Assignment Sample: Toyota recall crisis and its failure to manage the trade-off between volume, safety and quality

By | May 14, 2013

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(a) How is it possible that a company with a strong quality focus have so many quality issues in such a short amount of time? (1000 words)

Though the electronic throttle control system is been confirmed as reliable, the brake and accelerate defects do exist in term of two previously known issue (sticking accelerator pedals and jammed floor mats) and they led to a dozen of deaths. What is more in January the company also announced that it will recall 1.7 million vehicles worldwide over concerns about possible fuel leakages. All these identified quality issues happened in such a short period of time indicate that there are serious problems in the company in term of either strategy setting, operation management and even the company structure and culture. These problems needs  to be identified and rectified before the company could be put back into the race to be No.1 automaker in the world rather than merely the largest automaker in term of sale volume. Below we will try to identify some problems in Toyota and external factors that leads to the recent recall crisis.

Failed to manage the trade-off between volume, safety and quality

In the long history of Toyota, the company has been known with an amazing and unprecedented record of quality as the President of Toyota, Akio Toyoda testified to the congress that Toyota’s priority has traditionally been following the principle:  First, Safety; Second, Quality and Third, Volume (Nelson 2009, p.10). But this good tradition seems has not been adhered in the past few year which probably started after Toyota dethroned GM as the world’s No. 1 automaker by vehicle sales in 2008, a position GM held for 76 years (Wartzman 2011, p.37). Actually the two identified problems as mentioned in the case are not new to Toyota, as earlier as 2004 Toyota had learned that its vehicles had an above-average level of incidents of unintended acceleration. But only until September 2009 Toyota had made the first jammed accelerator recall which means that Toyota failed to fix the problem for at least five years (Denning 2010, p.199). Despite there were possible fatal defects in the car in 2005, Toyota was ambitiously looking to sell 2.5 million new vehicles in the US in 2008, a 21% jump from the 2.06 million units in 2004, reports the Nihon Keizai Shimbun. Its US sales so far this year are up 11.7% year-on-year. (Kreitner 2009). These facts indicate that Toyota had failed to manage the trade-off between volume, safety and quality by focusing too much on the sale number growth while ignoring the “minor problems” to them and put put profits and market share above safety.

Poor management

There are also problems with the management of Toyota as that they not only had not seized the opportunity to prevent the enlargement of the sudden acceleration problem but also in term of their poor crisis management after the crisis later broke out. Treatises on crisis management normally focus on immediate damage control, public relationship strategies and clever contingency plans (Liker & Ogden 2011). But there are a number of analysts and experts accusing that Toyota’s management was responding late and insufficiently to the crisis and even denying or even trying to hide the defects. And also the decision to cover up the defects resulted in more safety issues because they were not reacting appropriately. For example, the Times notes an incident in July, 2009. A Toyota dealership approved the buy-back of a Tacoma truck when, during a driving test, the pick-up accelerated from 71 mph to 95 mph with the driver’s foot completely off the pedal. As of 2009, there are 5,264 complaints of unintended acceleration from an internal Toyota company database dating back to 2000 (Lawyers-law.com 2010). These again show that the management of Toyota is poor is majorly because of their low integrity and profit maximization strategy.

Competition in the US for market share

Analysts view Toyota’s recall crisis as a sign that the company is growing too big and too rapidly that it was unable to apply original stricter quality control standard such as the “Toyota Production System” which enables any worker to stop the production to fix a problem, and the most importantly, the company had outsourced the manufacture of the accelerator pedals (Krahn, Hughes & Lowe 2011). The United States TNC such as General Motors, Chrysler and Ford have been facing with the high operating cost and onerous labor contracts for years while competing with the Japanese auto makers. The situation become worse in 2008 when the financial crisis happen and high price of inputs (steels, oil and copper) led high production cost finally bring the US large auto makers on the brink of bankruptcy (Barcena & Lopez 2009, p.35). The vehicles with small output volume, low emission and new fuel made by Japanese auto maker become a much better alternative of the United Stated made cars even in the United Stated home market. While the international competition from foreign rival become weaker, competition to take over the market share left by the retreat of the United States auto makers among the Japanese large car makers, Toyota, Honda and Nissan in the United States market become more fierce than ever. And this makes Toyota believe that speed, output, efficiency and sale volume will help them to achieve the final victory in this competition. But obviously they put the quality and safety issue in a second or even lower priority.

(b) What are some cultural changes that Toyota should make to repair its tarnished image? (1000 words)

Harrison M. Trice and Janice M. Beyer (1993, p.395) define culture change as the planned, more encompassing, and more substantial kinds of changes than those which arise spontaneously within cultures or as a part of conscious efforts to keep an existing culture vital. In Toyota, after the serious of product safety issues,

Changes in attitude

Soon after the unintended acceleration problems were reported by the Toyota owners, in an video that Toyota posted on the Internet, a Toyota vice president insisted strongly and somewhat arrogantly that the problem was the “wrong-sized floor mats” and restate that investigations had found no vehicle-based defects. And what’ more, he indirectly but unapologetically blamed the diver error as the major cause of the problem (Mitroff & Alpaslan 2011). We will provide leadership trainings to our top management who will be in charge of the social communication on behalf of the company, and leadership roles will be an important part of the training. We will teach professional courtesy, humbleness to the leaders to avoid the happening of any forms of offending the stakeholders.

Inclusion of radical changes

According to Antoine Henry de Frahan in his article “In the how Toyota is rejuvenating the idea of corporate culture”, one aspect of the Toyota’s culture is that it lack corporate convulsions and it restructures little bit every work shift and continuous improvement is tectonic (Peshawaria 2011, p.145). This results in slow moving and even inability to introduce radical changes in many cases because it is disdain for disruptive reorganizations as a strategy to create change. As a result we can see that when Toyota is still adopting a strategy of building more petrol-electric hybrid vehicles while its competitors such as Mitsubishi and Nissan have already launched the all-electric vehicles and Toyota’s slow moving has been widely blamed for its culture that excludes radical changes and innovations. To promote a company culture that is inclusive of radical changes there are several strategies: firstly, an open door policy could be adopted to reduce the time that it takes from problem identification to problem reporting. Also reporting of problems regarding product quality and safety should be given with a top priority. And these problems should be followed up accordingly and appropriately; secondly, small development and innovation groups targeting at particular problems that will possible create radical changes to the current business process or technologies should be allowed to set up. And the functional departments and the higher management should provide support in term of funding, human resources and policy flexibility to these creative groups.

Changes of beliefs

Though the corporate vision that Toyota has always used include the indication that “With the safest and most responsible ways of moving people”, and one of the guiding principles at Toyota has been “Work with business partners in research and manufacture to achieve stable, long-term growth and mutual benefits”, the recent performance, announcement and decision makings had made the media, governments, customers and analysis believe that some cultural changes do happen in Toyota. And now what Toyota should do is to undo these changes, to change them back to the original beliefs and values that are proved to be correct and helpful through the long history of the company. Firstly, the company culture need to focus on again on “stable, long-term growth and mutual benefits” that should be desired by the company rather than sale number growth and market share growth which could only be helpful when they are sustainable. If growth of the sale number will lead to future recall crisis which is very costly in term of both direct financial cost and damage in company reputation, then the growth of sale is just something good looking and also embarrassing digits when accidents happen later. Secondly, the company culture needs to again focus on safety and adhere to the rule of “First, Safety; Second, Quality and Third, Volume” and use education and monitoring systems to make sure that safety and quality is put in a higher priority even when there is a sale target to be achieved. This means that any quality issue and safety worries should never be permitted even though there is an ambitious sale target to be reached. Also management should not demand the target to be achieved by any means because such demands will lead to employees turning to irrational and short term behaviors.

 

 

 

(c) If you were the strategic consultant appointed by the CEO of Toyota, prepare a proposal for strategic vision(s) for 2012 to 2015 outlining strategic measures that would potentially put Toyota back into the race to be No.1 automaker in the world. (3000 words)

Strategic Global Vision Proposal

 

Introduction
Vision refers to the category of intentions that are broad, all-inclusive that forward thinking and it is about the image and goals that a business must have before it sets out to reach them (Dasgupta 2011, p.222). What we will present here is a newly prepared Strategic Global Vision describing the new image of the future as far as in 2015 and what we should believe and think about before we can start our daily work and we recommend our company to adopt this global vision with revise if necessary. This new Global Vision comes in timely after our reflection of a series of quality problems that happened in the past few years beyond our hope and we need to redefine our vision for the company. Please take note that more specified management goals and quantitative targets will not be fully identified but they will be defined and implemented by our intelligent management team and every employee in Toyota.

Statement of strategic vision for 2012 to 2015

The following is the tree metaphor that describes our new global vision and how this vision will work to achieve sustainability of our business and contribute to the sustainability of the society.

 

Figure 1. Toyota Visionary: The Tree Metaphor
Source: Toyota-global.com 2011

The global vision is for 2012 to 2015 is that:

Toyota will lead the way to the future of mobility by ensuring safest, most comfortable driving experience. Safety and quality are our top priority and promise given to our customers.

Toyota will provide our employees with employees with opportunities to develop and utilize their skills by fostering a corporate culture that enhances both individual creativity and the value of teamwork and building up trust and two way communications between management and staffs.

Toyota seeks to maximize the shareholder wealth by focusing on long term steady growth, integrating both incremental and disruptive changes and attracting quality people who develop and achieve growth with highest integrity.

Toyota pledges to contribute to sustainability social harmony of the society by continual improvement in our products and actively participating the charity activities

Core values involved in this strategic vision

 

Safety
Safety is our absolute highest priority that we will value in the company and it reflects our commitment that we had written in the Toyota Guiding Principles that “providing clean and safe products and to enhancing the quality of life everywhere through our activities”. And product safety and quality is the fundamental requirement that we need to achieve before we can exceed customers’ expectation and make them happy.

Innovation
We continue to hold the value that “Toyota will be better today than yesterday and better still tomorrow” (Wartzman 2011, p.84) through our commitment to the high quality and endless effort in innovation. We will promote a company culture that is inclusive of both radical changes and incremental changes with the hope that improvements and breakthrough to better satisfy customer needs in today and tomorrow will not be missed by us.
Green world

Both the quality of life of people and the sustainability of our business make use believe that contributing to a green world in every part of our business such as production waste reduction, energy consumption reduction design and emission reduction during our manufacturing and in our end products. Also we deeply believe that only when we think of the sustainability of the planet then the planet will reward us with a sustainable business, this is the same as the belief that only when we do mind what our customers want and desire then they will mind our business and continue to support our business by making their choices.

 

Communications
We encourage communications as a part of our love and care for employees, customers and other stakeholders. To the employees who are the source of our core competitiveness, communication will be cherished by actively understanding what our employees’ potentials are and help them to fully utilize these potentials. We will communicate to them that individual creativity, teamwork and their opinion and suggestions are highly treasured in Toyota. To the customers, we communicate to them our promises, our value and beliefs mainly through providing with them the best products in term of quality, safety and humanized design and functions and also by offering timely and responsible after sale service in the long term. And to the other stakeholders such as the media and society we will communicate our true intentions and factual status of our company that the stakeholders would like to know or that they should be notified about. And honesty and swiftness are the principles that we use in the communication to all the stakeholders.

 

Strategic measures adopted to achieve the strategic vision

 

To deliver promises to our customers

 

Apologies and followed up measures
With the series of qualities issues that led to quite a number of death and injuries and also the panic that had been caused regarding the safety of our cars, we are deeply sorry to relative governments, departments, members of media around the world and the most importantly our customers around the world for what we should not have done that disappoint them. To express our sincere apologies and also restore our customer confidence with our products, beside the effort to recall problematic cars according to the time schedule we decide to set up an assistance fund not only to make compensations to our impacted customers but also follow up the case and provide necessary assistance especially to those families of the death and injured customers to help them get back to normal life as soon as possible.

 

Do everything at any cost to rectify the existing problems
To make up what we have done wrongly, we have done everything possible to within our capability. We have recalled nearly 8 million vehicles in the US along for the mechanical safety defects caused by the sticking accelerator pedals and jammed floor mats and in addition, we have instituted numerous additional organizational safeguards and precautions including a brake override system that stops that car even when the gas pedal is wide open. And this dramatic episode shows not only our technician’s excellent intelligence but also our shift of focus which has been concentrating again on safety, quality and customer satisfaction (Oppenheim 2011, p.3).

Exceed customer expectations
As we are aiming to exceed the customer expectations and make them smile, three major jobs will be needed. The first job is to figure out what are the customer expectations are,  we can not assume from our end what should be loved and needed on behalf of them and also people from different cultural background, regions, age groups may probably have varied  needs in term of price, speed and appearance of our product. That is why we will survey widely to get the information about what customers expect from us and what they will be interested in the future that we can satisfy. Another job will be to exceed the customer expectation after we have know what such expectations are. To achieve this target, every part of our business from research and development, model design, production to the sale work, from management to front line workers should in every moment remember this value and implement and adhere to in the daily work that we do, every car we produced and every car we sell to the customers.  One more job that we will focus on is to be general and create a warm homelike atmosphere that could be perceived by our customers. This target has share similar initiatives with the target of making the customers smile. And we always believe that the close relationship and smile that we earn from the customers are the best reward that we receive from doing this business. What’s more exceeding the customer expectations will ensure that at least the current customers’ needs will be fully satisfied and we will demand ourselves to serve the customer better. .

 

To deliver promises to our shareholders

 

Rejuvenation of “The Toyota Way”
Our Toyota Way, the auto manufacturer’s Toyota Production System (TPS) has been proved to be the most innovative approach to lean production anywhere. And one typical principle in the Toyota Production System that helps prevent most quality problems is the empowerment of any worker to stop the production to fix a problem (Jeffrey 2004) and this is our culture on the plant floor which is a good tradition. During past few years, some of our managers and employees have put this special Toyota Way aside and focused on the sale targets. Here we will use three major strategies to rejuvenate our “Toyota Way”: firstly we will continue and increase the bonus pay to those onside employees and managers who report problems in our production and those who can write in to point out any problems that help us to improve; secondly, we will make a stricter standard which focuses on product safety and quality to regulate the partnership selection to make sure that the partners that we select share the vision of making high quality products; thirdly, we plan to encourage our partners especially those who produce our key parts to apply the “The Toyota Way“ to assist in the problem identification and also we will provide full support to them.

Regional strategies
In Japan where the headquarter is located with the riches accumulation of expertise and know-how in term of advanced technology, professional skills and most importantly our long lasting traditions and cultures which are the most important assets to our company, with the recent establishment of the new vehicle plan in Miyagi Prefecture which is focusing on engine manufacturing and also other R&D areas, with the manufacturing vitality in Japan and the monozukuri (manufacturing related) tradition, we will continue to advance on the road to better technologies and customer satisfaction.

In the north America where we had found the majority of the recall case, we will empower the regional sector with more responsibility together with more investments and resources to focus on two kind of jobs: the first kind of job is to R&D effort on technology development on safety and quality issues with the hope that most possible problems would be avoided before they could happen; the second kind of job is to expand our after sale service and also build up a fast safety problem reporting system to make sure that potential critical problems will be identified and receiving a timely follow up and a final resolution.

In Europe, though with fierce competition from the famous European especially German auto makers such as BMW, we will focus on the development of the European market for our luxury vehicle division, Lexus. Also our other competitive models which are proved to be a success globally will also gradually expand their market share in Europe. With the spreading of the current global economic crisis, we anticipate a gradual growth of our business in the Europe market. What’s more while the market share may not be large in European market compared to our global sale volume, we are planning to make the Europe as a global planning center to plan for our motor sports and other competitions to promote our global brand.

In the emerging market such as China and India in which economy continual to experience the fastest growth in the world in term of GDP, our business has grown with satisfactory results. And the development of these markets has strategic importance in our global strategic and vision for the future. For example, we anticipate that the annual growth of the sale in China will be around 15% from 2012 to 2015. With the reflection of the recall crisis which had been caused by series of product issues in the United States, and now we have another big business growth opportunity with the similar fast growth in demand of our product in the emerging markets, to achieve the sale volume growth target at the same time avoiding any further quality issues we decide to enhance the development center in China with functions that includes safety, environmental, Chinese model design and other automotive functions. By enhancing the Chinese development center with greater autonomy we are expecting that: firstly the products will be designed to fit in the Chinese customers need; secondly, problems especially the safety issues will be mostly eliminated and put under tight control.

Quicker management decisions
Being exposed to the difficulties during the global financial crisis and the series of product safety issues, we had trying to find out the reasons and factors behind these problems. In our conclusions, one of the widely accepted disadvantage of our management that prevent us from swiftly respond to these challenges is our inefficiency in decision making due to the complexity and length of the management structure. Base on this conclusion, we decide to simplify the decision making process beginning by reducing the number of directors from the current 27 to 11 with the hope that the global vision will be fulfilled with efficiency and flexibility. After the reduction in the director number, it will request the remaining 11 directors to communicate with each other more closely and make quicker management decisions. This simplification effort will be soon extended to lower management level and reduce the layers that a decision would go through before it can be finalized.

Beside the simplification effort, another strategy to enable a quicker management decision making process will be to give more empowerment to the oversea management divisions. With lessons learnt from the recall crisis in the North America market, we have come to realize the importance of both fast feedback collections from users and dealers and the swift response which request for the support from fast decision making. To enable a fast decision making in an oversea market, the current quite limited authorization would not be sufficient. In this regard, we have decided that there will be increasing decision making authority to be transferred to oversee divisional management gradually especially in key markets such as China and the United States. This is enable important customer feedback, safety issue and other emergencies to be handled in the divisional management without getting approval from headquarter in Japan and this will be expected to speed up the regional decision making process.

To deliver promises to our employees
We have always been known that human resource that made up of more than 300,000 Toyota employees is the key source of our business competitiveness. That is why the human resource strategy is important in our vision. There will be several strategies in the term from 2012 to 2015 that we are going to use to meet the strategic need in the future along with the strategic business objectives.

The first strategy will be an increased use of the strategic recruitment in the emerging market. Our principle for this strategic recruitment is hiring the localized talents for local needs. As our business in the emerging markets such as China are expected to rise quickly in the future, there will be stronger need of key talents in both technological positions and also in the management positions. To meet the future needs, we will expand our strategic recruitment effort to attract more suitable and qualified candidates who share our Toyota way in term of corporate culture and vision of our business. To stabilize the source of our talents we will focus on building long term cooperative relationship with the Universities, research institutions and other education institutions to make Toyota a better choice to the fresh graduates.

The second strategy is to build up a globalized labor force. With the increased globalization in our business operation, we have frequently faced with the cross cultural issues and also difficulties when we failed to adjust to the local markets, this has made us realize that it is important that we build up a globalised labor force to deal with the globalization issues. To achieve this, we will aiming at provide cross cultural training and rotation in different countries to make our key talents more adaptable to different cultures and markets. What is more we also planning to diversify our global labor force by hiring more minorities in different groups in term of age, ethnic and culture and backgrounds. One more strategy that we are going to use is to build up clearer and better career path especially to those with a technical background to better utilize there management talents by allowing them to move to a management position following the career path that we design to them. .

To deliver promises to other stakeholders
The interest of the other stakeholders who have a stake in our business such as the local community, the society, the media, the government and non-governmental organizations is also important to the continual growth of our business. One important way that we use to deliver our promise to the stakeholder which is to contribute to sustainability social harmony of the society by continual improvement in our products is by expanding the green car strategy which is aiming at reducing emission pollution through the continual development of hybrid technology, all-electric cars and other clean energy powered cars. In the term from 2012 to 2014, we will invest heavily in the research and development of a new four-seat electric vehicle matching the needs of the majority people, this new model will be based on the FT-EV that we exhibited at the 2009 Detroit Auto Show (Linde 2010, p.84). Safety, environmentally friendly and low energy consumption will be the three major features of the new electric car model in the designed. And release day this model will be due in the middle of 2015 with the first year sale target set in 300,000 globally.
Another strategy that will be used to increase transparency of the company to the stakeholders is an aggressive usage of social media strategy. These social media tools include Twitter, Facebook, blogs and other social-media channels. The social media had by used successfully by our company during the recall crisis. For example, beginning on 21 Jan 2010 within only five weeks time we had increased the fans number from 71,600 to 79,500 to help our customers and other stakeholders understand more about the recall and other enquires (Biagi 2011, p.243). In the next four years from 2012 from 2015, we are targeting at increase the number of our fans in all the major popular social media and these fans will regularly receive our updates in the company and product news. To achieve this target, we will expand back office team which is currently made up of six to ten employees to about twenty staffs who will be in charge of releasing the company news and product updates and also answering the enquires and collecting the feedback on a 24 hours basis from the stakeholders including our users, dealers and potential customers. By enhancing communications we are aiming at assisting our stakeholders with our timely, honesty and responsible solutions.

 

Conclusion
In conclusion, as the Tree Metaphor indicates, what we vision for the near future and could also be extended to the further future is a sustainable and healthy circle that we are trying to build and reinforce which is a sustainable business growth circle. Starting from the bottom of the Tree Metaphor, the roots are the beliefs, values and the guiding principles that could be concluded as the “Toyota Way” that we are proud of and which are offering energy and ultimate goals for everyone in Toyota to pursue. In this part of the vision, we care for our employees and communicate with them the right direction that we should be heading for. And in the trunk part of the Tree Metaphor which is the stable base of our business we do the core business with the energy and motives we gain from the root of the tree which is what we hold and persist, in this part we will make “better cars” in term of quality and safety and other features that are desired and expected from our customers and other key stakeholders under a long-range perspective. And in the fruit part of the Tree Metaphor, we expect three kinds of fruits: one is the better cars that we will be always expecting to offer to the customers and the other one is the improvements that we manage to contribute to the society and the vision of future mobility, and the last kind of fruits will be rewarded to our investors and employees who invest in our business with confidence and persistent support. Like the important role that tree could play to the planet, we do vision that our company is like one of the trees in the forest that by doing its own job better contribute to a better world and we do hope we are one of the most health and finest tree.

 

 

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