puente hills toyota case study solution

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Puente Hills Toyota

Teaching note, purpose of case.

This case can be used to motivate discussions of a number of topics, including financial responsibility centers, performance measurement, transfer pricing, and incentives. The setting is an automobile dealership, a business about which all students have some interest and understanding. And the setting is real, so students can benefit from secondary learning about the industry and business.

Because the incentives provided in this company, and the US automobile dealership sector in general, are quite substantive, a significant portion of the case discussion can be usefully devoted to examining and critiquing this company’s performance measurement and incentive systems. But Puente Hills Toyota has some features that, individually and in combination, make it different from most other companies described in cases that focus on incentive systems. This company is privately held; it makes use of some nonfinancial performance measures; it provides incentives to personnel well below the management level; and its managers are well aware that people are “playing games” with some of the measures.

The Puente Hills Toyota case can also be used in conjunction with the Kooistra Autogroep case study, which is also included in this textbook. Kooistra Autogroep and Puente Hills Toyota are both automobile retailers with highly similar organization and industry characteristics. But that is where the similarities end. Kooistra Autogroep is based in the Netherlands where incentive pay is much less prevalent. Even though there is some evidence that even in the Netherlands companies begin to increasingly provide incentive pay, its advent is nonetheless controversial and not yet well accepted. Therefore, comparing and contrasting both cases (in one class or, alternatively, two separate classes) can lead to useful discussions about cross-cultural differences in the provision of incentives and in perceptions about the effectiveness of incentives.

This note was prepared by Professors Kenneth A. Merchant (University of Southern California) and Wim A. Van der Stede (London School of Economics) for the sole purpose of aiding classroom instructors in the use of the Puente Hills Toyota case. It provides analysis and questions that are intended to present alternative approaches to deepening students' comprehension of business issues and energizing classroom discussion.

Copyright 2007 by Kenneth A. Merchant and Wim A. Van der Stede. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means without permission.

Suggested Assignment Questions

1. Evaluate the performance measurement and incentive systems used at Puente Hills Toyota. What changes would you recommend, if any?

2. At Puente Hills Toyota, most employees’ variable incentive pay increases linearly with performance, however performance is defined; that is, the higher the performance, the larger the bonuses that are paid. In most large companies, however, particularly at managerial levels, no bonuses are paid until a minimum level of performance, such as a budget goal, is exceeded. What are the advantages and disadvantages of using a reward/performance function like Puente Hill Toyota’s?

3. (When used in conjunction with Kooistra Autogroep.) When comparing the use of incentives in the Puente Hills Toyota and Kooistra Autogroep cases, do you believe that incentive pay is truly effort-inducing; that is, drive employees to perform at their best? If you believe incentive pay is not, in whole or part, effective in making employees work harder, then what other potentially useful purposes does variable incentive pay provide for organizations relying on it, if any?

• Case Analysis

Responsibility Centers

The case illustrates clearly that financial responsibility centers exist in great variety. While textbooks describe the possible generic responsibility centers as cost centers, revenue centers, profit centers, and investment centers, this case shows some of the variance that can exist within these generic categories. The general sales manager is held accountable for net profit. Obviously, the dealership also keeps track of balance sheet items, but the dealership general manager’s incentives do not seem to consider them. So is the general manager an investment center manager?

Similarly, the departments are profit centers, but not all costs are allocated to them. They are more like “gross profit centers.” The salespeople are held accountable for gross profit on the deals they initiate, so each salesperson is also a “little profit center.” The service advisors are paid on commission, so each advisor is a revenue center. The service technicians, though, are paid for work accomplished.

It is useful to discuss why some seemingly uncontrollable indirect costs are allocated to departments (see Exhibit 3). These allocations are mandated by Toyota, so that they can compare dealership departments on a common basis that treats each department more or less as a stand-alone business. Allocating the costs also gives the department managers information as to what services are being provided for them and it gives them some power to complain if the size of the allocations becomes too high.

This issue can lead into a discussion of the differences between authority and accountability. Managers are generally held accountable for results in areas where they have authority. But the general sales manager’s bonuses are based on performance measured in terms of profit after overhead allocations (line 59 in Exhibit 3). This is an example of a situation where this manager is held accountable for areas over which he has less than full authority. Conversely, the service manager’s bonuses are based on the department’s gross profit performance, which is before allocations.

Merchant & Van der Stede, Management Control Systems, 3 rd edition, Instructor’s Manual

Transfer Pricing

Transfer pricing of service jobs done for internal customers (particularly the Used Car department) is done at market prices. The alternative would be to give the internal customer a discount, or perhaps even to transfer at cost. What would happen under that alternative? It would shift profits from Service to Used Car. It would also provide little incentive for Service to do internal work. Puente Hills Toyota transfers at market prices because they want to measure each department as a stand-alone business and they want to have the Used Car department get as much priority in the Service area as any other customer.

Performance Measurement

The measurement focus in this business is on profit measures. Do profit measures provide a good indication of value creation in the car retailing business? The answer here is probably yes. This is primarily a short-term business. Dealerships are not making many investments that involve large lags between time of investment and payoff (such as R&D), and they are not creating many intangible assets. The one exception is customer goodwill, so it is not surprising that Toyota mandates that considerable effort also be devoted to the measurement of customer satisfaction (CSI).

It is apparent in the case, however, that some of the measures can be gamed. Puente Hills Toyota managers worry about the gaming in the service area, and they seem to have adequate controls over these behaviors. The CSI measure is also gamed. But here the managers seem to “condone” the gaming because it makes the dealership look better to Toyota. Does the dealership need an un-gamed CSI measure for its own management purposes? How will they get accurate information about customer service problems if and when they exist?

Incentive Plans

Useful class time can also be devoted to a discussion of the structure of the incentive plans. Depending on the focus of the class and the class time available, the instructor can have the students complete an incentive plan matrix. On a whiteboard, list any or all of the key incentive plan elements. With adequate time, instructors can address the following:

Eligibility (i.e., who is included in the plan?) Form of payment

Frequency of payment

Measure(s) and their importance weighting Performance standards

Shape of reward/performance function Size of reward (expected, maximum)

Funding (e.g., is there a company bonus pool constraint?) Uniformity (are people in the same role treated the same?)

In an array of columns, list the roles for which the instructor wants to clarify the incentive system. In this case, these might include the general manager, general sales manager, service manager, salespeople, service advisors, or service technicians.

Among other things, this analysis will show that: The payments are all in cash.

The payments are timely (monthly).

The bonuses are paid by formula; there is no bonus pool constraint.

There are no performance standards except in the service technician area where standards are set by Toyota. Internally set budgets are used to calibrate the payoff function, but goal- setting does not seem important in this business.

The service manager reward/performance function is kinked upward to encourage beating the budget.

The rewards are quite lucrative.

The first assignment question asks students for an evaluation of the performance measurement and incentive system, which requires them to identify good and bad points about it. In addition to the points raised above, students might mention the following:

1. There are no deferred compensation elements that might provide retention and tax benefits. 2. This is an incentive system that would require the company to pay sizable bonuses even if

the company is losing money.

3. There is no bonus for teamwork. How much teamwork is necessary? The case mentions one area that could be improved—service referrals to sales.

4. Is the company paying too much? Answering this question would require knowledge of industry benchmarking. Some of these data are provided in the case Appendices. Puente Hills Toyota’s practices seem in line with other dealerships.

5. The bonuses are all formula-based. Would it be useful to allow some subjectivity in case unforeseen events unfold or to reward otherwise hard-to-measure aspects of inherently multitask jobs?

Generally, however, this measurement and incentive system probably must be considered as effective. Much of this system is dictated by Toyota, and this is an industry and company that has refined its systems over the years. And within the Toyota family, Puente Hills Toyota is a top performer.

The second assignment question asks students to evaluate the features of linear incentive pay increases with performance, as opposed to incentive schemes with a floor where no bonuses are paid until a minimum level (“hurdle”) of performance, such as a budget target, is exceeded. “Kinks” in the function that relates incentives to performance (such as a floor (but also a cap) on

performance) create temptations for “gameplaying.”3 Therefore, compared to kinked or hurdle- type incentive schemes, linear or commission-type incentive schemes remove these temptations. A potential disadvantage of linear incentive schemes, however, is that they also remove the motivational effects of performance targets. In other words, the company pays bonuses from the first dollar of profits earned (or sales booked) even though overall performance during the period may be poor or mediocre at best (i.e., profits or revenues fail to meet target).

Whether the benefits of removing gaming outweigh the loss of motivation due to removing targets depends on the situation. Employees can be strongly motivated by linear incentives schemes in situations where efforts, results, and incentives are tightly linked, as is likely for sales jobs (where the efforts of a salesperson can be directly linked with the sale) or production jobs (where the efforts of a shopfloor worker can be directly linked with the quantity and quality of output). In these situations, therefore, commissions (as they are typically called in a sales setting) or piece rates (as they are typically called in a production setting), strongly motivate employees to work hard to sell/produce every unit, whether the first or the last, regardless of where, or if, a target is set. In summary, given the nature of the sales environment in automobile retailers, Puente Hills probably can be said to reap the benefits of linear incentives through reducing the scope for gaming while still providing strong motivation to perform at any point in time during the performance period.

We address the third assignment question in the Teaching Note for the Kooistra Autogroep case study.

As with most case classes, instructors must make a decision as to how structured to make the discussion. However, we recommend following roughly the same structure, as presented in this teaching note, to allow sufficient discussion time spent on all critical elements of any financial results control system, including responsibility centers (and transfer pricing), performance measurement, and incentives. To serve as an integration case, which this case provides an opportunity for, some structure is required as otherwise students tend to focus too quickly on the incentive system that undoubtedly tends to capture most of their attention when reading the case.

3 For a more detailed discussion, as well as examples of the various “games” that managers play under kinked incentive schemes, see

Jensen M. (November 2001). “Corporate budgeting is broken—let’s fix it”. Harvard Business Review, 95–101.

Professors Kenneth A. Merchant and Wim A. Van der Stede wrote this teaching note as an aid to instructors using the Houston Fearless 76, Inc. case.

Copyright 2003 by Kenneth A. Merchant and Wim A. Van der Stede. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means without permission.

Marshall School of Business

University of southern california, houston fearless 76, inc..

This case describes a sales incentive system based on a traditional commission payout and a proposal for change. The proposal raises a number of issues regarding performance measurement, performance standards, and calibration of incentive awards. One interesting part of the proposal is a “truth-inducing” feature designed to motivate the salespeople to make accurate sales forecasts. An interesting unsolved issue is whether to and how to provide incentives for selling products with negative gross margins, which the company still wanted to sell for strategic purposes.

1. Why are Houston Fearless 76, Inc. (HF76) managers unhappy with the company’s existing sales incentive plan? Are weaknesses in this plan a major cause of the company’s performance problems?

2. Evaluate the new incentive plan being contemplated. What modifications would you make to the proposed new plan, if any? How would you address the unresolved issues?

3. Are there any significant impediments to the successful implementation of the new incentive plan? If so, which?

4. Would you make any changes to the system providing bonuses to sales assistants? If so, what?

What does HF76 want from its salespeople?

Before getting into a discussion of the old and new sales incentive plans, it is useful to have the students clarify the company’s markets and to identify the behaviors that HF76 managers would ideally like from their salespeople. HF76 is organized into four business units: HF International, Extek, Mekel, and Pollution Control Systems.

a. HF International (photo processing) Mature market

Known customer base

One salesperson in the East (lives in Maryland). Sell through distributors in the West.

b. Extek (micrographics) Mature market

Customers are government entities 125 dealers

One salesman working in a specific market (lives in St. Louis). He also has the task of culling the dealer list. (Where is his motivation for that?)

c. Mekel (scanners)

More high tech, more growth potential Two salespeople; 1 domestic, 1 foreign d. Pollution control systems

Only one sale to date

One salesman with little sales experience

Company sees this market as having great potential

What does HF76 want its salespeople to do?

Provide good service to existing customers. This is particularly important in the mature markets.

Allocate their time effectively, particularly to sell in the most profitable markets. Find good new customers and to open new markets.

Provide accurate sales forecasts.

What should be the goals of the sales incentive system?

Motivation (stimulate effort)

Direct attention (communicate what is important).

An incentive system is imperative in this setting. Because of the geographical dispersion of the sales force, close monitoring by management (action control) is not feasible.

What are the key elements of the existing sales incentive plan?

Because of the complexity of this, and actually most incentive plans, we suggest laying out the features of the old and proposed plan in a structured manner. We have outlined the major elements of both in Figure TN-1. (This format is useful for summarizing the elements of the incentive plans in many cases.)

What are the problems currently being faced?

Dealers and sales reps do not share customer lists.

Salespeople are not developing new customers. Most of them merely respond to inquiries. Sales people are spread all over the country. The VP-Sales is in Atlanta. The organization is hard to control/monitor.

The sales people have not received performance evaluations recently, or raises. Sales tracking is just being computerized.

The sales forecasts are inaccurate. Can they be made more accurate?

The company is paying commissions whether the salesperson causes the sale to occur or not.

What are the key elements of the proposed incentive plan?

See Figure TN-1.

It is useful to clarify the shape of the performance/reward function. The slope of the payout function in the existing system was 2–4% of sales. The slope of the function in the proposed system is much steeper. No bonuses are paid for the first sales, up to 70% of forecast, and then the kinked function goes up sharply. The company managers reasoned that the first 70% of sales would occur anyway, even if the salesperson was lazy. So the incentives for the sales force to sell a lot have increased markedly.

These slopes can be illustrated with a hypothetical example. Here is one that can be used: Assume a high margin sale = 30% GM

Price = $100,000 (a scanning system) Commission rate = 2%

Assume that plan = $1.6 million sales

= $1.6 × .3 = $480,000 gross margin

Under the old plan

Commission on the one sale = $2,000 GM for company = $30,000

At plan, company GM = $480,000 Salesperson earns $32,000

Under the new plan

At 70% of plan ($1.12M in sales): Company GM = $336,000 Salesman commission = 0 At 100% of plan ($1.6M in sales): Company GM = $480,000

Salesman commission = $35,000 Slope = 35,000/(1.6 × .3) = 7.3%

On $100,000 sale > 100% plan: Company earns $30,000

Salesperson earns $9,100 (slope = 9.1% of GM)

Students should be asked to evaluate the plan and to provide recommendations for improvement. There are a lot of issues that can be discussed. Students will raise most of the obvious measurement and calibration issues. A good student report on this case is appended to this teaching note.

Here are some other questions that can be posed if they do not come up naturally:

Is the weighting of the three aspects of performance correct? Is this enough incentive for forecast accuracy or for the individual MBO items? (It seems small.)

Does the start-up business (pollution control) fit this plan? (No.)

How should HF76 provide incentives to sell products that are sold at a negative gross margin? HF76 had a number of these products, which managers wanted to keep selling for customer access and service reasons. This is a difficult issue that HF76 managers had not solved. Any number of approaches could have been used, such as guaranteeing the sales force a minimum gross margin percentage on each sale.

Other, perhaps more peripheral, questions that can be posed, time allowing: Should anything have been done with the incentives for the sales assistants?

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Puente Hill Toyota

• Harvard Case Studies

Harvard Business Case Studies Solutions – Assignment Help

In most courses studied at Harvard Business schools, students are provided with a case study. Major HBR cases concerns on a whole industry, a whole organization or some part of organization; profitable or non-profitable organizations. Student’s role is to analyze the case and diagnose the situation, identify the problem and then give appropriate recommendations and steps to be taken.

To make a detailed case analysis, student should follow these steps:

STEP 1: Reading Up Harvard Case Study Method Guide:

Case study method guide is provided to students which determine the aspects of problem needed to be considered while analyzing a case study. It is very important to have a thorough reading and understanding of guidelines provided. However, poor guide reading will lead to misunderstanding of case and failure of analyses. It is recommended to read guidelines before and after reading the case to understand what is asked and how the questions are to be answered. Therefore, in-depth understanding f case guidelines is very important.

Harvard Case Study Solutions

STEP 2: Reading The Puente Hill Toyota Harvard Case Study:

To have a complete understanding of the case, one should focus on case reading. It is said that case should be read two times. Initially, fast reading without taking notes and underlines should be done. Initial reading is to get a rough idea of what information is provided for the analyses. Then, a very careful reading should be done at second time reading of the case. This time, highlighting the important point and mark the necessary information provided in the case. In addition, the quantitative data in case, and its relations with other quantitative or qualitative variables should be given more importance. Also, manipulating different data and combining with other information available will give a new insight. However, all of the information provided is not reliable and relevant.

When having a fast reading, following points should be noted:

• Nature of organization
• Nature if industry in which organization operates.
• External environment that is effecting organization
• Problems being faced by management
• Identification of communication strategies.
• Any relevant strategy that can be added.
• Control and out-of-control situations.

When reading the case for second time, following points should be considered:

• Decisions needed to be made and the responsible Person to make decision.
• Objectives of the organization and key players in this case.
• The compatibility of objectives. if not, their reconciliations and necessary redefinition.
• Sources and constraints of organization from meeting its objectives.

After reading the case and guidelines thoroughly, reader should go forward and start the analyses of the case.

STEP 3: Doing The Case Analysis Of Puente Hill Toyota:

To make an appropriate case analyses, firstly, reader should mark the important problems that are happening in the organization. There may be multiple problems that can be faced by any organization. Secondly, after identifying problems in the company, identify the most concerned and important problem that needed to be focused.

Firstly, the introduction is written. After having a clear idea of what is defined in the case, we deliver it to the reader. It is better to start the introduction from any historical or social context. The challenging diagnosis for Puente Hill Toyota and the management of information is needed to be provided. However, introduction should not be longer than 6-7 lines in a paragraph. As the most important objective is to convey the most important message for to the reader.

After introduction, problem statement is defined. In the problem statement, the company’s most important problem and constraints to solve these problems should be define clearly. However, the problem should be concisely define in no more than a paragraph. After defining the problems and constraints, analysis of the case study is begin.

STEP 4: SWOT Analysis of the Puente Hill Toyota HBR Case Solution:

SWOT analysis helps the business to identify its strengths and weaknesses, as well as understanding of opportunity that can be availed and the threat that the company is facing. SWOT for Puente Hill Toyota is a powerful tool of analysis as it provide a thought to uncover and exploit the opportunities that can be used to increase and enhance company’s operations. In addition, it also identifies the weaknesses of the organization that will help to be eliminated and manage the threats that would catch the attention of the management.

This strategy helps the company to make any strategy that would differentiate the company from competitors, so that the organization can compete successfully in the industry. The strengths and weaknesses are obtained from internal organization. Whereas, the opportunities and threats are generally related from external environment of organization. Moreover, it is also called Internal-External Analysis.

In the strengths, management should identify the following points exists in the organization:

• Advantages of the organization
• Activities of the company better than competitors.
• Unique resources and low cost resources company have.
• Activities and resources market sees as the company’s strength.
• Unique selling proposition of the company.

WEAKNESSES:

• Improvement that could be done.
• Activities that can be avoided for Puente Hill Toyota.
• Activities that can be determined as your weakness in the market.
• Factors that can reduce the sales.
• Competitor’s activities that can be seen as your weakness.

OPPORTUNITIES:

• Good opportunities that can be spotted.
• Interesting trends of industry.
• Change in technology and market strategies
• Government policy changes that is related to the company’s field
• Changes in social patterns and lifestyles.
• Local events.

Following points can be identified as a threat to company:

• Company’s facing obstacles.
• Activities of competitors.
• Product and services quality standards
• Threat from changing technologies
• Financial/cash flow problems
• Weakness that threaten the business.

Following points should be considered when applying SWOT to the analysis:

• Precise and verifiable phrases should be sued.
• Prioritize the points under each head, so that management can identify which step has to be taken first.
• Apply the analyses at proposed level. Clear yourself first that on what basis you have to apply SWOT matrix.
• Make sure that points identified should carry itself with strategy formulation process.
• Use particular terms (like USP, Core Competencies Analyses etc.) to get a comprehensive picture of analyses.

STEP 5: PESTEL/ PEST Analysis of Puente Hill Toyota Case Solution:

Pest analyses is a widely used tool to analyze the Political, Economic, Socio-cultural, Technological, Environmental and legal situations which can provide great and new opportunities to the company as well as these factors can also threat the company, to be dangerous in future.

Pest analysis is very important and informative.  It is used for the purpose of identifying business opportunities and advance threat warning. Moreover, it also helps to the extent to which change is useful for the company and also guide the direction for the change. In addition, it also helps to avoid activities and actions that will be harmful for the company in future, including projects and strategies.

To analyze the business objective and its opportunities and threats, following steps should be followed:

• Brainstorm and assumption the changes that should be made to organization. Answer the necessary questions that are related to specific needs of organization
• Analyze the opportunities that would be happen due to the change.
• Analyze the threats and issues that would be caused due to change.
• Perform cost benefit analyses and take the appropriate action.

Pest analysis

PEST FACTORS:

• Next political elections and changes that will happen in the country due to these elections
• Strong and powerful political person, his point of view on business policies and their effect on the organization.
• Strength of property rights and law rules. And its ratio with corruption and organized crimes. Changes in these situation and its effects.
• Change in Legislation and taxation effects on the company
• Trend of regulations and deregulations. Effects of change in business regulations
• Timescale of legislative change.
• Other political factors likely to change for Puente Hill Toyota.

ECONOMICAL:

• Position and current economy trend i.e. growing, stagnant or declining.
• Exchange rates fluctuations and its relation with company.
• Change in Level of customer’s disposable income and its effect.
• Fluctuation in unemployment rate and its effect on hiring of skilled employees
• Access to credit and loans. And its effects on company
• Effect of globalization on economic environment
• Considerations on other economic factors

SOCIO-CULTURAL:

• Change in population growth rate and age factors, and its impacts on organization.
• Effect on organization due to Change in attitudes and generational shifts.
• Standards of health, education and social mobility levels. Its changes and effects on company.
• Employment patterns, job market trend and attitude towards work according to different age groups.

• Social attitudes and social trends, change in socio culture an dits effects.
• Religious believers and life styles and its effects on organization
• Other socio culture factors and its impacts.

TECHNOLOGICAL:

• Any new technology that company is using
• Any new technology in market that could affect the work, organization or industry
• Access of competitors to the new technologies and its impact on their product development/better services.
• Research areas of government and education institutes in which the company can make any efforts
• Changes in infra-structure and its effects on work flow
• Existing technology that can facilitate the company
• Other technological factors and their impacts on company and industry

These headings and analyses would help the company to consider these factors and make a “big picture” of company’s characteristics. This will help the manager to take the decision and drawing conclusion about the forces that would create a big impact on company and its resources.

STEP 6: Porter’s Five Forces/ Strategic Analysis Of The Puente Hill Toyota Case Study:

To analyze the structure of a company and its corporate strategy, Porter’s five forces model is used. In this model, five forces have been identified which play an important part in shaping the market and industry. These forces are used to measure competition intensity and profitability of an industry and market.

porter’s five forces model

These forces refers to micro environment and the company ability to serve its customers and make a profit. These five forces includes three forces from horizontal competition and two forces from vertical competition. The five forces are discussed below:

• THREAT OF NEW ENTRANTS:
• as the industry have high profits, many new entrants will try to enter into the market. However, the new entrants will eventually cause decrease in overall industry profits. Therefore, it is necessary to block the new entrants in the industry. following factors is describing the level of threat to new entrants:
• Barriers to entry that includes copy rights and patents.
• High capital requirement
• Government restricted policies
• Switching cost
• Access to suppliers and distributions
• Customer loyalty to established brands.
• THREAT OF SUBSTITUTES:
• this describes the threat to company. If the goods and services are not up to the standard, consumers can use substitutes and alternatives that do not need any extra effort and do not make a major difference. For example, using Aquafina in substitution of tap water, Pepsi in alternative of Coca Cola. The potential factors that made customer shift to substitutes are as follows:
• Price performance of substitute
• Switching costs of buyer
• Products substitute available in the market
• Reduction of quality
• Close substitution are available
• DEGREE OF INDUSTRY RIVALRY:
• the lesser money and resources are required to enter into any industry, the higher there will be new competitors and be an effective competitor. It will also weaken the company’s position. Following are the potential factors that will influence the company’s competition:
• Competitive advantage
• Continuous innovation
• Sustainable position in competitive advantage
• Level of advertising
• Competitive strategy
• BARGAINING POWER OF BUYERS:
• it deals with the ability of customers to take down the prices. It mainly consists the importance of a customer and the level of cost if a customer will switch from one product to another. The buyer power is high if there are too many alternatives available. And the buyer power is low if there are lesser options of alternatives and switching. Following factors will influence the buying power of customers:
• Bargaining leverage
• Switching cost of a buyer
• Buyer price sensitivity
• Competitive advantage of company’s product
• BARGAINING POWER OF SUPPLIERS:
• this refers to the supplier’s ability of increasing and decreasing prices. If there are few alternatives o supplier available, this will threat the company and it would have to purchase its raw material in supplier’s terms. However, if there are many suppliers alternative, suppliers have low bargaining power and company do not have to face high switching cost. The potential factors that effects bargaining power of suppliers are the following:
• Input differentiation
• Impact of cost on differentiation
• Strength of distribution centers
• Input substitute’s availability.

STEP 7: VRIO Analysis of Puente Hill Toyota:

Vrio analysis for Puente Hill Toyota case study identified the four main attributes which helps the organization to gain a competitive advantages. The author of this theory suggests that firm must be valuable, rare, imperfectly imitable and perfectly non sustainable. Therefore there must be some resources and capabilities in an organization that can facilitate the competitive advantage to company. The four components of VRIO analysis are described below: VALUABLE: the company must have some resources or strategies that can exploit opportunities and defend the company from major threats. If the company holds some value then answer is yes. Resources are also valuable if they provide customer satisfaction and increase customer value. This value may create by increasing differentiation in existing product or decrease its price. Is these conditions are not met, company may lead to competitive disadvantage. Therefore, it is necessary to continually review the Puente Hill Toyota company’s activities and resources values. RARE: the resources of the Puente Hill Toyota company that are not used by any other company are known as rare. Rare and valuable resources grant much competitive advantages to the firm. However, when more than one few companies uses the same resources and provide competitive parity are also known as rare resources. Even, the competitive parity is not desired position, but the company should not lose its valuable resources, even they are common. COSTLY TO IMITATE: the resources are costly to imitate, if other organizations cannot imitate it. However, imitation is done in two ways. One is duplicating that is direct imitation and the other one is substituting that is indirect imitation. Any firm who has valuable and rare resources, and these resources are costly to imitate, have achieved their competitive advantage. However, resources should also be perfectly non sustainable. The reasons that resource imitation is costly are historical conditions, casual ambiguity and social complexity. ORGANIZED TO CAPTURE VALUE: resources, itself, cannot provide advantages to organization until it is organized and exploit to do so. A firm (like Puente Hill Toyota)  must organize its management systems, processes, policies and strategies to fully utilize the resource’s potential to be valuable, rare and costly to imitate.

STEP 8: Generating Alternatives For Puente Hill Toyota Case Solution:

After completing the analyses of the company, its opportunities and threats, it is important to generate a solution of the problem and the alternatives a company can apply in order to solve its problems. To generate the alternative of problem, following things must to be kept in mind:

• Realistic solution should be identified that can be operated in the company, with all its constraints and opportunities.
• as the problem and its solution cannot occur at the same time, it should be described as mutually exclusive
• it is not possible for a company to not to take any action, therefore, the alternative of doing nothing is not viable.
• Student should provide more than one decent solution. Providing two undesirable alternatives to make the other one attractive is not acceptable.

Once the alternatives have been generated, student should evaluate the options and select the appropriate and viable solution for the company.

STEP 9: Selection Of Alternatives For Puente Hill Toyota Case Solution:

It is very important to select the alternatives and then evaluate the best one as the company have limited choices and constraints. Therefore to select the best alternative, there are many factors that is needed to be kept in mind. The criteria’s on which business decisions are to be selected areas under:

• Improve profitability
• Increase sales, market shares, return on investments
• Customer satisfaction
• Brand image
• Corporate mission, vision and strategy
• Resources and capabilities

Alternatives should be measures that which alternative will perform better than other one and the valid reasons. In addition, alternatives should be related to the problem statements and issues described in the case study.

STEP 10: Evaluation Of Alternatives For Puente Hill Toyota Case Solution:

If the selected alternative is fulfilling the above criteria, the decision should be taken straightforwardly. Best alternative should be selected must be the best when evaluating it on the decision criteria. Another method used to evaluate the alternatives are the list of pros and cons of each alternative and one who has more pros than cons and can be workable under organizational constraints.

STEP 11: Recommendations For Puente Hill Toyota Case Study (Solution):

There should be only one recommendation to enhance the company’s operations and its growth or solving its problems. The decision that is being taken should be justified and viable for solving the problems.