Case Study : Toyota

Introduction

Toyota from the early 1960s alongside their supplier network consolidated the way in which they were able to refine their production system through the introduction of specific quality improvement methodologies (Cole, 2011) e.g. the Toyota Production System (TPS). The TPS changed the way the automotive industry produced vehicles i.e. the industry had moved from a craft model to mass production and with TPS there was a move from the principles of mass to lean production (Andrews et al., 2011). These specific methodologies paved the way for the development of a total quality system that provided the foundation for the Six Sigma methodology (Cole, 2011). Additionally, the clear correlation between quality, customer satisfaction and profit led Toyota, over time, to make quality a key business driver and therefore an integral part of their strategy, their organisational design and their production system (Heller and Darling, 2011; Liker, 2004).

Nonetheless, from September 2009, Toyota began to recall millions of vehicles over an extended period due to a series of issues. These recalls began in the US after a fatal accident caused by a design flaw in a Toyota vehicle which subsequently received widespread negative media coverage (Cole, 2011). As a result, the reputation of Toyota vehicles, as the best in class in terms of quality, was negatively affected (Fan et al., 2013) with public perception showing a drop from first to 20^th out of 28 brands in the space of six months after the fatal crash (Tsikoudakis, 2011).

What went wrong with the Toyota way?

As mentioned above, the TPS was a move away from the principles of mass production i.e. an environment where parts were interchangeable and with an emphasis on the assembly line, to one of lean production where the emphasis was put on reduced variability within the production process. This change in focus therefore, reduced the time required to produce a unit and increased the control over quality at each stage (Andrews et al., 2011). This change of focus was complemented by empowering the employees to make certain decisions as well building up strategic partnerships with suppliers (Cole, 2011).

In order to better understand and provide a context as to what went wrong at Toyota, it is important to understand the fourteen Business Principles of Toyota (BPTs) (Liker, 2004).

The fourteen BPTs are :-

1) adopt a long-term philosophy

2) have a continuous process flow,

3) create a system that pulls work to avoid too much inventory

4) create an environment where the workload is manageable and consistent (Heijunka)

5) implement a quality first system

6) standardise tasks

7) make sure all controls are visible

8) only use tried and tested systems and technology, 9) invest in your people to grow leaders

10) develop those people into exceptional leaders

11) respect partners and help them to grow

12) experience situations to understand them (Genchi Genbutsu)

13) foster a culture of calculated and negotiated decision-making with fast implementation

14) learn as an organisation through reflection (Hansei) and continuous improvement (Kaizen).

It is possible to see how the decision to aggressively capture global market share as well as the increasing complexity of Toyota's product portfolio created an imbalance within the fourteen business principles of Toyota and therefore put unnecessary stress on an already lean process (Cole, 2011; Piotrowski and Guyette, 2010). The aggressive growth strategy adopted by Toyota from 1995 up until the crisis in 2009 was not in line with several of the 14 BPTs e.g. 4, 5, 9, 10, 11, 12, 13 and 14. The growth strategy in terms of capturing market share was successful insomuch that in the year before the recall crisis, Toyota had captured 13% of the market share but at a cost (Cole, 2011).

The effect of growth on quality

Despite the impressive growth achieved with this strategy, there was not a comparable increase in Toyota's capacity to deliver the increased volumes to the level of quality that was expected i.e. BPTs 4, 5 and 14. The Toyota Board made a conscious decision to focus on profit without considering all of the reputational risks that this approach could cause the brand i.e. customer dissatisfaction, changes in customer perceptions, loss of loyal customers, etc. in the short and long-term (Fan et al., 2013; Tsikoudakis, 2011). The philosophy of Toyota previously was one that would focus on steady calculated growth (BPT 13), with this growth strategy however, decisions were made too quickly i.e. there was an over confidence on the part of the Board to believe that the TPS could withstand the added demands of increased volumes (Heller and Darling, 2011).

Nevertheless, attempts were made by Toyota to address the capacity issue by hiring additional staff, contracting engineers as well as contracting the services of new non-Japanese suppliers to work at the increased number of manufacturing facilities (Cole, 2011). This change in approach from the traditional way of empowering staff and developing strategic long-lasting relationships with its suppliers contributed to the imbalance of the 14 BPTs. Specifically, in this case although the capacity to meet demand had been met by increasing the manufacturing sites and by increasing the staff levels, the capability of these teams to deliver to the level of quality was affected (Andrews et al., 2011). In this aggressive quick to market approach adopted by Toyota the BPTs affected by this decision were 9 and 10, implying that staff and engineers did not share the philosophy of quality first (Heller and Darling, 2011) but were focused rather on sales targets and volume.

Further complicating this panorama, was the way that suppliers were onboarded in terms of speed during this time of expansion (Cole, 2011). BPT 11 stresses the importance of developing long lasting strategic relationships with suppliers that understand the core values of the organisation (Chopra & Meindl, 2013) and in that way are able to grow with the organisation. Nevertheless, during this period of rapid unprecedented growth, suppliers were chosen without the necessary lead-in time to establish this common goal (Cole, 2011). This coupled with the financial crisis of 2008 and the fact that due to the lean production approach (Andrews et al., 2011) suppliers needed to make daily deliveries, issues with the supply chain began to emerge, orders were delayed and quality was compromised (Andrews et al., 2011). Finally, BPT 12, which focuses on Genchi Genbutsu and the need to experience and see the issue yourself, was compromised due to the fact that key strategic decisions were still being made at head office in Japan without a full appraisal of the situation (Heller and Darling, 2011).

The effect of product complexity on quality

The automotive industry is a highly consumer driven and competitive market which is constantly evolving and becoming more and more complex in terms of design, aerodynamics, engine design, fuel efficiency, electronics, etc. (Cole, 2011). Under normal circumstances without market pressures, the process within Toyota from design to car-on-the-road was a smooth, tried, tested and efficient process that had quality at its heart (Andrews et al., 2011). Nonetheless, the added complexity of the cars' designs coupled with the aggressive growth strategy with all of the inherent consequences mentioned above caused a system already under strain to buckle (Heller and Darling, 2001). In terms of the fourteen BPTs, the added product complexity affected BPTs 2, 3, 6 and 7 due to the fact that there were now also more vehicle models to produce in a shorter period with relatively inexperienced staff in the philosophy of Toyota. This situation thus affected the ability to identify issues in quality (BPT 2), standardise tasks (BPT 6) and test the components and systems with enough rigour (7) before production i.e. Cole (2011) highlights that the process from design to sale was compressed to 20 months in order to meet the demands of the market. Additionally, with a wide product range, the increased complexity and the need to onboard new global suppliers, it became more and more challenging to guarantee the consistent delivery on a daily basis of parts (BPT 3) thus creating a huge dependency on the supplier network to deliver i.e. a failure to deliver would have a disproportionate knock-on effect on Toyota's ability to fulfil orders (Cole, 2011).

Furthermore, the hiring of temporary contract engineers affected the way in which Toyota's supply chain were able to adequately provide parts insomuch that traditionally the Toyota engineers were also the relationship/account managers with the suppliers and introducing a high churn rate of engineers meant that the quality of the relationship deteriorated and therefore BPT 11 suffered (Andrews et al., 2011).

What was the effect on Toyota?

As alluded to in the introduction, the reputational damage caused by the widely publicised fatality, mass recalls and negative media coverage was enormous (Fan et al., 2013). It could be said that before the crisis Toyota enjoyed a significant positive halo effect insomuch that consumers would perhaps ignore minor issues with the vehicle because they were experiencing a cognitive bias towards Toyota and the association with quality. Nevertheless, once the crisis hit, the damage to the brand was exacerbated by the fact that Toyota were a company whose value proposition was the production of the highest quality cars i.e. consumers purchased a Toyota because of the reputation for quality and after the incident in 2009 that confidence was shattered (Tsikoudakis, 2011). In relative terms and based on the data provided by Cole (2011), the relative quality of Toyota compared to other brands in the market had actually improved overall between 2000 and 2009. However, after the negative media coverage, customer perceptions around Toyota on various fronts i.e. leadership, quality, reliability, honesty, believability (Piotrowski and Guyette, 2010) in absolute terms plummeted. In other words, public confidence in the Toyota brand although in relative terms had not deteriorated significantly in absolute terms in the eyes of the customer was at an all-time low (Fan et al., 2013).

Was Toyota's crisis response effective?

The response of Toyota to the crisis can be divided into two macro areas with one focusing on how Toyota responded to the immediate media crisis after the fatality and at the time of the mass recalls and the other focusing on how Toyota responded internally to the issues that had caused the brand deterioration in absolute terms in the eyes of the consumer (Tsikoudakis, 2011).

Heller and Darling (2011) suggest that crises should be divided into four stages e.g. preliminary crisis stage, acute crisis stage, chronic crisis stage and the crisis resolution stage. The key, the authors suggest is being able to identify the pre-crisis stage i.e. the stage in which an issue is identified and therefore the acute and chronic stages can be avoided with a move directly to the crisis resolution stage. In the case of Toyota, according to Heller and Darling (2011) the pre-crisis stage was in 2007 when 55,000 vehicles were recalled for the same issue that caused the fatality in 2009. If Toyota had acted upon this in 2007 and recalled proactively at that stage, the damage to the brand would have been less and the company would have been able to control the situation much more effectively (Tsikoudakis, 2011). It is probable that due to the aggressive growth strategy and the imbalance that this created within the fourteen BPTs that this issue was never given the importance it deserved (Cole, 2011; Heller and Darling, 2011; Tsikoudakis, 2011). Furthermore, according to Heller and Darling (2011), Toyota did not contemplate a crisis of this nature but rather had focused their crisis management processes on crises caused by natural disasters as opposed to ones caused internally (Cole, 2011).

Additionally, due to the centralised nature of Toyota and the lack of empowerment provided to the overseas management structure, the media responses provided by Toyota were not immediate due to the time difference (Tsikoudakis, 2011). This delay created the sensation that the crisis was not being treated as importantly as it should have been (Piotrowski and Guyette, 2010) thus affecting negatively the brand. Once the acute stage of the crisis had passed and it had moved to the chronic stage, Toyota then began to try to remedy the situation externally by emphasising the brand pillars of quality, reliability and durability without immediate success (Cole, 2011; Heller and Darling, 2011) and thus emulating the behaviour of similar crises i.e. Ford where recovery took much longer than expected.

Moreover, Toyota identified and publicly recognised their failings in terms of strategy and focus and made fundamental changes to their global footprint i.e. a reduction of manufacturing sites, their employee structure, i.e. more Toyota permanent staff, their management structure i.e. giving decision-making powers to regional hubs and their product portfolio i.e. a reduction in the different production models (Cole, 2011); in other words a return to the Toyota way (Liker, 2003).

References:

Andrews, A.P., Simon, J., Tian, F. and Zhao, J. (2011) 'The Toyota crisis: an economic, operational and strategic analysis of the massive recall', Management Research Review, 34 (10), pp. 1064-1077.

Chopra, S. & Meindl, P. (2013) 'Supply Chain Management - Strategy, Planning, and Operation ', 5th Edition, New Jersey: Pearson Education, Inc.

Cole, R.E. (2011) 'What really happened to Toyota?', MIT Sloan Management Review, 52 (4), pp. 28-36.

Fan, D., Geddes, D. & Flory, F. (2013) 'The Toyota Recall Crisis: Media Impact on Toyota's Corporate Brand Reputation', Corporate Reputation Review, 16,pp. 99-117.

Heller, V.L. and Darling, J.R. (2011) 'Toyota in crisis: denial and mismanagement', Journal of Business Strategy, 32 (5), pp. 4-13.

Liker, J. (2004) The Toyota Way, New York: McGrawHill

Piotrowski, C. & Guyette, R. W. (2010) 'Toyota recall crisis: Public attitudes on leadership and ethics', Organization Development Journal, 28(2), pp. 89-97.

Tsikoudakis, M. (2011) 'Massive recalls put dent in Toyota's reputation', Business Insurance 45 (10) pp. 9-10.

Zairi, M. (2013) 'The TQM legacy - Gurus' contributions and theoretical impact',TQM Journal, 25(6), pp. 659-676.

Question :-

After reading the case study you would have realised that the reputation of Toyota across the globe has taken a hit and even though the global marketing , branding and public realtions teams are doing whatever they can globally the Toyota North America management has been more proactive than the teams across the world in their response. One of the strategies to get the lost reputation back is to focus on Corporate Social Responsibility in North America. YOU are the CSR Head for Canada and have been asked by the North America top leadership to list AT LEAST 5 proposals through which using CSR Toyota can get back on the path of redeeming itself in the Canadian market and regain the past glory that Toyota always enjoyed in this market. Please share your recommendations and support them with facts / logics. ( Upto 600 words )