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Sample of asignment: Toyota recall crisis
1. Root reasons behind the recall crisis and quality issues
From the crash of a Lexus in San Diego that killed four people the reason which is identified as pedal stuck under the floor mat, 4.2 million vehicles recall in the US to collect the floor mat to be amended to include brake override to the serious of following up recall to fix the unintended acceleration problem, to the overall and comprehensive recall of the problematic vehicles, some root reasons are behind the recall crisis and quality issues which will be identify as below.
1.1 Over confidence or complacency
Crisis is not far away when everything is working fine without major problems and the complacency is reconfirmed with business success. This may be an appropriate description of how the Toyota fell into the recall crisis and related events of quality issue. After the recall crisis, Toyota had admitted that the company had grown complacent and allowed standards to slip and suffered accordingly and the success confirmed the competence (Drummond & Hodgson 2011, p47). To be more precise in a psychological way, people tend to attribute their successes to their innate skill and business acumen and failures to bad luck (Taylor & Brown 1994). To Toyota, the complacency and over confidence is psychological activity that the management of the company has and it is also kind of cultural phenomenon that is accepted by the staff of company which need to be changed. And in this perspective, the crisis is not really a bad thing and it could be a chance for Toyota to correct the wrong doings before they become bigger mistakes.
1.2 Rapid globalization
Another root reason that contributes to the quality problems that finally led to the recall events is a rapid globalization strategy that the company has been using. Toyota became overly focused on sales in the North American market and began to experience quality problems which are expressed in term of increased number of recalls and reduced customer satisfaction (Michael, Ireland & Hoskisson 2011, p238). The direct reason for Toyota’s recall lies with a gas pedal defect causing it to stick and resulting in unintentional acceleration. Behind this explanation, however, it involves the issue of Toyota’s reckless management policy of expansion. It is reported that the gas pedal component in question is supplied by a U.S. maker rather than a conventional Japanese partner (Nytimes.com 2010), and this undoubtedly make people relate the Toyota’s rapid globalization to the affected product quality because it appears Toyota failed to ensure the supplier’s products were free from design flaws and quality problems. Though there is an excellent chance to make a rapid globalization, particularly in the North American and European markets when the largest United States car manufacturers fell into troubles in adjusting their business strategy in term of product design and positioning for example to the changed customer needs under the conditions of high oil price and increasing environment protection awareness, product safety and company accountability should not be sacrificed. But the company were over ambitious and want to speed up its pace even it was already on its path to replace GM as the sales leader in North America (Graupp & Wrona 2006, p181). The opportunity to make a rapid market expansion is actually only an external good condition but to understand the reason more fundamentally, it is the company’s wrongly made decision or such a corporate culture that indulges the wrongly selected strategy.
1.3 Poor supplier management and overstretched supply chain
As gas pedal component in question is supplied by a U.S. maker rather than a conventional Japanese partner (Nytimes.com 2010), except for the strategy selection and company culture reason, there must be problems in the supplier management. Toyota only produced about 25% of its major components in house, the rest were contracted to independent suppliers; it is of vital importance to make sure these suppliers are integrated parts of Toyota’s manufacturing system (Iyer, Seshadri & Vasher 2009). And the selection of the suppliers also has close relationship with the company rapid expansion strategy. A consequence of Toyota’s breakneck expansion was that it became increasingly dependent on suppliers outside Japan with whom it did not have decades of working experience. Nor did Toyota have enough of the senior engineers, known as sensei, to keep an eye on how new suppliers were shaping up which is the Toyota’s way of management of the suppliers (Economist.com 2010). It is obvious that the recall crisis is an awful warning to the company with the message that “it is time to examine the supplier selection criteria and its supply chain management”.
2. Cultural changes Toyota should make to repair its tarnished image
2.1 Change the cultural element to cover up or fudge the facts
The very first and most obvious flaw in Toyota’s response to the situation was virtual absence of any communication from the company in the weeks following the report of the fatal accident on August 28, 2010. But only on September 14, 2010 two weeks had passed since the accident, the first news release regarding the accident investigation was made. Some analysis considers that the slow response of Toyota is due to the cultural defects of many Japanese firms that often seek to cover up or fudge the facts and the people communicating with the media and public often do not have the information they need to do their job. The shame and embarrassment of owning up to product defects in a nation obsessed with craftsmanship and quality raises the bar on disclosure and assuming responsibility (Kingston 2010). In addition to the cultural element to cover up or fudge the facts, the Japanese style decision making marked with group harmony and the consensus of the group coupled with the ranking and hierarchy (Taplin 1995, p83). This focus on the consensus and group in critical decision making particularly when consensus could not be reached in a difficult time will reduce the efficiency in making decisions. And because of Toyota’s Japanese cultural element to cover up for fudge facts that are bad to the company’s reputation and the slow group decision making, the product quality problem became a public relation (PR) crisis that leads to tarnished image because customers and car users did not understand how they were fighting each other to reach a consensus and what they witnessed was that nothing was done and announced to deal with the safety issues by the company.
The cultural change is necessary for Toyota to avoid the recurrence of the crisis. To change the cultural element to cover up or fudge the facts, Toyota should propose and implement a corporate culture which is the honesty and responsibility to the customers with direct and increased communication. The company should cultivate the culture through coaching and training and also by reflections on the recall crisis to communicate the employees, managers and leaders of the company that the company will promote honesty and responsibility to the customers and will never tolerate an artificially and deliberately late reaction and response to the product quality issues. The decision makers should also be made to know that honest reply will be the best way to deal with any crisis and avoid further reputation damage.
2.2 Change the culture of deference inside corporation
Another cultural element which is also based on the group consensus decision making is the culture of deference inside corporation. The culture of deference could be understood as the delay of information flow caused by the inefficient group consensus decision making. The culture of deference is not only shared by the high level decision makers but it is also shared by the lower level staffs that are truly in daily touch with the products and customers and thus the problems reflected by the customers and any defects of the products found by themselves or the co-workers. And again because of the consensus decision making, the flow of the information about the identified problems will be restricted and it could be deferred anytime when a particular party or department would like to do so. Such cultural inclinations are not unknown elsewhere around the world, but they are exceptionally powerful within Japanese corporate culture and constitute significant impediments to averting and responding to a crisis. Though we may not know whether the senior management had known the seriousness of the about the unintended acceleration issue which were found in many serious of cars under a wide range of product lines, from the preliminary very unprepared reaction from the company top executives, the culture of deference could have played a key role in preventing the top management in getting the full information that help them to appropriately measure the seriousness of the event and prepare for the necessary solutions to the event. As one former Toyota executive, who asked not to be identified, said communication could be frustrating within Toyota (Gardner 2010).
To improve and change the culture of deference inside corporation, Toyota should turn to an open communication culture using strategies such as whistle blowing and cross level and department communication. Whistle-blowing refers to an employee’s informing the public about the illegal or immoral behavior of an employer or organization (Shaw 2008, p406). Though the whistle blowers are frequently considered as acting out of a sense of professional responsibility, they are helpful in preventing risks from becoming a crisis that comes with high cost to eliminate the bad effects of the crisis. For example, the unintended acceleration issues had been known to many managers in Toyota for several years, if one of them had finally decided to blow the whistle and the problem become known to the public, the company would have chance to correct the problem before it become as serious as what it is today. And cross level and department communication refers to enabling the employees to report and communicate the problems directly to the right department and right person in charge who will be able the deal with the problems.
2.3 Trust building between Japanese management and foreign executives
Trust refers to an attitude involving a willingness to place the fate of one’s interests under the control of others in a particular context (Hoffman 2006, p17). The lack of trust built between Japanese core management and foreign executives and leaders is believed to be one of the cultural elements that lead to the crisis. Robert Cole, a business professor at the University of California-Berkeley and Doshisha University in Kyoto, Japan, commented that some of the dysfunction at Toyota that has come to light as part of the Toyota’s recall crisis is caused by culture differences such as the language barriers, and some is just a consequence of the tight control which is also kind of culture in Japan and in the history of Toyota. Talking about the tight control in Japan, it is said that internally no Toyota executive in America was authorized to issue a recall (Gardner 2010). This exhibits that the many communications are still one way and even the American local leaders have limited power delegated to make important and determinate decisions which are highly needed in time of crisis. And the core of such limited delegation lies in the lack of trust between Japanese management and foreign executives and leaders or even the foreign employees in any level.
To change the status of lack of trust in the organization, one effective way is increase the labor force diversity in term of different cultural background and races. The company could increase the American executives in the board of directors to represent different ideas from different cultural background. In addition to the diversification of the management team, delegation of power should be given to the local leaders to make the decisions related to the local market. One of the reasons why the American leaders are not trusted is because the Japanese management has not yet witnessed the ability of the US leaders in dealing with crisis, to change this status, the core management of Toyota is to give the foreign leaders a chance to demonstrate their ability in handling crisis. And successful crisis management by the foreign leaders could help eliminate the discrimination towards the foreign executives.
3. Strategic vision for 2012 to 2015
The Global Vision for Toyota (2012 to 2015)
Dear respected Mr. Akio Toyoda, vice presidents and managers,
Thank you for spare your very valuable time here today with me. I would like to use this chance to share with you our new proposed Global Vision for Toyota in the next three financial years from 2012 to 2015. Vision as a term can be defined as a normative ideal of a desirable future, which is both inspiring and challenging, has a built- in commitment of almost all those involved, and which encourages educational change. Vision can be the moving spirit behind the educational change (Reynolds 1996, p75). Today, we refine our strategic global vision to promote some changes that are needed according to the new business environment together with some strategic measures to bring our company back into the trace to be the no.1 automaker in the world.
2. Background of the new global strategic vision
On May 8, 2009, severely hit by the global financial crisis Toyota was forced to report a record annual net loss of US$4.2 billion, the first annual loss in more 70 years history (Ezinemark.com 2009). Like other industrial competitors, we are encountering a tough time as the global economy takes a longer time to recovery than expected particularly in the western developed countries. Another situation that also creates the needs to bring in changes to our company is the recall crisis that had tarnished our brands and company image in the past few years during which we had managed to reach the top of the global business in the industry in term of sale volume but the rapid globalization and focus on the sale increase had put us into another crisis and disorder due to the loose control of the product quality. In time of difficulties, what we need most is not the bank loan but the mental support that shows us the direction of our business.
3. Expression of the new global strategic vision (2012 – 2015)
The below expression is the formal statement of our new vision that will show us a more clear direction to which we should follow in the coming future particularly the period starting from next year 2012 and ends three years later in 2015.
We are dedicated to the driving safety and customer satisfaction by developing new ideas and technologies and value the customers’ ideas and feedback.
We will be embracing and committed to developing and maintaining a workplace that reflects the diversity of the communities we serve.
We are committed to leading the global auto industry to benefit our investors as well as caring for employees, local community and other stakeholders.
4. Strategic measures
4.1 Diversity management
As expressed in our new global strategic vision (2012 – 2015), “We will be embracing and committed to developing and maintaining a workplace that reflects the diversity of the communities we serve”, one of the key strategies in the coming three years will be to develop and maintain a more diversified workforce in the workplace. Diversity refers to a mixture of people with different group identities within the same work environment. The term diversity in the workplace include two subtypes, demographic diversity which include the mix of group demographic characteristics of the organization’s work force such as age, sex, religion, physical status and sexual orientation and cultural diversity which refers to the mix of cultures and subcultures to which the organization’s workforce belongs (DuBrin 2009, p58). We target at achieving a 50 percent local senior managers and executives in the regional market and also raise the women managers’ percentage to 40% within the coming three years.
4.2 Management restructures
Our principle in the global management team restructures is to slim the director team that will later on consists of will comprise the chairman, the president, five executive vice presidents, and four directors responsible for corporate planning, accounting and external affairs, we will reduce the number of directors from 27 to 11 after obtaining the approval from the next general meeting of shareholders. This will speed up the decision making process which currently take too long to proceed.
4.3 Decentralized decision making
One most meaningful and significant lesson that we had studied in this recall crisis and product safety issue event is that our reaction and responds was slow in the crisis which was featured by emergency, fast changing and highly uncertainty. The truth is that when the accident were reported to the management of the Toyota United States, because of the importance of the case the accident after the necessary data collection and case investigation was again redirected back to the headquarter in Japan where our senior management had a quick discussion and negotiate a solution for the accident. But when the first formal solution was out, media had already had a lot of negative reports resulting in great loss to our company. In order to have a quicker response to any emergencies, we are going to implement a decentralized decision making which refers to the diffusion of “decision-making power” within an organization (Mintzberg 1989, p105). We decide that in order to work to fulfill the global vision, the regional operations will have a bigger say than ever in formulating policy. They will provide decisive input in determining how to provide their customers the best car through the best suitable way under their management. In a word, they are to determine the way through which they can maximize the contribution to their respective region.
Our new decentralized decision making process to be implemented will begin with empowering the regional management teams to define their mission and management and operation plan. And our chief regional officers will spread head the autonomy to work closely with the regional executive vice president in making decision for the regional markets. And the role of our Japanese headquarter will be changed to an assistant role to provide backup assistance and necessary resources to support their operation and decision made. But still the companywide direction and goals will be set in our headquarters; and then communication work will be done to convert these general direction and overall goals into smaller goals to be achieved in the regional market. And decentralization of decision making process will be carried out gradually in the coming three years and we will help to ensure that this empowerment process will be done step by step without making too many responsibility and management confusions. The rationality behind the decentralization of the decision making to the lower level management, the regional management, is that we equip them to make decisions that should have been made in the marketplace, near the customers to provide them with convenience and instant solutions if there should be any problems.
4.4 Crisis communication
One problem that we need to tackle which was identified in the serious product quality issues is the deficiency of effective crisis communication or strategic communication which contains dynamic primarily informative messages about the current state of a particular event (or set of events) including the cause, duration, magnitude, and immediacy of that event (Amass 2006, p11). We have come to realize that we need to consolidate our crisis management by developing communication strategies in preparation for or in response to the future crises and threat toward the relevant audiences.
Figure 1 A synergistic crisis communication model
Source: Amass 2006, p14
We will carry out the crisis communication in three stages with different strategic focus according to the above synergistic crisis communication model.
4.4.1 Pre-crisis preparation stage
In the pre-crisis preparation stage, two primary goals need to be realized in preparation work. The first primary goal is to look for and reduce the potential sources of a crisis, the location of the source of the crisis is critical to the full resolution of the crisis and it could even help avoid the whole crisis from the beginning; the second goal in the pre-crisis preparation stage is to communicate with the key stakeholders groups and provide with them the company’s plan regarding how the crisis or accident will be addressed and what are the time frame of the plan. The early communication to the key stakeholders that include the government, media, employees and market analysis is very important because it manage the expectation of the stakeholders and also provide the media with the reliable source to prevent baseless predictions and speculations.
4.4.2 Crisis stage
In the crisis stage, with the preparation made in the pre-crisis preparation stage, in the crisis stage we will be working hard to implement immediate action and to response to a variety of situational factors that continually change in scope throughout the crisis. To keep the key stakeholders updated about our progress, we will segment the key stakeholders and design and develop appropriate audiences strategy accordingly to communicate the new and our actions regarding the crisis. Beside the audiences strategy we will also be careful in using the source strategy to select the choice of appropriate sources to deliver the message to the stakeholder audiences. The important of the selection of the source strategy is to offer emotional support and show our empathy to the victims and stakeholders.
4.4.3 Post crisis stage
In the post crisis stage, we will continue the communication activities to the public and follow up to repair our tarnished image and reputation. Also the content of the communication will be about what our plan is to recover from crisis and also the compensation to be made to those who suffer directly and indirectly from the crisis. Promises should be delivered in this stage with follow up monitoring.
4.5 Focus on what we do
Even though we will pay extra effort on the crisis management, for example, we will request our senior executives to be have more professional knowledge when talking on behalf of the company, but our focus will still mainly be put on the strategy setting and creating value for our customers in the everyday management and operating activities. While some customers and media inclination might be to come out with guns blazing and go on the counterattack, Toyota took a very different approach to react (Liker & Ogden 2011). In response to the crisis and wide spread criticism, we:
n Though investigations had not found out proofs to support the existence of any design defects of our vehicles but only to two already known problems such as the sticky floor mat but we did not blame anybody else but ourselves and leave the negative and exaggerate reports alone.
n As we are responsible for the accidents, we formally expressed our apology whenever there is a chance to express this true emotion that we have for the victims and their family.
n We opened the checkbook to subsidize dealers, paid for outside engineering and advisory groups to try to find any problems they could find, and invested in a massive overhaul of the company’s infrastructure for safety and quality (Liker & Ogden 2011).
The decision that we did not react with emotion to the exaggerated reports and criticisms is not because that we had done something illegal or we did not know how to fight back the criticism, in contrast, we were the one who had exactly the data, records and files needed to support our view of point, the way that we responded to the crisis reflected our corporate culture to be humble and responsible to our customers. As our CEO, Akio Toyoda described when preparing for the presentation in front of the United States Congress: “I was almost like a sand bag… I thought that if they call me stupid or slow, okay I will take it. But if they call me or Toyota a liar, or hiding something, I decided I would stand up and refute that…We knew the reality, we knew the facts, but I knew that nobody at the time had an ear to listen to our argument and therefore I decided I would never blame others. I would never point fingers at somebody else”.
Instead of arguing, we had done something even more meaningful to our customers by focusing on the problem resolving and product safety check to prevent other product safety problems as listed above. By saying this, actually I do not mean that we will want to be in a passive position in any crisis the next time if there should be any in the future and what I try to express is that besides those who are entitled to communicate with the media the rest of us should still be focusing on what we do to benefit our customers.
4.6 Cultivate a resilient culture
In the long history of Toyota which is more than 70 years, we met with a number of crisis which we finally passed and survived with increased resilience in our culture and in every employee’s mind and personal characteristics. Now we will continue to do this again soon after the recall crisis and the product safety issues. In the words of Luthar (2003, p4), resilience “refers to patterns of positive adjustment in the context of significant risk or adversity”. According to Borkowski (2007, p24), resilience refers a process or tern of adaptation rather than a characteristic of a person per se; it is also the characterization of a person as resilient is based on inferences about adaptation in the face of adversity; the person displaying resilience has to be judged as functioning adequately.
4.6.1 Resilience as a process
Because the showcase of resilience in different scenarios will vary in term of different functions and jobs to be done by the relative department and individual employees, based on what we had seen and learnt in this large recall crisis, a process including a number of steps and functions played by staffs and managers in different positions which is proved to be successful can be written down as a best practice or guideline for the future usage. In other words, we will not asking some senior executives and senior managers to be solely responsible to the case of crisis but we are divide the crisis into stages and different roles played by different staffs and all together almost everyone will be needed in the process to handle the crisis.
4.6.2 Resilience cultivation in face of adversity
Resilience could be cultivated best during the crisis and emergencies in which they are exposed to high degree of risks and unstable environments and they are required to have composure, determination and efficiency which are traits of resilience to handle the complicated and complex cases. And during the case of crisis and emergencies, not only the environment will be highly uncertain but also the tasks will be complicated, heavy and could be very urgent for our staffs to handle. Because we need the employees to be exposed to the case of adversities to exercise their resilience and see whether they could be able to play what are required of them to do according to their responsibility, we will arrange our key executives and employees to be in charge of some emergencies and cases in which multi tasking is needed and deadline of the tasks is closing.
4.6.3 Recognition of resilience behavior
To promote a resilient culture, we will use a policy to reward as a way of recognition to the resilience behavior. Besides the bonus, compensation and other monetary rewards, we will offer two types of non-monetary reward to those who exhibit great ability and potential to handle case of accumulated adversities. The first non-monetary reward is a companywide publication of their performance as good examples to be followed; the second non-monetary reward is to mark their performance into the company profile of them which makes them more competitive than others when looking for an internal promotion chance.
4.7 New product strategy – launch of pure electric and hybrid models
In terms of product development, with the increasing customer desire for the new and clean energy cars and the maturity of the hybrid power technology and electric power system, we are glad to announce our important plan for the development of the clean power new models. We are planning to consolidate our leadership in the hybrid cars by launching 6 more hybrid models in the coming three years, two hybrid models for each years to satisfy the customers’ needs. And in terms of the pure electric models we will concentrate on the research and development in the next two years and plan to release two more pure electric models adding to the current product line numbers. And in term of the all fuel powered vehicles, we will concentrate on the pollution reduction and energy saving product design to make them more powerful but with less energy consumption and less emissions.
This is the drafted new global vision that we are planning for the next three years, and after today’s first announcement, we will open a special company email for those who have any recommendations to the improvement of the new company vision, and we hope this vision will have your support which enables us to implement in our global business.
Thank you for your time. And wish you a wonderful day.
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