A.

Miss Lailatul is a new management accountant at Happimart Steel Berhad (HSB). HSB is based in Changlun, Kedah and produces a range of industrial products. The external environment in which HSB operate is continually changing. HSB must respond to these changes to remain competitive and continue to meet the needs of its customers. Hence, HSB must consider the customer satisfaction in order to meet the challenge. In addition, HSB as a modern organization is increasingly becoming more complex due to the changes. Globalization, economic liberalization, technological advancements and interconnectivity have made the existence of HSB tougher than ever before. Markets are becoming more international, dynamic and customer-driven because of many foreigners staying in Changlun. In this situation, the management of HSB feels that there is a need to stimulate the organization to respond more innovatively in management accounting. As a consequence, the demand for new management accounting information is rising, where a future oriented, forward looking information to aid strategic planning and decision making is required. The working surroundings and the nature of commercial enterprise operations have turned out to be future and business oriented. Application of information technology (IT) in management accounting has modified the roles, duties and responsibility of management accountant. IT evolution involves automation cost control and efficiency, productivity and end user empowerment to value creation and end-user business effectiveness. Since Miss Lailatul is a new staff in HSB, she is being asking by the management to fully understand the role of management accountant and the effect of the changing environment to the management accounting. HSB is also implementing cost leadership strategy and product differentiation strategy. In applying these strategies, HSB must focus on its activities in order to create value to its customers. Managers at HSB realize that the more HSB creates value to its customers, the more profitable it is likely to be and at the same time, it can built competitive advantage. Mr Qadri, a plant manager, however, was not pleased with the current reported results concerning to the huge investment in modernization HSB production facilities. Mr Qadri argues that, HSB needs to do some proactive marketing in order to cover the investment. Even though HSB adopts Just-In-Time (JIT) system for inventory management and production, customers are still complaining on the late deliveries due to insufficient stock in the warehouse. Mr Qadri decided to take a tour to several of the plants and talk with the plant supervisors. After the tour, he realized that the supervisors did not understand the concept of non-value added costs, and they did not have a good grasp of the concept of JIT system. No efforts made to carefully consider the activity information that had been produced. One typical plant supervisor stated that: "This is too much data. Why should I care about all these detail? I do not see how this can help me to improve my plant's performance. The change is already happened. Direct labor is replaced by automated machinery. They told me that inspection was not a necessary activity and did not add value. I simply can't believe that inspecting isn't value-added and necessary. The consequence of this change is what you can see now, not enough stock".

REQUIRED:

(a) Analyze FOUR (4) factors that drive changes in HSB.

(b) Examine TWO (2) pressures that influencing the change of Miss Lailatul's role as a new management accountant.

(c) Based on the information technology (IT) evolution, discuss TWO (2):

(i) roles of IT in relation to the IT evolution.

(ii) roles of the management accountant in response to the IT evolution.

B.

In January 2009, Toyota officially surpassed GM to become the world's number one auto company. Toyota's success was decades in the making and directly attributable to the commitment of the Toyoda family (the company's founders) in building one of the world's most trusted consumer brands. A number of surveys over the years documented that the car maker's brand was among the best in the world, and this was grounded in consumer perceptions of Toyota vehicles as safe, highquality automobiles. Consumers trusted the Toyota brand so much that the company had developed a significant competitive advantage on the basis of its customer loyalty. If you bought one Toyota, there was a good chance you would have a long-term relationship with the car maker. At the core of Toyota's manufacturing process is the Toyota Production System (TPS), which has long been touted and revered as a model of corporate efficiency and quality. Four management principles (the 4P model) were at the core of TPS and guided employees: problem solving, people and partners, process, and philosophy. The idea behind these principles was that "Good Thinking Means Good Product." Taiichi Ohno, a long-time Toyota executive, is widely credited as the innovative genius behind TPS. During the 1950s, Ohno, along with a small core of other Toyota executives, developed several principles of car-making efficiency that became what is now known as lean manufacturing and just-in-time inventory management. Ohno's ideas not only changed the auto industry, they changed late-twentieth-century manufacturing. At the very core of these concepts were attention to detail and a "noble frugality." However, over the years, it appears that Toyota's executives slowly lost the "purity" of that approach as the once-strong commitment to quality embedded in Toyota's corporate culture became lost in its aggressive moves to grow market share and achieve productivity gains. From 1995 to 2009, Toyota embarked on the "most aggressive overseas expansions in automotive history" and at the same time had a laser-like unparalleled focus on cutting costs. Four major cost-cutting and expansion initiatives severely strained organizational processes and employees. One initiative was localized manufacturing. In the late 1990s, Toyota established manufacturing hubs in Asia, North America, and Europe. Such an approach meant relying more on local suppliers and design teams to tailor cars to local tastes. Another initiative was called Construction of Cost Competitiveness for the 21st Century (CCC21). It was a massive cost reduction program. Through an ongoing process of redesigning parts and working with suppliers, more than $10 billion of savings were achieved. The Value Innovation initiative was a more ambitious version of CCC21. Under this program, more savings were achieved by making the entire development process cheaper and by further cutting parts and production costs. And finally, the Global 15 initiative was a master global plan for attaining a 15 percent share of the global car market by 2010. As of mid-2010, Toyota had an 11.7 percent share of the worldwide car market. However, this combination of high-speed global growth and ambitious cost cuts led to the quality lapses that tarnished the once-mighty brand. In late August 2009the same year the company became the world's number one auto brand an off-duty California policeman was driving a Toyota Lexus that accelerated in excess of one hundred miles per hour and crashed, killing the officer and his family. The incident received news coverage that featured a recorded cell phone call to 911 documenting that the acceleration was uncontrolled, and the driver had no part in the sudden acceleration. In part because of the 3 BKAM3033 SEMINAR IN MANAGEMENT ACCOUNTING novel, TV-friendly existence of the 911 cell phone recording, this became a story in the electronic media and spiked existing concerns about whether Toyota vehicles suffered from an electronic defect that caused uncontrolled accelerationin turn putting pressure on federal safety regulators responsible for protecting the public. At the time of the fatal accident, Toyota was well aware of quality and safety questions about unintended accelerations. The trail of evidence included data from the NHTSA (the National Highway Traffic Safety Administrationthe government agency empowered to ensure automotive safety) from 2004 indicating that Toyota vehicles accounted for 20 percent of all uncontrolled acceleration accidents (compared to 4 percent in 2000); the company's own 2009 analysis into these accidents, which suggested that the cause of the uncontrolled acceleration was due to floor mats obstructing gas pedals; and an early October 2009 recall of 3.8 million cars to address concerns that the floor mats could be obstructing the gas pedal. However, the story intensified up even further when in October 2009, the Los Angeles Times launched an investigative series examining Toyota's safety and quality practices. Over the course of several months, the paper reported that: Toyota's acceleration issues dated back to 2002, when the company began installing drive-bywire systems in its vehicles. The company had received 1,200 complaints of unintended accelerations, and the uncontrolled accelerations continued even when the floor mats in question were removed. Toyota sought to prevent making available the data collected by onboard recorders of vehicles that had experienced uncontrolled acceleration. And more people had died from uncontrolled accelerations involving Toyota cars than from all the other car companies put together. In the face of these articles and other media coverage, Toyota continued to insist that there was no defect and that the floor mats were the root cause of the uncontrolled accelerations. The company even sent a letter to its customers at the end of October 2009 explicitly stating, "no defect exists." A few days later, the NHTSA took the highly unusual action of issuing an especially harsh response to Toyota's "no defect" letter, calling it "inaccurate" and "misleading," and adding that the recall of the floor mats "does not correct the underlying defect." The rebuke by the feds turned what was a big story into an even bigger story. The controversy continued to escalate and Toyota issued a press release denying media reports about the defects. However, by late November, Toyota dealers were being instructed to remove and replace gas pedals and update the onboard computers on some vehicle models. But the accidents continued. On the day after Christmas 2009, a Toyota Avalon carrying four passengers accelerated and crashed into a Texas lake, killing everybody on board. By December 31, 2009, Toyota had accounted for 33 percent of all uncontrolled acceleration complaints that year. On January 16, 2010, Toyota stated that a supplier was responsible for the gas pedals that may have had a dangerous "sticking" defect. Then five days later Toyota announced a recall for 2.3 million cars to fix sticky pedals. The problems for Toyota grew still worse. On January 26, 2010, the company suspended the sale of eight models and announced that beginning the following week it would temporarily shut down five North American assembly plants. The company did not make public that it took these steps at the direction of the federal government, 4 BKAM3033 SEMINAR IN MANAGEMENT ACCOUNTING but the next day, Department of Transportation secretary Ray LaHood effectively called Toyota on the carpet by publicly stating that his agency had directed Toyota to suspend its operations a statement that Toyota had to confirm. On February 5, Toyota president Akio Toyoda finally appeared at a press conference and said, "We pursued growth over the speed at which we were able to develop our people and our organization. I regret that this has resulted in the safety issues described in the recalls we face today, and I am deeply sorry for any accidents that Toyota drivers have experienced." He also announced a task force involving outside experts. But by nowafter multiple explanationsthe damage had been done. Toyota temporarily shut down its manufacturing plants at a cost of $54 million a day; monthly car sales dropped below 100,000 for the first time in more than a decade; Toyota's U.S. market share fell to its lowest level since January 2006; the company's stock dropped 16 percent; Consumer Reports removed its "buy recommendation" on eight Toyota models; the Department of Justice and the Securities and Exchange Commission initiated investigations; and Congress opened up its own inquiry, complete with public hearings. By 2011, two years after ascending to the top, Toyota was passed by GM as the number one carmaker in the world and even though a subsequent NHTSA study came out generally supporting Toyota's claim that there were no defects in the technical sense, and Toyota has since worked to claw its way back to its previous position in the public eye, Toyoda acknowledged that Toyota's crisis response, like the warden and prisoners in Cool Hand Luke, suffered from a failure to communicate. So what is Toyota doing to remedy its problems? In addition to the massive recall, the company's president says that it is setting up a system to respond more quickly to complaints. In fact, the automaker has promised to give regional executives a bigger role in issuing recalls based on local consumer complaints, although Mr. Toyoda says that the final decisions regarding recalls will continue to be made in Japan. The company is also holding twice-yearly global quality meetings and more frequent regional quality meetings. And finally, the company is re-committing itself to better training employees in quality control.

REQUIRED:

(a) Identify the crisis that Toyota faced? Explain the source of the crisis.

(b) Explain TWO (2) control mechanisms practiced by Toyota before they faced the crisis.

(c) If you are Toyota's operation managers, recommend THREE (3) ways how to control Toyota's production system that can be used to manage the quality of Toyota's cars given their objectives to achieve a combination of high-speed global growth and ambitious cost cuts at the same time. Justify your suggestion based on the types of control, its characteristics of good control system and how it will helps Toyota to sustain its quality.

(d) Discuss THREE (3) impacts of stretch target that is to achieve "high-speed global growth and ambitious cost cuts" onto Toyota's employees.

(e) Discuss the application of interactive control in Toyota. Explain its implication with regards to the "acceleration issue".

(f) Discuss FOUR (4) factors on how employees' high motivation can help Toyota in achieving its goal of 'No defects on the products'.

(g) Describe FOUR (4) culture features at Toyota Motor Corporation.

(h) Explain how a long-standing culture that had such a strong commitment to quality lost its ability to influence employee behaviors and

actions.

(i) In terms of ethical perspective, do you think it was important for Mr. Toyoda to apologize for the company's decisions? Why?