Organisational Failures and Recovery of Trust - Case Study Example

Organisational Failures and Recovery of Trust (Toyota Case Study) Name of Student Lecturer Date Introduction Trust determines how individuals in the business environment work together, listen to one another, and establish lasting relationships. The level of trust in the organisation may positively or negatively affect productivity, income and profit generation. It can be created or destroyed through the perceptions and behaviors of individuals in the organisation (Bottazzi, Da Rin and Hellmann, 2006). People understand trust in different ways. It is predicted not only on who people are and how they were brought up, but it is also determined by the experiences and perceptions people encounter as a consequence of other’s behaviors (Ken Blanchard Companies, 2010). Trust constitutes of trusting beliefs and intentions and trust violation occurs when these trusting beliefs and intentions are lowered toward a trustee. According to Gillespie and Dietz (2009) many companies in the contemporary dynamic business environment consider rebuilding trust so they can avoid the negativity commonly experienced in many organisations. This paper analyses the issue of organisational failures and rebuilding trust in organisations and our case study is Toyota. The analysis begins by the background of the case company before its presents the main causes of loss of trust in the company, the effectiveness of the taken mitigation and what would possibly happen did the company fail to address the issues publicly and make changes. It will also determine whether or not the company can rebuild its reputation and the importance of trust in companies before providing possible recommendations. Background of Toyota Toyota experienced the problem of mistrust some time in 2009 following San Diego’s tragic accident. It was in 28th August 2009 when Toyota emergency services in San Diego were informed through a phone call about a Toyota Lexus car that was accelerating beyond control (Gillespie & Dietz, 2009). As the emergency services tried to understand what was happening with the car, it did not tale long before the caller went silent. The car had crushed when it reached the intersection and unfortunately all the four people in the car were pronounced dead. A company that was globally known for quality and reliability was suddenly hit by a major crisis of trust (Gillespie & Dietz, 2009). Initially, Toyota took the incident slightly by failing to react as expected, but continuous public exposure of the crisis through recalls and communications damaged the reputation of the company more than the tragic accident itself, which was witnessed by fall in sales volume, market share and consumer confidence (Gillespie & Dietz, 2009). The company received a series of recalls for different problems, including problems associated with engines, accelerators, and braking. In total, more than 8.5 millions vehicles affected and this greatly damaged Toyota’s trustworthiness (Gillespie & Dietz, 2009). Two days after the tragic accident, the company in its statement acknowledged the accident, expressed concern and regret for the loss of life. It then promised to conduct full investigation about the accident with the support of the National Highway Traffic Safety Administration (NHTSA). However, Toyota did not comment on what possibly caused the accident (Gillespie & Dietz, 2009). What were the roots causes leading to the loss of trust? Toyota lost its trust because of the way in which it handled the issue that happened in San Diego. In the first place, the company failed to take swift and decisive actions against the causes of the accident (Gillespie & Dietz, 2009). The initiative of releasing a public statement was a good idea but it expected to response beyond this considering that people lost their lives while their product. The cause of the accident at San Diego was known to have caused other fatal accidents two years earlier, but still Toyota overlooked the intervention. This communicated to its customers a wrong message about company and its products. Therefore, failure to be decisive in actions that assured users of Toyota vehicles safety on the road contributed to the company losing its trustworthiness. Production of unsafe vehicles also led to loss of trust in the company. This was evidenced in the various accidents that occurred to do failure in floor mats and accelerator pedal. To make the matter worse, Toyota continued to warn customers about the floor mats which mean that it was aware of the problem but failed to act upon it (Gillespie & Dietz, 2009). This is very disappointing! The tragic accident in San Diego was associated with failure in floor mats. In the same year of the accident Toyota admitted that some vehicles had problems with their accelerator pedals. This sent a message to customers that Toyota-made vehicles are not safe to drive, which caused a decline in trust in the company. Increase in recalls coupled with issuance of explicit warnings and advice to customers contributed a lot to loss of trust in Toyota. Recalls made by the company in 2004, 2005, 2007, 2009 and 2010 affected more than 8 million vehicles and these vehicles were reported to have different problems related to accelerators, engines and braking systems (Gillespie & Dietz, 2009). As a result many customers lost trust in the company. After the tragic accident in San Diego, Toyota announced a recall of 3.8 million vehicles that had problems with floor mats. As if this was not enough, the company recalled a further 1.66 million vehicles in 2010 alone. The practice is recalling so many vehicles surprised both existing and prospective customers making the company to loss trust. Continual dismissal of customers’ complaints and reluctance to account for safety made customer loss trust in Toyota. The company pursues growth with a lot of speed but fails to incorporate the complaints of their customers in the growth strategies, which in one way or another contribute to production of vehicles with mechanical problems. Failure to respond to issues raised by customers did a huge damage the company’s credibility and trust. For example, when Toyota installed ‘brake override system’ in their vehicles when accelerator pedal had defect in some vehicles, the public remained skeptical about the new development because of lack of trust (Gillespie & Dietz, 2009). How effective do you consider the taken mitigation actions? To some extent the mitigation actions taken by Toyota will help rebuild trust that has been lost for some years. The tragic accident that happed in San Diego was caused by failure in floor mats and therefore commencing on providing floor mat safety warning to customers is an indication that the company is committed to ensuring the safety of its customers. It also shows that the company is conscious about the accident and is prepared to prevent more problems fro occurring. In addition, the issue of recalling vehicles is good and would help ensure the safety of customers while using the vehicles. The challenge to this intervention is that is portrays the company as having failed to ensure total quality control in its production process. Nevertheless, it is better to control the likelihood of accidents happening by recalling than letting them go unchecked and later on causing tragic accidents, which would worsen the company’s trustworthiness in future. In fact, it is good that most of the recalls were voluntary and timely, which would help prevent accidents by some percentage. Besides the reforming intervention of floor mat safety warning, the step Akio Toyoda took to express his grief by apologizing to the public was actually a good thing to do. Toyota vehicles are driven globally and therefore passing such a message to the entire public communicates a lot about the company as being mindful about their customers. Public apology by Toyota was an indication that the company was ready to take a new direction. It was an assurance to the public and customers in particular that such mistakes would not happen again under their watch. To regain customer confidence in the company, Akio Toyoda went ahead and posted his commitment to customer safety message in the Wall Street Journal, which is very encouraging for a company that wants to become a market leader in the car manufacturing industry (Gillespie & Dietz, 2009). Therefore, even after having gone through such hard moments, Toyota still beliefs that it can offer the best products to its customers and this is evident from the actions its has taken, which is the way to go. What would have happened if the company did not publicly address the issues and make changes? Akio Toyoda’s assertions that “Customers bought our cars because they thought they were the safest…..I regret and apologise for this development” (Gillespie & Dietz, 2009, p.19) sent a strong message to the public and consumers of Toyota vehicles. This, together with changes that proceeded helped to try and rebuild company’s trust. However, if Toyota did not take a bold step to publicly address the issues and even make necessary changes, it would experience severe consequences it would live to regret. First, Toyota would lose its reputation for quality and reliability much more. Toyota had established outstanding reputation for quality and reliable production and distribution of vehicles across the world. When the tragic accident occurred at San Diego Toyota’s reputation for quality reduced by 11% from the previous 30% (Gillespie & Dietz, 2009). It is true that the situation would move to worse if the company did not come out openly and make things clear to the public. Therefore, the public would loss their confidence in the company and even prospect consumers would shy away from purchasing their vehicles manufactured by the Toyota because of poor reputation. Due to loss of reputation for quality, it is possible that Toyota would experience a reduction in its sales. Customers value quality and reliable products that can satisfy their needs while assuring them complete safety (Schniter, Sheremeta, & Sznycer, 2013). The tragic accident at San Diego associated the company with low quality and portrayed it as being less sensitive to the safety of its customers. If this perception was not cleared up, many customers would distance themselves from Toyota’s products, which would affect its sales and ultimately profitability. Closely related to low sales and profitability is reduction in the market share. A company may not increase its market share in the industry when it has limited customers (Schniter et al., 2013). This is exactly what would happen to Toyota for failing to assure the public about their commitment to manufacturing quality products and ensuring the safety of their customers. Toyota would be outshined by other companies by utilizing its weakness and this would lead to reduction in its market share, thus affecting its competitive advantage as a market leader. Failure to publicly address the issues and make changes would also cause Toyota to loss investor and consumer confidence (Bottazzi et al., 2006). Consumers and investors want to be associated with companies that have good public image and uphold quality standards always. As a result of poor reputation, investors would withdraw from the Company because of fear of their interests being at risk. Also, customers will not what to be associated with the company. Do you believe that the company’s reputation can be re-build, or will they suffer the consequences also in the years to come? The company’s reputation can actually be re-build and avoid suffering the consequences of loss of trust in the future. According to Ken Blanchard Companies (2010) companies must start by demonstrating trust if they want to develop a trusting working environment and create good relationship with customers and stakeholders. The difficult public apologies by Toyota showed their commitment, in the first place, to repair trust that was at grate risk or perishing. As Fischbacher and Utikal (2010) assert, an apology is an effective way to correct mistakes and re-build trust among parties in a crisis. The company truly acknowledges existence of a problem and it openly admitted it and this marks the beginning of re-building trust and reputation. Accepting the existence of problem gives the company the confidence to deal with it so to remove any fears by its customers. The initiatives by the company will help re-build trust. For example, it decided to restructure the organisation by reducing the number of its Directors and re-organising its departments to incorporate Corporate Planning and Corporate Social Responsibility so to handle problems as the arise. Also, it formed a strong global quality taskforce that will be responsible for improving quality, increase regional response to crisis, and improve communication (Gillespie & Dietz, 2009). This means that Toyota has taken a new direction to quality issues and is a way of assuring and promising customers that it is there to ensure they access quality products that are safe to use. The company can also re-build trust by correcting the past mistakes, such as addressing customer complaints as they are raised and insist on doing it the right the first time so to reduce numbers of recalls (Bracht & Feltovich, 2009). Generally, the commitment by Toyota to restore its position is industry is achievable given that is has the will and the way. Apologising over what happened was good; it now needs to redeliver on its promises and will not suffer the consequences in the future. Importance of trust Building trust is the basis of a strong and healthy relationship both within the organisation and outside the organisation. A company that has established trust with it employees, customers and the entire public would realise increase in profits (Kim, Dirks & Cooper, 2009). When customers have trust in the company, they tend to purchase its products more often and in large quantities. This has a direct positive impact on the profitability of the company because sales will be higher. Another importance of building trust in the company is that it is a source of competitive advantage (Bottazzi et al., 2006). Generally, customers and investors want to associate or do business with companies they can trust always. Trust is strength to companies and most of them would often utilise it to gain a better position in the market than those companies that are not trusted by customers and investors. Building trust in the company also help improve employee morale. Employee will free to work in collaboration with their leaders if they know they can always count on them (Bracht & Feltovich, 2009). When employees are motivated in the organisation, they will ensure they work to the expectations of the organisation and achieve both individual and organisational goals and objectives. Company trust is an essential ingredient to customer satisfaction (Bottazzi et al., 2006). Naturally, customers will show high level of satisfaction when their needs are provided as they arise. Companies often aim at achieving and even exceeding the needs and expectations of their customers. This can be attained by building and maintaining trust. Also, when customers are satisfied with the products or services offered by the company, they tend to be loyal to the company. Recommendations Everyone would agree that information sharing is crucial to building trust in organisations. However, knowing this fact and acting upon it according to Ken Blanchard Companies (2010) are two different aspects. The challenge with establishing transparency and trustworthiness is to identify behaviors that define these concepts. It is important for Toyota to acknowledge that trust lies in the eyes of the beholder. In order for Toyota to be more upfront and authentic, they should adopt the following recommendations: Toyota should always acknowledge that customers have concerns (Kim et al., 2009). Once it has sold it products to the customers, it is important that it takes time to listen for anxieties and concerns customers might want to share with them. It should create opportunities for dialogue with customers and make sure it listens to them. The company should consider the issue of follow-through seriously (Ken Blanchard Companies, 2010). It is kind that if the company does not have a solution to the customers’ problems immediately and promises to solve it later, to make sure that it fulfils the promise. Keeping a word on issues however small they may appear will demonstrate company’s reliability and trustworthiness. Toyota should also act with integrity towards its customers. It should be honest when dealing with customers by informing them on any issues that arise in the course of their relationship. It should act in a consistent and value-driven manner when dealing with customers (Fischbacher & Utikal, 2010). The company should work towards ensuring zero defects in its production process so to avoid recalls, which has impact on trust. It should thrive at manufacturing vehicles with acceptable quality and ensure they are thoroughly inspected for quality and safety before being released to the market. This will help improve customer confidence in the company. References Bottazzi, L., Da Rin, M., & Hellmann, T. (2006). The importance of trust for investment: Evidence from venture capital. Working paper. Bracht, J. & Feltovich, N. (2009). Whatever you say, your reputation precedes you: observation and cheap talk in the trust game. Journal of Public Economics 93:1036-1044. Fischbacher, U. & Utikal, V. (2010). On the acceptance of apologies. Research Paper Series Thurgau Institute of Economics and Department of Economics No. 53. Gillespie, N., & Dietz, G. (2009). Trust repair after an organisation-level failure. Academy of Management Review, 34(1), 127-145. Gillespie, N., & Dietz, G. (2009). Trust repair after an organisation-level failure. Academy of Management Review, 34: 127–145. Ken Blanchard Companies, (2010). Building Trust Perspectives. Accessed on December 5, 2014 from https://www.acem.org.au/getmedia/3bba47a4-cb80-47e2-a03a b27683fc6898/Building_trust_Blanchard.pdf.aspx Kim, PH, Dirks, KT, & Cooper,CD (2009). The repair of trust: A dynamic bi-lateral perspective and multi level conceptualization. Academy of Management Review, 34, 401–422. Schniter, E., Sheremeta, R. M., & Sznycer, D. (2013). Building and rebuilding trust with promises and apologies. Journal of Economic Behavior & Organisation, 94, 242-256. Read More