The Diseconomies of Toyota Company - Case Study Example

?Business Case Study Table of Contents Case study overview 3 Critical evaluation of the business response using evaluation criteria 4 Recommendationsfor a more appropriate response 6 Conclusion 8 Introduction Since its foundation in the year 1967, Toyota has been contributing to the prosperous society through the manufacture of automobiles and execution of its business operations with a focus on vehicle sales and production (Toyota Motor Corporation 2013). This study will aim at the journey of Toyota encompassing the damages and recalling of vehicles, while running for the world’s most profitable and largest car maker. In this context, the report evaluates the response of Toyota pertaining to the issue. Case study overview Toyota had created a corporate brand reputation of a world class level based on the commitment towards excellence in manufacturing and design, focus on customers, continuous improvement, reliability and quality (Liker 2004; Quelch, Knoop and Johnson 2010; Spear 2004; Stewart and Raman 2007). Owing to this reputation, Toyota has been able to enjoy several benefits including financial strength, customer loyalty and market share. According to research scholars Steinmetz (2010) and Quelch, Knoop and Johnson (2010), the rapid growth of Toyota had created stress on the manufacturing, engineering and design which may lead to the consecutive occurrences of quality issues. This had in turn demanded the company to recall the vehicles at the beginning of 2003. However, the quality related problem of Toyota gained national attention in September 2009, after the public release of a recorded complaint which was associated with a certain incident. There had been a recorded call to 911 regarding a car crash which was being driven by an off-duty California highway patrol officer. The crash had resulted in the death of the officer along with his family members. This accident was caused by uncontrolled acceleration due to the floor mat problem which sticks to the accelerator pedals. Owing to this incident, the company recalled 3.9 million vehicles in US on September 29, 2009. The matter gained attention in January and early February of 2010, when 2.3 million vehicles had to be taken off the roads due to the sticking pedals (Fan, Geddes and Flory 2011). Toyota stopped selling eight of their models in North America, had shut down their production plant and increased their intensity of recalls in China and Europe. The CEO and the president of the company had apologised for the recalls. Another recall associated with Prius Hybrid, one of their best selling vehicles, was initiated due to some banking problems. After this third recall, the total amount of recall between 2009 and 2010 totalled to eight million that included six million in US itself (Madslien 2012; BBC News 2012; Couts 2011; Mackenzie and Evans 2010). Critical evaluation of the business response using evaluation criteria Reputation: Owing to the crisis related to the uncontrolled acceleration, the responses by the business of Toyota had aroused concerns regarding the reputation of the organization. The car accident had affected the reputation of the organization to a lesser extent than the damages done by the disclosure and communications, recalls and apologies previously. The confidence of the customers was seen to exhibit a sudden fall. The customer reports survey showed that the pre-eminent reputation of the organization plunged from 30 percent to 19 percent (Dietz and Gillespie 2011). In case of Toyota, the recalls were done in the years 2004, 2005, 2007 and 2009-10 due to different problems related to brakes, engines and accelerators, which had totalled to over 8.5 million vehicles (Dietz and Gillespie 2011). This staggeringly high number was considered to be sufficient to damage the trustworthiness of the organization. A positive reputation can be said to be as good as the effort that is taken to create and sustain it. The excellence in reputation fails if immediate action for trust building contradicts this reputation. In this case, the benefits that were brought by the immediate verbal response from Toyota were seen to be offset by the sluggish and inconsistent immediate actions that generated media scepticism in substantial amount that rendered the trust repair actions taken by Toyota as difficult to realise. Share price: The recalling of the vehicles for the faulty brakes, accelerators, floor mats and engines have not only affected the reputation of the organization, but also have managed to break the trust amongst the shareholders and other stakeholders. The efforts that were undertaken by the organization to retain the trust among the stakeholders had seemed to fail owning to the pre-existing mistrust among the stakeholders. This was seen to affect the share prices of Toyota directly. Within a few months starting from January 2009 to March 2009 the stock price of Toyota was seen to decline by 20 percent, which triggered a loss in the market value by $35 billion (Austen-Smith, Diermeier and Zemel 2011). Sales volume: After multiple deaths and accidents, Toyota was subjected to scrutiny by the government and media and it had revealed that the accidents were as a result of the uncontrolled and unintended accelerations in the car. The company had to recall several of its car models and also had to shut down its production. The company that ran on its reputation of quality and reliability had therefore, lost its trustworthiness among the customers too. This was clearly revealed through the fall in the sales. The sales volume of Toyota fell by 7.8 percent in August, 2011 in US, while that of Chrysler, Hyundai, Ford and GM has increased their shipment by 21, 21, 12 and 16 percent respectively (Kitamura, Ohnsman and Ito 2011). This fall in sales also led to 2.5 percent loss in the market share in the US and reached 12.7 percent, which was just the reverse when compared to the competitors like Hyundai and GM (Kitamura, Ohnsman and Ito 2011). Recommendations for a more appropriate response As observed from the immediate response, Toyota needed to look at the decisive and swift actions against the likely and the known causes. Toyota had failed to consider the latter intervention disastrously. After the incident in San Diego, the company did not issue any customer warnings regarding the faulty floor mats despite being aware of the fatality of the car owners which was involved. Even when the regulators had conducted the preliminary investigation of the crash and highlighted the fatality which the floor mats had entailed, the company did not take any steps. It was only five days after the confirmation of National Highway Traffic Safety Administration (NHTSA) analysis that Toyota took precautionary rectification (Dietz and Gillespie 2011). Fortunately, Toyota did not face any other fatal incident within this time period. If it did, then the organization would have landed in a much worse situation. In this case, Toyota appears to be very reluctant regarding the safety of the car owners. In such a situation, a more immediate action was expected from the organization. A mere apology was a very trivial gesture. They should have immediately recalled all the car owners and get them tested thoroughly with a replacement wherever required. Such a service on the offer would have helped them to succeed in retaining the trust of their customers. It was only after NHTSA had raised an alert about the floor mats, that Toyota had issued an explicit warning and had recalled 3.8 million vehicles. This step should have been implemented by the organization much earlier. Toyota should have taken more controlled steps in their business expansion. It has been suggested by many analysts that the pace at which the organization was exercising its expansion plan, was one of the major reasons for such a crisis (Dietz and Gillespie 2011). In order to become the leading automobile company in the world, they had planned a production process beyond the capacity of its native base, Japan. The speedy growth had impaired the culture and scope of the company for improvement and inspecting the problem at the source respectively. The organization was also seen to dismiss many of the complaints brought by the customers. Toyota should have taken care of quality and the complaints along with the rapid expansion plan. In order to gain trust quotient and reputation, the organization should go back to their basics from where they had started and start from the scratch. Toyota has been well known for their commitment related to excellence in manufacturing and design, focus on customers, continuous improvement, reliability and quality (Dietz and Gillespie 2011). After the accident in San Diego in August 2009, Toyota experienced a huge crisis that had managed to rupture its reputation, which was built on reliability and quality. Therefore, devoting a higher importance to matters like, quality, safety and reliability. For car manufacturers, recall is the most obvious procedure that happens annually. These actions of recall are the minimum effort towards “distrust regulation”. However, downside particularly in case of Toyota is the series of recall by the same company for different sets of problem which most definitely entailed trust violation. This shows that care was not taken while manufacturing the cars. Thus, Toyota should also come up with new innovative safety system along with some accident-prevention technologies, which can erase the mistrust from the customers. They can also provide the users with certain instructions and guidelines that would help them to avoid accidents. Conclusion Within two days of the San Diego crash, the organization had issued a statement that acknowledged the incident and had shown regret for the loss of lives which was in turn seen to be a very good example of an immediate response statement (BBC News, 2010). However, still the organization was seen to face critical situation related to the reputation, fall in the share price and decrease in the market share. In order to battle with such a situation, Toyota is recommended to take prompt steps ensuring public safety, organizational restructuring, controlling their expansion plan and devising assured and innovative safety techniques. Reference List Austen-Smith, D., Diermeier, D. and Zemel, E. 2011, Unintended Acceleration: Toyota’s Recall Crisis, Kellogg School of management, viewed 4 November 2013, < http://www.kellogg.northwestern.edu/kellogg-case-publishing/case-search/case-detail.aspx?caseid=%7Baba218a8-fb7d-48df-9453-86f4e36167d8%7D>. BBC News, 2010, Toyota recalls 'up to 1.8m' cars, viewed 4 November 2013, < http://news.bbc.co.uk/2/hi/business/8487984.stm>. BBC News, 2012, Toyota agrees $1bn US recall deal, viewed 4 November 2013, < http://www.bbc.co.uk/news/business-20848243>. 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