Any company smaller or larger can have a crisis sooner or later and that can have serious negative impact on it. Pearson and Clair ( 1998 ) as cited in Crandal, Pamel and Spillen ( 2010 ) define crisis as an event with low probability but high impact on organization. Similarly, Coombs ( 2007 ) defines crisis as an unpredictable event that can have serious impacts on organization with negative outcomes ( cited in Crandal, Pamel and Spillen, 2010, p. 4 )
Toyota became world’s No. one automobile company going ahead of General Motor in 2008. But sooner Toyota got into the serious crisis caused by the safety issue of sudden unintended acceleration and its lack of proper management leading to the massive recall of more than 14 million vehicles globally (Jacks Investment Research, 2011), government investigation, heavy fines of 48.8 million US dollar for not reacting appropriately to the report of problem and the legal actions from the victims (New York Times, 2011).
Here it seems that wide spread criticism of Toyota from public, medias and government agencies (MacKenzie & Evans, 2010 ) was unpredictable for Toyota. Similarly, massive recall of 11 millions vehicles, government investigation, fines and legal action from the customers were serious negative outcomes. Damage on Toyota’s reputation (The Economist, 2011) and loss of market share (Kitamura, Ohnsman and Ito, 2011) are other negative outcomes of the incident. This event had been very difficult to handle for Toyota These all things indicate that this is a case of serious organizational crisis in the terminology of Crisis Management.
Contributory Factors Denial of the problem:- Toyota denied the problem until it was forced to take action. Toyota had been denying its accelerator problem since the very beginning of the first case surfaced in 2002 and did not take action until the problem escalated in 2009 (Hemus, 2010). The best way to deal with the problem is to deal with it before it escalated.
According to National Highway Traffick Safety Administration of USA, 34 people have been killed in the Toyota crashes caused by the sudden acceleration since 2000. All the complaints regarding the sudden acceleration were dismissed by Toyota, its dealer and government agencies blaming on drivers pressing the wrong pedals or mechanical problems (Krisher, 2010). If Toyota had taken this problem and formed a team of experts at the beginning, it would not have faced the crisis of 2010.
Toyota’s Corporate Culture Wayne State University Professor of communication Mathew W. Seeger (2010) argues that elements of Japanese corporate culture like consensual decision-making process, keeping the problem behind the scene are contradictory to the demand of a multinational company. Toyota’s CEO Akio Toyoda’s late public apology, late decision on recall of vehicles, and the medias revelation of Toyota’s pre- acknowledgement of the accelerator problem and hundreds of past complaints indicate the same pitfall in Toyota’s corporate culture. Inability to explain the uncontrolled acceleration
Toyota was not able to identify the problem of sudden acceleration with certainty for a long time. Mr. Jim Lentz, president of Toyota Motor Sales USA, said at congressional hearing that he was not sure whether the fixes that were being undertaken would solve the problem ( Krisher, 2010 ). Such state from the top management level might have catalyzed the customer’s anxiety and harmed company’s reputation even more. Sluggish response
The case of first sudden acceleration came on the surface in 2002 (Institute of Engineering and Technology, 2010). But the case got widespread media coverage when four persons died in Toyota crash due to the sudden acceleration problem. According to National Highway traffic administration, 34 people had died in Toyota crash due to the sudden acceleration problem (Krisher, 2010). Toyota had already received more than 2000 complaints of sudden unintended acceleration but after the tragic death of four people on 28th august, 2009 only, it stepped up its own inquiry (Vlasic, 2010). It seems that it took six years for Toyota to make decision to act on such a critical safety issue.
It seems to have very negative impacts on global image of the company. Toyota’s CEO Akio Toyoda’s late public apology, and late decisions on recall of vehicles also indicate its sluggish response that led the situation from bad to worse. After the tragic death of four person on 28th august, 2009, Toyota received criticism from public, medias and government agencies; accepted the problem with its products on 14th September, 2009; announced its first recalling on 29th September, 2009 and other recalls were made months later (Mackenzie & Evans, 2010).
These all things indicate that Toyota acted very slowly. In the similar type of problem faced by Mattel, toy maker, in 2007 concerning the safety issue of its toys, it announced its recall immediately and its CEO spent several weeks in communicating the actions the company was taking to deal with the problem ( Hemus, 2010 ). Toyota could save the image of its brand and could make the customers feel that it was really serious about the safety concern of its customers and taking actions in a responsible way. Poor Communication
Elliot, Swartz & Herbane (2010) argue that the effective communication with the stakeholders, especially media and customers, is very essential to protect corporate image and reputation. But in the case of Toyota it seems that it did not communicate properly about the actions it was taking. The report from Toyota and local authorities indicating the problem with floor mate came out on 14th September, 2009 but company apologized first time on 2nd October, 2009 and started sending letter on 30th October, 2009 (Mackenzie & Evans, 2010).
It indicates that Toyota was really slow to communicate. It could apologize as soon as the report was released and the letters could be sent earlier. They could inform the public by means audio, video and text messages through the company’s social media, regular press release about the steps they were under taking and updating the people on the development of their efforts.
It could possibly help to calm the public, medias, customers and other stake holders and make them feel safer before the medias revealed the numbers of crash cases, death reports and the complaints about Toyota’s accelerator problem which seem to have developed negative public attitude towards the company. According to Peter Frans Anthonissen as cited in W. P. Carey (2009), communication plays the role of birth or death during the organizational crisis. It seems that the communication in Toyota played the role of near death transforming the crisis situation from bad to worse. Lack of Proper Crisis Planning
Seeger, Sellnow and Ulmer (2003) argue the need of the crisis planning with more relevant information, more resources and contingency plans to reduce the uncertainty during the period of crisis. They also argue the need of the crisis teams like public response, legal, CEO, operation and security.
In the case of Toyota it seems that it did not have proper crisis planning. Its slow reaction, communication gap with the public, role played by its CEO Akio Toyoda indicates Toyota’s failure in crisis management. Harvard university professor William W. George as cited in Berger (2010) call it a tragic case of crisis management. It seems that if Toyota had acted with a proper planning, it would be able to mitigate the crisis or it would have less serious impacts. Company Response
Public apology: Toyota’s CEO Akio Toyoda apologized publicly first time in September 2, 2009. ( MacKenzie & Evans, 2010 ). Later he again apologized in Congressional hearing taking the full responsibility of the problem in February 24, 2010 ( BBC, 2010 ).
Massive recall:- more than 14 million vehicles have been recalled globally by Toyota since November 2009 (Jacks Investment Research, 2011). Extension in Working Hours: Toyota extended its working hours and some dealers provided service 24 hours to fix the problem in recalled vehicle (Weekly Driver News Service, 2010). Structural response: Toyota has formed Rapid Response SMART Team to respond quickly to unintended acceleration problem (Toyota, n. d.). It has appointed executives in all six regions to control the quality and has also formed an outside advisory panel (The New York Times, 2011).
Massive Advertisement and Public Relation Campaign: Toyota started a massive advertisement campaign through radio, and television; and sent letters to its customers for the purpose of restoring its image again and to show it really cares its customers (Woodyard, 2010). Sales and production Suspension: Toyota suspended the sales of its eight vehicle models following the accelerator problem saying it a remedy until a solution was reached (Chuchmach, 2010). It also suspended its production in USA saying it was necessary until the finalization of remedy ( Winter, 2010 ).
According to Balsoni (2011), a leader should act fast and deliberately during crisis. In the case of Toyota, its CEO Akio Toyoda seems more confused that made him very slow in making decision. Though Toyota made some responses, they helped to mitigate the crisis situation very little because they did not come in time due to role played by its leadership and its decision making process i.e. consensual.
Impacts Economic Impacts There was sharp fall in Toyota’s share by 23% by the February of 2010 and $ 30 billions was wiped out from its share, 35% drop in brand value, estimated cost of $300 millions for advertisement and public relation campaign to regain reputation and market share, reduction of credit rating, estimated $1 billion loss in productivity (Hiles, 2011). Suspension of sell in US caused the loss of $54 million a day for the company and its dealers (Mackenzie and Evans, 2010). Its recall cost could exceed $2 billions (Isidore, 2010). Toyota’s market share fell to 12.1 % in August, 2011 from 14.9% a year earlier (Ohnsman, 2011), and to 14% in 2010 from 17% ( Balley and Krolicki, 2010) in USA.
Public Relation Disaster According to Elliot, Swartz and Herbane (2010), public relation acts as bridge between the organization and the public during the time of crisis. Wide spread media coverage of the tragic death of four persons due to the sudden unintended acceleration problem of Toyota and their desperate call to 911 (Carty, 2010) brought a great disaster in company’s public relation.
It was later found that there were hundreds complaints and several numbers of death regarding the sudden acceleration crashes of Toyota vehicles; and news medias publicized them (Vartabedian and Bensinger, 2009). It deteriorated Toyota’s public relation even more. In the same way Toyota’s poor communication and the poor handling of recalling the vehicles also contributed in public’s growing anxiety (Glover, 2010; and Nelson, 2011) Legal Impact
According to Dyar (2010), there were hundreds of lawsuits against Toyota associated with safety issue and recall of its vehicles. It was fined total of $ 48.8 millions by Transportation Department (New York Times, 2011) and had to appear in congressional hearing (Altman, 2010). A possible shifting of corporate culture
Toyota has appointed the executives for all six regions to take care of quality and has formed an outside advisory panel to make an independent study for the recommendation of company’s future step.
Toyota’s president Akio Toyoda has started to work to fill the gap between company’s corporate culture and its largest market, the USA (The New York Times, 2011 ). According to Crandal, Pamel and Spillen (2010), a situation of crisis can be an opportunity for organizational learning. Toyota’s CEO’s move towards the organizational change indicates that the management has used it as a learning opportunity also. But still there seems the need of learning in its crisis plan, communication plan and other contingencies. Damage on Company’s Brand and Reputation
Elliot, Swartz and Herbane (2010) argue that company’s reputation is a very important asset and the reputational cost during crisis can be very high. According to Hiles (2011), there was 35% drop in Toyota’s brand value. There was Wide spread Public accusation, media coverage, number of lawsuits against company, company’s withheld of information and public rebuke from the government authorities seriously damaged company’s brand and reputation and company’s sluggish indecisive response contributed a lot to it (Seeger, 2010).
According to The Economist (2011), it will be very difficult for Toyota to retain its image in pre-crisis condition. But Toyota could have saved its brand and reputation from being so much deteriorated if it had been able to make quick decision and informed the public aggressively about what they were doing on the problem, and the development of their efforts regularly before the public medias filled the gap utter criticism.
References Alten, A. ( 2010 ). Congress Puts Toyota (and Toyoda) in the Hot Seat. TIME U.S. ( Feb. 24 ). Retrieved November 26, 2011 from http://www.time.com/time/nation/article/0,8599,1967654,00.html#ixzz1exu1V55b
Baldoni, John (2011). How a Good Leader Reacts to a Crisis. Harvard Business Review (Jan. 4). Retrieved November 27, 2011, from http://www.linkedin.com/news?viewArticle=&articleID=316055011&gid=3702848&type=member&item=39291429&articleURL=http%3A%2F%2Fblogs%2Ehbr%2Eorg%2Fcs%2F2011%2F01%2Fhow_a_good_leader_reacts_to_a%2Ehtml%3Futm_source%3Dfeedburner%26utm_medium%3Dfeed%26utm_campaign%3DFeed%253A%2Bharvardbusiness%2B%2528HBR%2Eorg%2529&urlhash=VT00&goback=%2Egde_3702848_member_39291429 Balley, D. and Krolicki, K. (2010). Toyota U.S. sales reel from crisis; GM, Ford surge. Reuters (Feb. 2). Retrieved November 27, 2011, from http://www.reuters.com/article/2010/02/03/us-autos-sales-idUSTRE6114BW20100203
BBC, 2010 ). Toyota boss Akio Toyoda apologizes for faults. BBC NEWS, ( Feb. 24 ). Retrieved November 26, 2011, from http://news.bbc.co.uk/2/hi/business/8533352.stm
Berger, J. T. ( 2010). Toyota – Crisis Management at its Worst. The Wiglaf Journal ( June ). Retrieved November 24, 2011, from http://www.wiglafjournal.com/communication/2010/06/toyota-%E2%80%94-crisis-ma