technological capability contributes to the company’s competitive advantages. However, on its own, this capability creates only competitive parity and not competitive advantage, considering that all major automakers already have similar capacities for intelligent or smart car technologies. In contrast, rapid innovation in research and development is a more valuable competency to Toyota’s business. This VRIO analysis considers such capability rare because the company’s current R&D processes are the result of a series of strategic implementations for global competitiveness from the beginnings of the business to its current state of multinational operations. Rapid innovation in R&D processes promotes competitive advantage but is not a core competency because other automotive firms, such as General Motors and Nissan, have similar research and development strategies. Still, rapid innovation in R&D is a capability that is relatively rare and difficult to achieve among smaller players or new entrants. Thus, within the VRIO model, Toyota Motor Corporation gains competitiveness from rapid innovation, but further enhancement is needed to make this capability a core competency.

Toyota’s Core Competencies (Long-Term Competitive Advantages). The VRIO table for Toyota indicates four organizational capabilities and resources that are core competencies for sustainable competitive advantages in the automobile market. For instance, the company benefits from technological expertise based on a long history of relevant research and development strategic implementations. While research and development strategies are similar among automakers, the VRIO table shows that this capability is rare, because Toyota’s technological expertise is specific to the company. The corporation developed the foundation for what is now known as lean manufacturing (or Just-in-Time production). The company is known for continuous improvement approaches contained in The Toyota Way. This strategic resource and capability makes the company a pioneer in terms of improving automotive manufacturing processes. In this VRIO analysis, such technological expertise is a core competency that provides long-term or sustained competitive advantage to the business.

In relation, access to support from diverse businesses is included as a core competency in this VRIO analysis of Toyota Motor Corporation. This competency is a major resource in the company’s growth and ability for international expansion and competitiveness. As part of the Toyota Group, the company has access to support from the businesses in the Group. For example, this core competency allows the company to gain technological and human resource support from other firms in the Group. As a core competency included in the VRIO table, this resource creates strategic competitive advantages that are not readily available to other automotive manufacturers that are not part of a conglomerate. The resulting sustainable competitive advantage helps Toyota optimize its research and development for innovative products, such as high-efficiency automobiles.

Another core competency involved in Toyota’s business is the capacity to compete based on cost and price. This organizational capability addresses all of the four VRIO requirements, thereby creating long-term competitive advantage for operations in the global automotive market. This core competency is based on the Toyota Way, which is a set of strategies and tactics aimed at maximizing production efficiency, minimizing losses, and enhancing the performance of various aspects of the business. The resulting competitive advantage provides the company with the ability to lower its costs and selling prices. This VRIO analysis points to this capability as a factor in Toyota’s ability to gain a bigger market share.

Aside from these core competencies, the high popularity of the Toyota brand is a core competency considered in this VRIO analysis. As a resource, the brand is a core competency that supports the company’s competitiveness based on a generally positive customer perception about the business and its products. For example, a new Toyota-branded product presents an image of substance, efficiency, and durability. Such a positive image helps in the company’s competitive advantage, especially against smaller or new automakers.

Key Points from the VRIO Analysis of Toyota Motor Corporation

Competitive advantages are maintained in Toyota’s business through the core competencies discussed in this VRIO analysis of organizational resources and capabilities. As a major competitor in the global automotive industry, the company experiences market forces involving the operations of major automakers, such as General Motors, Ford, Nissan, and others. This industry situation requires Toyota to employ and improve its core competencies for sustained competitive advantages. The core competencies shown in the VRIO table are unique to the company, and are the results of decades of strategic successes. However, the company has non-core competencies that have the potential to become core competencies to further strengthen the business against other automakers. For instance, partnerships and alliances, capacity for intelligent driving technology, and rapid innovation in research and development are resources and capabilities that have the potential to better benefit Toyota’s operations and profits.

Some Recommendations. Even though this VRIO analysis shows that partnerships and alliances are not a core competency of Toyota, it is possible to improve these resources and capabilities’ strategic benefit to business competitiveness. For example, the business can develop new exclusive and mutually beneficial partnerships and alliances. Toyota’s organizational size can support the company’s bargaining ability in demanding for exclusivity in such partnerships and alliances. In addition, through these alliances, the company can improve the existing technologies that are integrated into its automotive products. The company’s capacity for intelligent driving technology is one such technological competency included in this VRIO analysis of Toyota Motor Corporation. The business stands to gain from the strategic development of the technology. For instance, the company can make intelligent driving features more comprehensive and specifically suited to Toyota cars. Still, this development is challenging because of the industry trend involving automakers’ cooperation for interlinking smart cars. Furthermore, the company can implement new approaches, technologies, and proprietary designs into its rapid innovation processes in research and development, for the purpose of making such processes difficult to imitate. Inimitability can make Toyota’s R&D innovation process a core competency. This additional core competency, in combination with the core competencies shown in this VRIO analysis, would increase the company’s competitive advantages in the automotive industry.