Business Ethics at Toyota - Case Study Example

? Business Ethics of the Contents INTRODUCTION TO ETHICS 3 TOYOTA COMPANY 4 ETHICS AT TOYOTA 4 UNETHICAL ISSUES IN TOYOTA- 2009-2011 5 ROOT CAUSE OF UNETHICAL ISSUES 6 SOLUTIONS TO THE ISSUE OF UNINTENDED ACCELERATION 7 RECOMMENDATION 8 CONCLUSION 10 References 11 INTRODUCTION TO ETHICS In broad terms ethics can be described as moral guidelines with the objective of governing good behavior among employees. Business practice is the study of policies and the management of controversial and critical issues. These include issues such as insider trading, corporate governance, corporate social responsibility, discrimination, fiduciary responsibilities and bribery. In order to gets acceptance from the government as well as the bodies controlling policies and laws, organizations have to accept and follow certain rules and regulations and maintain certain standards in the work process. A collaborative study of these regulations, laws and issues can be termed as business ethics. Ethics is always concerned with the moral judgment of business. Every business or organization expects to be in the good books of the government as well as regulatory bodies. Decisions in an organization are taken by higher management but these decisions are always influenced by the culture of the company as well as the external environment in which the company operates. Involving in ethical process might seem difficult and lead to cutting down of short-term profits, but it is very essential for a successful and sustainable long term growth of the organization (Chang, 2011). Companies can significantly benefit from positive corporate social responsibility and ethical behavior; Customers are attracted to the products and services of the firm, thus, profits and sales get a boost. Employee perception towards the organization becomes positive and loyalty increases. Thus, there is a decrease in labor turnover and overall increase in productivity. As a result of the positive perception growing popularity of the organization, skilled talents are attracted and recruitment costs are reduced significantly. The share price of the company increases and investors are constantly attracted and business is always in growth phase. TOYOTA COMPANY Toyota is one of the largest automaker in the world, headquartered at Toyota, Japan. In terms of revenue, Toyota is the eleventh largest corporation worldwide. The company was founded in 1927 and deals with the manufacturing and production of commercial vehicles, automobiles, engines and motorcycles (Toyota, 2013a). Apart from global leadership in vehicle manufacturing, the company is known for its participation in ecological campaigns and sustainable environment issues. The company believes in theory and practice of sustainable development. Toyota practices total quality management in all its operations. The objectives are to least impact the environment. For creating a sustainable environment, the company has established a plantation programes (Toyota, 2013e). Apart from this, the company is involved in many ecological campaigns and environmental management programes. The organization has been awarded with various awards such as Green Awards (Toyota, 2013d). ETHICS AT TOYOTA Toyota is one of the well recognized conglomerates worldwide. It is imperative that the organization maintains a record of all its transactions and business acts. In this regards, proper maintenance of ethical behavior in the organization is critically important. Quality and ethics are the benchmark for the sustainability of the organization as well as growth and development of the supply chain and other important department of Toyota (Toyota, 2013b). Both play a crucial role in the strategic plan of the company. Since it is a vehicle manufacturing company, safety of the consumers will be the top-most priority while designing and manufacturing products. On a broader term, the business ethics for the company can be applied in three major areas; designing and manufacturing, supply chain and strategy planning. The overall ethics of Toyota can be summarized as follows (Toyota, 2013c); Abiding by the regulations, laws and standards. Respect and protection of human rights Emphasizing on good health and safety in the workplace with the aim of reducing accidents and protection of the workplace. The overall company expects that there is no conflict between the organizational interests and personal interests. Taking care of company’s properties and involving with the best interests of the company. Keep a direct and open communication with the external environment and the society so that proper response can be generated from the society in case of any urgent feedback UNETHICAL ISSUES IN TOYOTA- 2009-2011 Toyota faced three separate but similar recalls in their models between 2009 and early 2010. The recalls were made on account of similar issues which was unintended acceleration. Sudden acceleration can be described as the unexpected, unintended and uncontrolled acceleration of an automobile. This is often worsened by a sudden ineffectiveness of the break system. Sudden acceleration can be caused due to driving error, electrical or mechanical problems. It can also occur as a combination of all these. During the initial phases, the company explained that the acceleration was caused due to the break paddles and an improper and faulty floor mat, which was installed from another vehicle. But because of the continuous and similar recalls, analysts started to conclude that these were a problem in the strategy and designing of the automobiles. Many experts also suggested that there was failure in the design strategy of the automobile company which was making the vehicles unsafe and unfit for emergencies. By going through the history, it can be seen that the problem of sudden acceleration is not new within the organization (Sood, Osterman & Pecht, 2011). In the year 1987, 5000 Audi’s were recalled because of sudden acceleration and brake issues. In the year 1988, the problem was reported in Honda Accords. From the year 2004 to 2006, issues of sudden and unintended acceleration were reported in various brands of Toyota such as ford explorer, Toyota Camry and Ford mustang Cobra. From the year 2009 to 2010, several variants and brands of the company were recalled, which forced the organization to suspend sales and production of many renowned brands, including big names such as Toyota corolla. It has been also observed that Toyota has been purposely avoiding the investigation of the defective and malfunctioning systems in the vehicles which led to the production of faulty parts in the automobiles (Andrews, Simon, Tian & Zhao, 2011). Apart from this, there were two major reports of sudden acceleration that resulted in death of members of a family. These incidents and the continuously occurring problems with the vehicles tarnished the image of the company. There was a considerable loss of brand image. A sudden decrease in demand and growing suspicion among customers resulted in a huge financial loss for the company. The manufacturing plants and facilities of Toyota are another example of unethical behavior being followed by the company. The factory operations have been termed as human trafficking and slavery and thousands of workers are overloaded with works, making them sick and even leading to death. Analysts and media have claimed that the organization deliberately chose the poorer states in order to take advantage of the workers and paid them lowest wages. Even though the company is one of the most profitable worldwide, the wage system is one of the lowest in the automobile industry. ROOT CAUSE OF UNETHICAL ISSUES It is clear that 100 percent perfection cannot be expected from any manufacturing or automobile company. Designs and suppliers change are bound to occur in such cases. But continuous recalls of the variants and increasing issues in quality of the parts pose a serious question for the largest automobile maker. Use of advanced automobile technologies both in terms of mechanical and technological, should have increased the quality of the system and taken into consideration the concerns of driver’s safety. Over confidence as well as internal pressure to align the profits and production in lieu of the growing demand are assumed as one of the few reasons that lead to the series of faulty productions in the company (Robertson & Athanassiou, 2009). A series of misrepresentations and delayed communication on quality issues throws light on the lost focus on value promised by the company. In spite of complaints regarding faulty designs, the company kept producing the variants and delayed the press conferences and communicating with the consumers. Toyota’s relentless pursuit to grow overlooking values and promises resulted in the compromising quality of the variants. Apart from that, increasing competition from the automobile industry, competitors and ever-growing costs of raw materials forced the company to purchase cheap materials and hire workers with lowest wages. The work environment within factories and plants was also compromised to compensate the growing costs of production. Thus, compromise in the value and objective of the company eroded the overall brand equity. There was a disconnection between what was promised and what was being delivered and this resulted in a loss of brand image. SOLUTIONS TO THE ISSUE OF UNINTENDED ACCELERATION The decreasing demand for the motors forced the company to layoff many of its employees. The company recalled more than 8 million vehicles and the total cost of these recalls was more than 2 billion dollars (Heller & Darling, 2012). Continuous complaints and subsequent recalls led to the erosion of the company’s brand image. The market share of the company went down to 8 percent due to the recalls. The company also announced that they will pay a sum of I billion dollars as compensation to the customers who were affected by the vehicles. To solve the problems in Toyota, the organization generated a three stage strategy. These were observing the symptoms and problem, understanding the context of present business and identification of the root cause. This model was known as A3 model and was created by the Toyota Company. The model was later used to frame the quality management and production system of the company (Svensson & Wood, 2005). The fundamental steps of the A3 strategy can be explained as follows. 1. Background or theme 2. Present condition 3. Analysis of the cause 4. Targeting the present condition 5. Implementation of the plans (action plans with complete distribution of tasks and departments handling them) 6. Follow up of the strategies implemented ( feedback and regular tests) RECOMMENDATION From the above discussion it is clear that few unethical decisions can prove to be catastrophic for any organization. The profitability of the organization gets affected, there is a decrease in the employee morale and they are unable to resolve customer complaints. There is a negative reputation of the company. These ethical issues have a long term effect on the brand image of the organization. Thus, the major concern of the organization should be to avoid those strategies and plans which might compromise the quality of products and services as well the value promised by the firm. The top management should consider all ethical consequences before taking any decision regarding product or services produced by the company. A centralized decision making process can be very slow in taking crucial decisions. The major drawback of this system is that all the decision is taken by the top management and thus many issues are being neglected or not handled properly. In case of Toyota, even though the regional office was aware of the acceleration issue, it could not do anything in response as the issue has still not reached to the head office. To resolve this issue, the company can become more responsive. Instead of the headquarters handling all the issues, some decision making authority should be given to the regional offices so that they are able to investigate and take immediate decisions in cases of emergency. Apart from this, a strategy for group decision making should be implemented where valuable feedbacks from the field workers and front line managers can be used (Bayazit, 2005). To differentiate and categorize the level of seriousness or criticality of the issues, a strategic complaint management system should be introduced. This complaint system should be centralized and different complaints should be divided into categories according to their importance. Well established procedures and well-defined plan of actions should be developed in order to take immediate actions. Collaboration of these complaint management systems with external stakeholders such as regulatory bodies will also help in quick response to any system failure. Another important strategy should be reducing the communication gap. The top management, middle managers and lower level employees should be allowed to communicate freely, both in horizontal as vertical direction. This can be done by conducting monthly and quarterly meetings where managers from different levels come together. Toyota’s case of unethical business policies has offered many valuable lessons for other businesses. These can be summarized as follows; Aggressive growth might lead to unmanageable risk Toyota desired to become the largest carmaker by surpassing General Motors which lead to a compromising quality control system. The organization did not comply with the quality standards and somehow passed the quality tests. While making decisions regarding growth, the management should always consider the long term effect decisions. The ethical standards should never be compromised, especially in case of manufacturing and construction sector, as the safety and security of the consumers are at stake (Tran, 2010). Supply chain management In most of the automobile companies, management of supply chain is critically important. In general, most of the parts are manufactured by third parties. Thus, sourcing standard and updated motor parts is of extreme importance. Monitoring of supply chain is a critical factor for automobile companies (Eltantawy, Fox & Giunipero, 2009). In case of complaints regarding the motor parts, the reputation as well as the internal management of the company is at stake. Thus, before providing license to any supplier or third party company, the company should ensure that they comply with all standards of the manufacturing and processing regulations and laws (Wanke, 2004). Accept responsibility In situations of crisis, the first and foremost task is effective handling of the media. Many times, the top management falters and makes statements which are confusing and further tarnish the image of the organization. An effective public relations department will be very helpful in dealing with crisis. In situations like that of Toyota, the company should take the responsibility and make suitable amendments favorable for every affected party. CONCLUSION The top management should understand that short term objectives might bring immediate profit to the organization, but there is no guarantee for a sustainable and long term growth for the firm. In many cases, short term objectives often result in loss of reputation of the brand or company, which further increases the overall costs of rebranding and repositioning of the tarnished image. Business ethics and corporate responsibility are becoming important factors determine the overall image of the organization. A company following all regulations and abiding with the ethical standards of the industry is always in the good books of the government as well as potential investors. Acquiring fast responsiveness in case of unethical behaviors and effective management in the crisis situation can reduce the damage to the brand as well as the company. Companies should understand that including unethical practices in their strategy might seem profitable for sometimes, but they eventually result in false presentations of services and products to customers. Once consumers lose faith in the product or services of the company, it is very difficult to regain the lost faith. Thus, maintaining ethical standards and social responsibilities have become top priority for most of the organizations now. References Andrews, A.P., Simon, J., Tian, F. & Zhao, J. (2011). The Toyota crisis: An economic, operational and strategic analysis of the massive recall. Management Research Review, 34(10), 1064 – 1077. Bayazit, O. (2005). Use of AHP in decision-making for flexible manufacturing systems. Journal of Manufacturing Technology Management, 16(7), 808 – 819. Chang, C.H. (2011). The influence of corporate environmental ethics on competitive advantage: the mediation role of green innovation Emerald Management Reviews, 104(3), 361-370. 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