Signs of the impending recall crisis began as early as 2006 when the National Highway Traffic Safety Administration (NHTSA) initiated an investigation into driver reports of “surging” in Toyota’s Camry models. This investigation was closed the next year declaring that there were no defects. Known in the industry for their quality and reliability, Toyota would silently recall almost nine million Toyota and Lexus models due to the sudden acceleration problems.
Because of the lingering reaction in dealing with these problems, Toyota’s leadership had been highly ridiculed, so now they had a big job in identifying the solution that would make sure of the safety of their vehicles and reinstate consumer confidence, as well as protecting the Toyota brand and salvaging the dropping share prices.
From its humble family business origins, Toyota had modernized management, manufacturing, and production philosophies. Many business scholars applauded its values and business methods and, as a result, the Toyota Way was adopted by many businesses in a wide range of industries.
The Toyota Way mandates planning for the long term; highlighting problems instead of hiding them; promoting team work with colleagues and suppliers; and, perhaps most importantly, instilling a self-critical culture that fosters continuous and unrelenting improvement. From the assembly line to the boardroom, Toyota’s principles urge employees to strive for perfection (Greto, Schotter, & Teagarden, 2010, p. 3).
Toyota weathered through a lot of problems over the years from the accelerating recall to the engine oil sludge, but found their way to sustain and grow. Mr. Toyoda had to sort out what combination of structural, cultural, or strategic challenges led to the current recall crisis. Clearly, Mr. Toyoda had much to do to fix the problems of the recent past, and restore confidence in his company and the brand moving forward. More importantly, Mr. Toyoda had given his personal commitment in his testimony to the U.S.
House Committee on Oversight and Government Reform: “My name is on every car. You have my personal commitment that Toyota will work vigorously and unceasingly to restore the trust of our customers.” Mr. Toyoda emphasized that being loyal to their customers was very important and that these customers need communication as well as knowing that their vehicles are safe (Greto, Schotter, & Teagarden, 2010, pgs. 5-7).
During the recall process, Toyota endured the problems with operations, quality, productivity and competitiveness. These issues should be at the top as far as priority. Mr. Toyoda testified saying: “Toyota’s priority has traditionally been the following: First, Safety; Second, Quality; and Third, Volume. These priorities became obscured, and they were subsequently not able to stop, think, and make improvements as much as they were able to before, and the basic stance to listen to customers’ voices to make better products had weakened somewhat (Greto, Schotter, & Teagarden, 2010, p. 1).
Toyota has had transformation issues as well. Of the seven deadly diseases, Toyota experienced (1) the lack of constancy of purpose to plan their services and products to keep their company in business and provide jobs; (2) the emphasis was only on the short-term profits. This is not a reliable indicator of management performance, so Toyota’s management clearly showed they were not reliable. (3)
Performance evaluations, merit ratings, or annual reviews were pretty much non-existent because if this had been in place, the employees moral would have been a lot better because this would reward those who did well. (4) Mobility of management annihilates teamwork. The management based in Japan was not a mobile management team and kept things under wrap, so there was no communication. (5) Management by use only of visible figures: Successful management must take account. (6) Excessive medical costs, and finally (7) Excessive cost of liability; in which this would occur if there were lawyers that worked on a contingency basis (Deming, 1987).
There are several points to ensure better management. They are: (1) Create constancy of purposed toward improvement of product and service, with the aim to become competitive and to stay in business and to provide jobs. (2) Awaken to the challenges of the new economic age an adopt a new philosophy. (3) Cease dependence on inspection to achieve quality. (4) Stop awarding business on the basis of price. Instead, minimize total cost. (5) Improve constantly the system of production and service to improve quality and productivity, and thus decrease costs. (6) Institute training on the job. (7) Institute leadership. (8) Drive out fear so that everyone may work effectively for the company. (9) Break down barriers between departments. (10)
Eliminate slogans, exhortations, and targets asking for zero defects and new levels of productivity. (11) Eliminate quotas. Substitute leadership and eliminate management by objective and by numbers. (12) Remove barriers that rob people of their right to pride of workmanship. The responsibility of supervisors must be changed from sheer numbers to quality. (13)
Institute a vigorous program of education and self-improvement. (14) Put everybody in the company to work to accomplish the transformation (Deming, 1987). The urgency has surpassed since the recall, therefore, the overall impact depends on the response and system of improvement to regain the consumers’ loyalty and trust along with the working conditions within their own company starting with management reinstalling the core values of the Toyota Way. If the process is not improved, it could cost Toyota more recalls in the future because of failed products and service; hence, losing more customers and revenue, not to mention the effect it would have on the shareholders. Media involvement could make or break the reliability.
The documents for Toyota described their production system. It states that the Toyota Production system (TPS) was established based on two concepts: The first is called “ji-doka” (loosely translated as “automation with a human touch”), which means that when a problem occurs, the equipment stops immediately, preventing defective products from being produced; the second is the concept of “just-in-time,” in which each process produces only what is needed by the next process in a continuous flow.
Toyota still has the loyalty of their consumers that were not affected by the recalls of their products. Toyota’s challenges came from “their own inefficiencies” by beginning operation in a crisis mode and undertaking penny-pinching measures like turning down thermostats, curb in production, slashing management bonuses, and laying off thousands of temporary workers” (Greto, Schotter, & Teagarden, 2010, p. 9).
Toyota has, for the past few years, been expanding its business rapidly; at the pace at which may have been too quick. Toyota’s priority has traditionally been the following: First; Safety, Second; Quality, and Third; Volume. These priorities became confused, so therefore they were not stopping to think and make the improvements as were made before, and the stance to listen to customers’ voices to make better products had somewhat weakened. This resulted in safety issues that were described in the recalls that Toyota now faces.
Given Toyota’s centralized management structure and increasingly complex web of suppliers, some analysts wondered whether this principle got lost among Toyota’s foreign subsidiaries, especially in the United States. Some suspected that cultural differences between Japan and the U.S. were exacerbating the crisis and making it less manageable. When recall decisions are made, a step will be added in the process to ensure that management will make a responsible decision from the perspective of “customer safety first.” To do that, we will devise a system in which customers’ voices around the world will reach our management in a timely manner, and also a system in which each region will be able to make decisions as necessary.
Further, we will form a quality advisory group composed of respected outside experts from North America and around the world to ensure that we do not make a misguided decision. Finally, we will invest heavily in quality in the U.S., through the establishment of an Automotive Center of Quality Excellence, the introduction of a new position—Product Safety Executive—and the sharing of more information and responsibility within the company for product quality decisions, including defects and recalls (Greto, Schotter, & Teagarden, 2010, et. al.)
On April 14, 2010, the Wall Street Journal published an article journalizing the Japanese family versus non-family power struggle in management which had actually been beleaguering Toyota for some time. In March, Mr. Toyoda, while acknowledging that the definitive responsibility for the recalls rested with him, seemed to agree with Mr.
Press’s comments when he stated at a news conference that the problems arose when some people just got too big-headed and focused markedly on short-term profits only. In the framework of Japanese culture, which was based on harmony, consensus decision-making, and blame averting, such comments were highly unusual. In Japan, the public debate of problems and unequivocal conflict debates were circumvented at all costs, and conflict resolution was normally required to be taken care of behind closed doors (Greto, Schotter, & Teagarden, 2010, p. 10).
Clearly, Mr. Toyoda had much to do to fix the problems of the recent past, and restore confidence in his company and the brand moving forward. More importantly, Mr. Toyoda had given his personal commitment in his testimony to the U.S. House Committee on Oversight and Government Reform: “My name is on every car. You have my personal commitment that Toyota will work vigorously and unceasingly to restore the trust of our customers.” (Greto, Schotter, & Teagarden, 2010, p. 11).
Toyota has a long road to recovery because the long-term commitment to the consumer, stakeholders, etc. is required of any company management that looks forward to the process of transformation. Merely solving the problem is not going to stop a decline in the industry. It takes a transformation of the style of management to get out of a crisis which would give them a chance to lead once again.
Deming, W.E. (Dec 1987). Transformation of Today’s Management. Executive Excellence; 4, 12; ABI/INFORM Global. Pg. 8. Greto, M., Schotter, A., & Teagarden, M. (2010). Toyota: The Accelerator Crisis Case No. A09-10-0011. Thunderbird School of Management, 24.
Greto, M., Schotter, A., & Teagarden, M. (2010). Toyota: The Accelerator Crisis Case No. A09-10-0011. Thunderbird School of Management, 24.