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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?
The 2009-2011 Toyota vehicle recalls, or the recall crisis of Toyota came as a shock to most Toyota divers and also the auto analysis and media as Toyota Motor Corporation has long been known for the quality and reliability of its products. According to R. Duane Ireland, Michael A. Hitt and Robert E. Hoskisson (2009 p.84), for decades product quality and safety was a core competence and the greatest source of competitive advantage for the company as rose to the global arena, and surpassed GM as the world’s largest automobile producer in 2009. The foundation of the initial and continual success of Toyota had been considered as the Toyota Production System (TPS) which was developed by Taiichi Ohno, Shigeo Shingo and Eiji Toyoda between 1948 and 1975 and it is a major precursor of the more generic “Lean manufacturing” (Hino 2006). By concentrating on lean manufacturing principles (e.g. continuous improvement, respect for people, long term philosophy and the right process will produce the right results) Toyota became the industrial leader in terms of quality and hence the reliability of its products (Ireland, Hitt & Hoskisson 2009, p.84). Though the problems surfaced seemed to be in a sudden, they could not be created overnight and the reasons for the quality issues in Toyota will be furthered elaborated as following.
Management’s focus on growth
One widely accepted reason is the management’s strategy to focus on business growth at the cost of product quality. It is testified by the President of Toyota, Akio Toyoda, in 2010 that “I would like to point out here that Toyota’s priority has traditionally been the following: First; Safety, Second; Quality, and the Third; Volume. These two priorities became confused and we were not able to stop to think, and make improvements as much as we were able to before, and our basic stance to listen to customers’ voices to make products has weakened somewhat (Nelson 2009, p.10). According to Akio Toyoda’s word, two priorities which are Safety and Quality became confused; in another word Toyota had been focusing the third priority “Volume”. To better understand the why the management’s focus would fall into “volume” and put aside other two priorities, we have to track back on the development and expansion history of Toyota in the North America market to identify the motives behind the management’s strategic decisions to trace volume.
A lot of factors contributed to the decision making in 2002 that Toyota will pursue a Global Vision 2010 to own 15 percent global market share to substitute GM as the world’s largest automobile maker by 2010 (Liker & Ogden 2011, p.21), these factors include Toyota management’s confidence on its lean production system, high petroleum price and the company’s global experience and so on. Since 2002, Toyota established a number of manufacturing facilities in the United States with the target of locally producing 75 percent of the cars sold in the United States (Ahlstrom & Bruton 2010, p.2). Only setting the ambitious goals alone did not lead to the management’s continual focus on the sale volume, but the fact that the five most profitable years (2003 to 2007) enhance the management’s rapid expansion strategy (Liker & Ogden 2011, p.21) until the quality issues came out of nowhere but right away from the Global Vision 2010 that they made seven years ago in 2002. These facts all together surfaced a different image of Toyota which was over focusing on the market share and keen on becoming the world top auto seller that brought about the later recall crisis.
One primary reason that converted a rapid expansion strategy into safety issues was lagged behind R&D (research and development) and engineering work compared to the pace of the globalization. According to Ron Basu (2011, p.116), Toyota kept most of the product development in Japan though it had built R&D centers in some oversea markets such as Michigan but the company failed to hire enough of engineers to deal with the increases in production and attendant safety issues. And another lagged behind development was in the supplier management which will be elaborated later.
Instant media report VS slow early response from Toyota management
With the much of the management focus on the growth in the global market particularly North American market, the outbreak of the quality crisis hit the company with badly consequences. The over eight million vehicles recalled over the world resulted in a drop of more than 20 percent in the value of the company stock and stopped selling half of its cars overnight and what happened provided the world media with perfect news to report speculating the true reasons behind the issues and what will be done by Toyota. These media reports were influential and to a large extent tarnished the brand of Toyota. In comparison to the instant media reports, Toyota’s early responses had been said as slow, passive, insufficient and even insulting (Potter 2010, p.60). Even when the recall decision was announced the company did not have a fixed identified and the engineers in Japan had been busy designing a new pedal for the future models rather than concentrating on the procedures to replace the existing pedals in problems. In addition, what had made the recall more ridiculous and insulting was that Toyota did not stop the selling of the cars with potentially sticky pedals built within until 26th January (Liker & Ogden 2011, p.106). Though Toyota internally reacted instantly in term of redesign of the pedals, it did not communicate to the public and media quickly with acceptable plans. This negligence of media and customer concerns to a large degree contributed to the severity of the crisis.
Problems with supplier management
As previously mentioned another lagged behind development was in the supplier management. Some said Toyota the overall reputation of reliability and quality focus image became sabotaged overnight from a weak link in its supply chain casing the recall (Basu 2011, p.116). For example, the Prius pedal found to have software problems involved in the recall is confined to one of Toyota’s suppliers as later Toyota informs NHTSA that accelerator pedals made by supplier CTS Corp may have a “sticking” defect on 16 January 2010 (Kirchhoff 2010, p.32). This example again corresponds with Basu (2011, p.116)’s claim that Toyota’s failure to implement the legendary quality assurance program with all suppliers caused the product problems especially when it had difficulties keeping an interaction between the US suppliers of material and the Japanese suppliers. The poor supplier management again reflects that Toyota had problems in ensuring the quality of the parts outsourced to the suppliers.
Increasingly complex car engineering and related software
What had increased the complexity of the accelerator pedal problem based on what Toyota claimed is the increased complex car engineering and related software. And the fact that this problem occurs only in rare situations and as a rule after a certain period of time, such kind of problems are of course harder to detect then things which can be tested during production (Business-improvement.eu 2011). Even though the increasingly complex car engineering and related software could not act as a strong excuse for the quality issues, the low visibility of the unintended acceleration problems increased the difficulty for the early detection of the defects.
b) What are some cultural changes that Toyota should make to repair its tarnished image?
Culture can be defined as “the necessarily unique worldview or set of understandings that each of us has no matter what outward similarities that align us” (Davis 2008, p.22). Accordingly, Company culture refers to the governing values, policies and rules, norms, attitudes, degree of employee empowerment or decision-making authority, and prevalent management style that influence how employees behave (Jones & Sanghi 2006, p.40). Company culture is actually the way that the job is done in the company.
Figure 1 Consequences and implications of organizational culture
Source: Dubrin, A. J. 2009. Essentials of Management. 9th ed, Mason: South-Western Cengage Learning. p.291
As the figure shows, the right organizational culture can actually enhance productivity, quality and morale by emphasizes productivity and quality to influence the workers to be more productive and quality conscious (Dubrin 2009, p.291). Back to the case of Toyota, an independent review of the company has found that the automaker suffers from deeply entrenched structural issues and cultural issues that could compromise safety, the report listed three major areas of deficiency in Toyota as following (Dailytitan.com 2011):
l A top-down management structure that restricts local input regarding potential safety problems;
l Resistance to external feedback related to the design and safety of its products;
l A failure to understand that safety problems are different from quality defects (Quality involves the execution of design and manufacturing).
Based these findings, there are some cultural changes the Toyota could implement to restore the tarnished image:
Learn to trust its non-Japanese leaders
As the first major areas of deficiency listed above, Toyota had a top-down management structure that restricts local inputs in many areas. As Ray LaHood, the US transportation secretary said that “Toyota has some very good in North America and they know what they are doing but I am not sure that people in Japan understand that”, before this comment Jim Lentz, Toyota’s US marketing chief made similar comment that “most of the information flow was one-way” from Toyota’s regional offices back to the headquarter and only the officials in Japan could be authorized to issues any recalls” (Ft.com 2011).
Beside the changes of management structure which should be done by the management, here we only focus on the cultural change that need to be done to ensure that Japanese leaders will gradually learn to trust the non-Japanese leaders; and in order to for Toyota senior management to learn to trust its non-Japanese leaders like their Japanese colleagues, the company could focus on combating the internal cultural differences in Toyota. Four techniques could be adopted to reduce the cultural differences to create distrust between non-Japanese leaders and Japanese leaders:
The first tip on how to deal with internal cultural differences is to have education on different cultures in the office. Having people know about different cultures will help them to be more educated and will help them to be more comfortable around people that are different from themselves (Businessknowledgesource.com 2010). Ways such as off-job training, job rotation and sending employees for international assignments can be used to achieve the education function.
The second technique on how to deal with internal cultural differences is to ensure that employees understand what the policies are while under different cultures which means that different behaviors and ways of doing thing under different cultures should be respected and contained. While different cultures co-exist, it is important to inform everyone by email, meeting or other ways of communication that everyone is equal and shall be respected.
The third technique on how to deal with internal cultural differences is increase the direct communications between the Japanese leaders (employees) and non-Japanese leaders (employees) to invite them to speak out how they feel working with each other and what improvements should be done to two way communications between cultural groups.
The fourth tip on how to deal with internal cultural differences and increase the employee cohesiveness is to increase the building of small teams that consist of employees from different cultural background. The target of including employees from different background is to increase the contacts and interaction between them as teamwork would need a lot of interaction and communication to be done through which cultural difference would be understood better by each other. The reason why we would like recommend to build small teams is because in large teams people with similar cultural background will tend to gather to form smaller groups and communications will reduce between different teams.
Be humble and learn to listen to different opinions
The mentioned above 60-page report also reviews that the result that Toyota management and employees had problems to distinguish between quality issues from safety issue was contributed partially by a “well-deserved sense of pride at being number one” that can “slowly and subtly transform into arrogance and foster complacency.” The early strong and firmed position and attitude shown by the senior executives of Toyota to insist on no quality problems in Toyota cars actually reflect exactly the changed Toyota culture that “we are the world no.1, our Toyota lean production system is the best of the best, there is no way we will produce cars with design and manufacturing defects”. This was what the customers and media learned from the announcement and pubic expressing made by Toyota management.
To cultivate a corporate culture that is humble and people within the culture are willing to listen and accept different opinions, Toyota could communicate three messages to its staff as part of the corporate culture. The first message is that every Toyota staff should humble to listen to any opinions and to make continual improvement in quality and safety issues on the feet of the customers as our ultimate goals is to provide better way of mobility to the customers; the second message is that Toyota will always do the best but there could be problems that we have not identified and as the end users of our products the customers have the final say about the safety, quality and other functional issues of the products; the third message should be communicated as part of the new corporate culture is that Toyota is not necessarily the world automobile manufacturer no.1 in term of sale numbers and market share, but we should strive for the best of our customers.
c) If you were the strategic consultant appointed by the CEO of Toyota, prepare a proposal for strategic vision for 2012 to 2015 outlining strategic measures that would potentially put Toyota back into the race to be NO.1 automaker in the world.
Toyota Strategic Vision for 2012 to 2015
Dear Mr President, managers and colleagues from all over the world,
Thank you for participating this meeting, as the strategic consultant, today I would like to utilize this precious opportunity to communicate with you our newly drafted Toyota Global Vision between 2012 and 2015 and seek your professional and personal opinions about how we can improve this new Global Vision to better lead our company to back into the race to be NO.1 automaker in the world.
A vision statement can be defined as a formal statement of a business’s hopes and desires, and it is written to inspire, guide, and encourage its employees toward achieving the business’s long term goals (Napier 2006, p.84). After the drawing of the last vision statement in 2002 for the goals to be achieved in 2010, we had experience some good time. But we later found out that good times are some of the most dangerous because some of us become complacent. And the 2009-2011 vehicle recalls due to two long identified problems with the issues of sticking accelerator pedals and jammed floor mats which we should had avoided are a good reminder and warning against our complacency and arrogance. Also with the wide spreading global economic crisis with varied impacts on different regions and countries, our business has also been affected seriously, it is time for us to look into the future and clarify what we really want and what we are capable of and also rectify some problems and again restate the value, beliefs and doctrines that we should hold to better serve our customers with safest and high quality products.
Toyota Strategic Vision for 2012 to 2015
Toyota aims at leading the industry by furnishing the world-class safety, contributing to environmental quality and to human happiness by offering genuinely exciting and safest models.
We will focus more on emerging markets to achieve equal sales in industrialized nations and emerging markets by 2015.
Toyota will continue to pursue further gains in conventional gasoline models; expand the line of hybrid models; develop a full range of plug-in hybrid vehicles, pure electric vehicles and fuel cell vehicles.
We will accentuate efficiency and quality in our business with a target of realizing a profit margin of 4 percent by 2015.
We will deepen the Toyota Way by restructuring our global management to a “lean governance” to enable empowerment, simplicity, responsiveness, flexibility and a cultural of trust and cohesiveness in our global and regional management.
Strategic Measures to Regain Toyota’s No. 1 Spot in the World
Lean management building
With the experience gained from the financial crisis and also our series of quality problems and the suggestions that we have received from customers, media reports, employees and our other stakeholders, we have come to acknowledge the necessity and significance to listen to the opinions of the customers and make faster management decisions to react to the suggestions and complaints of our customers.
Our legendary Toyota Lean Manufacturing System which we have used as a tool in focusing all resources or energies in producing certain value-added characteristics while also identifying, acknowledging and eliminating the activities that are of no value (Gahagan 2008) has created the success of our production and operation that we have today. To better serve our customers with faster reactions to their demands, we aims at integrating the Lean Manufacturing System of our Toyota way into the management by building lean management. To build a lean management system from 2012 to 2015 by planning and implementing two changes.
The first change is the reduction in number of directors. After negotiation, we have come to a plan to reduce the number of the board of directors from the currently 27 to 11 to slim the board of directors and assist to fulfil the Toyota Global Vision more efficiently. The reduced board of directors would be made up of the chairman of the board, the president of the board, five executive vice presidents, and also four directors responsible for corporate planning, accounting and external affairs (Thetruthaboutcars.com 2011). This change will absolutely reduce the procedures it takes to reach a decision and also the individual workload of each director will be increased heavily. On one hand, this change will requires the directors to simplify the decision making process, and on the other hand together with this change the remaining 11 directors will have to work more closely to ensure that the quality of the decisions they make would still be high and appropriate.
The second change we will implement is to increase and enhance the authorization to the chief executives and management for the operational sectors in charge of the regional and functional activities to share the increased responsibility of the board of directors with the reduction of the number of them. Similar to the reform of the board of directors, we will also plan to reduce the lays of the management in decision making in the regional business. The current three-layer managements will be reduced to two-layer managements by reducing the number of the executives directly under the regional chief officers. By giving out more authority in the regional sectors and sliming each regional management’s decision making, our vision is to achieve a lean management in both headquarter and the regional sectors, and also these regional managements are linked to headquarter but are relatively independent systems that could make their final decisions for their regional business.
Enhance the Current Crisis Management Team
With a great number of recommendations and advices on the performance of our crisis management during the 2009-2011 Toyota vehicle recalls, we have become aware of that there are some deficiencies in our current crisis management team; hence after serious consideration we have decided to enhance our current crisis management teams with the following changes and improvements to be implemented in the coming 2012. The main goals and tasks in the future for the new crisis management team will about prevention and involve the jobs that include: designing sustainable crisis anticipation, prevention, mitigation, and recovery capability and the most importantly building proactive crisis management cultures in which continuous drive to diagnose the risks and issues before they become crisis, encourage early reporting, plan for a number of possible scenarios and reduce the impacts to achieve continual improvements (Gillis 2011, p. 158). Below we will discuss some arrangements in three major areas: Creating the crisis management plan, Selecting and training the crisis management team and Conducting exercise for test purpose.
About creating the crisis management plan, it will include the details of senior management, including their contact information, person who will be assigned to start the crisis management plan and inform the project team accordingly on occurrence of a crisis. Also the comprehensive crisis management plan should identify the responsibilities of the each position in the team. What is more, different plans should be prepared as there will be different crisis situations with different team members and configurations. And the crisis management plans should be reviewed and amended regularly when there are changes in the members of the crisis management team or changes in the internal or external environments that could have impacted the needs for the crisis management.
And regarding the selection the crisis management team members, in a normal case the team should include the chief executive in charge of the regional market, senior officers, and key personnel representing operations, security, marketing, human resources and public information. Learned from the series of quality issues and the experiences that we had not done the public and media communication appropriately and even attract complaints from the customers and society regarding the attitudes and way of talking of our senior executives in evaluating the issues, we have reached a conclusion that we will appoint special internal senior executives to be responsible for the spokesperson work who are familiar and experienced in dealing the media relation to communicate the events timely to the public media. And in selecting the members of the crisis management team, while the several senior executives from the headquarter will participate the team to keep the headquarter updated about how the issue is going on, the majority of the team members will be from the regional management teams who are familiar with the market situation and the what the issues are caused which make them more advantageous in reaching decisions that are based on the changed market situations swiftly.
And in the work of training the crisis management team, because crisis frequently needs a timely response to a disruptive event which is accidental with a lot of changing factors that could not anticipated exactly, learning and training is important to prepare the crisis management team members with procedures and way the various crisis management plans should be implemented. To achieve this goal, besides the regular training regarding the basic understanding of the differences between a crisis situation and a normal situation and the jobs need to be done, we will train the crisis management team by conducting regular and irregular and unplanned exercises for the test purpose which will be discussed below.
And regarding the conducting exercise for test purpose for the management team, regular exercise will be done on the routine basis to test the preparation of the relative members and departments and key personnel by imitating the similar crisis that could have happened in the automobile manufacturing industry. And irregular, sudden and unplanned exercise which is more closed to a crisis scenario would be done without plan to test the capabilities of the management teams in responding to the crisis which happen in a sudden. And also company resources will be allocated to such exercise. For example, Depending on the severity of the crisis, a command centre is set up including PC’s, white boards, and phone lines. As status information flows into the command centre, it is useful to record it on the white board for the crisis team to see at a glance (Firestorm.com 2011).
In addition, in defining the reporting relationship of the crisis management team, it will be responsible to the core management of Toyota in the headquarters in Japan which to enable them to access to the highest management if serious decisions are need to be endorsed by the headquarter. With reflections made on the 2009-2011 Toyota vehicle recalls and also the financial crisis situation, inefficient decision making has been known to the public which damage our image in the public, after long time of rethinking about our crisis management reporting system, besides the effort to slim down the board of directors we will also gradually specify the important decisions that could be done without the formal authorization from the headquarters but only with a notification to the headquarters by the chief executives of the crisis management team.
Improves systems to monitor customer feedback
With the lessons learned from the unintended acceleration safety issues which developed with large scale impact without early detection by our systematic monitoring, our willingness to respond promptly had been impacted partially by our inability to listen to our customer complaints in an early time. In this regard with a spirit of continuous improvement we will commit to improving our systems to monitor customer feedback, ensure rapid analysis and correction in case of any concern (Business-improvement.eu 2011). In particular, we intended to enhance our customer information research offices in each region with appointment of new executives in charge of each region in the new Global Quality Special Committee to collect feedback on product issues faster as part of our action plan designed to restore trust and improve quality in the manufacturing process.
Refine the Supply Strategies
One widely blamed issue that we had not done good enough to avoid the product quality issues is the poor supplier management and supply strategies. With careful check on the supply chain process of the sticking pedals, we have identified two fundamental reasons that had led to the large scale quality issues: firstly since the early 2000s we launched a significant drive to cut costs. Substantial savings accrued when we reduced the variety of components. With reduced variety, a defect in a single component affects many assemblies and products; secondly with the quickly and dramatic growth market share growth which also increase the needs of the suppliers to produce more components, there were insufficient technologic and engineering supports to the suppliers with the increase of the production scale in both our own and the suppliers’ business. To cope with these problems, we have planned to adopt three strategies: Firstly, the most important strategic change is not in the supplier management but to slow down the growth as expansion without a good plan and preparation in term of expansive HR needs will easily result in defect products and most important customer dissatisfaction; secondly, we will expand our a team of engineers on-site at the supplier plants to “work with” the supplier to resolve the problems quickly if there should be any problems raised; thirdly, we will increase the variety of components to reduce the scale of impact if components provided by one of the suppliers failed to meet the quality and safety standard. Though we do not want any problems especially problems related to safety and quality, it is a strategy that we use to reduce the impact in case there should be any accidents.
Research and Development
As said in the new Global Vision, Toyota will continue to pursue further gains in conventional gasoline models; expand the line of hybrid models; develop a full range of plug-in hybrid vehicles, pure electric vehicles and fuel cell vehicles, and because the technological knowhow about conventional gasoline models and hybrid models are the advantages that we have today which we have known very much and have already used it the major part of our core competiveness, the research and development focus in the next coming three years will on the pure electric vehicles in which our progress is lagged behind other major automobile manufactures. In term of the location of the R&D activities, we have identified two markets: Japan and the United States. In Japan where our headquarter is located, historically we have the profound and solid technology and skills and R&D experiences accumulations together with the world’s top engineers and scientists that have already demonstrated their abilities, hence Japan will continue to be the most important center of research and development of the pure electric models. Another center for R&D of the new pure electric models would in the United States where some of the most creative and well trained engineers are found with open minded cultural background which encourages creativity and innovation. Another reason why we choose United States as the second most important center for the location of our R&D activities is because that with enhanced local design and technical support we hope that further quality issues could be eliminated in their very beginning stage, research and development stage. What’s more, with local inputs through hiring the local talents the design of the products will hopefully receive more customer preference in the North America market.
Focus on Emerging Markets
With the rapid growth and emergence of the developing countries such as China, India and other emerging markets that are only seemingly slightly impacted by the current global economic crisis in contrast to the slow growth and even stagnation in the developed economies, we have hold high hope for the future growth of these emerging economies in sustaining our business growth. For example, in China, one of the most vivid and fastest growing economy, according to the most recent data we have sold about 89,000 cars in China in August, up 14.9 percent from a year earlier (Ce.cn 2011). We have set a goal of maintaining a 15% annual sale growth in China in the next three years time. To better support this growth trend of the vast Chinese market and the Chinese customer needs, we will set up a new R&D (research & development) center in China to better tailor our product and service to create better customer experience and also provide onsite support to our production and after sale service in term of key issues related to safety, environmental and other quality issues with fast and localized solutions. What’s more this R&D center will also be in charge of redesign the Toyota car models based on the customers need in China where cultural phenomenon is a different one compared to other cultural systems. For other emerging economies, we will also have separate and localized R&D, manufacturing, product and marketing strategies designed to meet the different market needs and achieve the sale goals we have set while securing the high quality and safety standard.
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 Currently, Toyota has 60 percent of its sales in industrialized nations, 40 percent in emerging markets.
 Toyota will expand the line of hybrid models, launching about 10 more by 2015.
 Toyota has a 2.9 percent profit margin for the current fiscal year.