Toyotas Organisational Crisis - Case Study Example

Toyota’s Organisational Crisis Introduction An organisational crisis can be defined as a low-likelihood but high impact occurrence that poses a threat to the continuity of an organisation and which is characterised by an uncertainty of the cause, consequence and method of resolving it, and the by the belief that a decision must be arrived at quickly to contain the situation (Kreitner 2007, p. 509). Similarly, Coombs (2010, cited by Anderson 2012, pp. 22-23) defined a crisis as the perception that an erratic event poses a threat to important hopes of stakeholders and can adversely impact the performance of an organisation and generate a negative impact. Clearly, in the current unpredictable business environment in which organisations operate, crises are bound to occur and as such, the organisations must be adequately prepared to deal with any indeterminate but high-impact event. That is, organisations must be able o manage the unthinkable in a foresighted, methodical and apt manner. This calls for organisations to have crisis management teams which can enable them to anticipate and prepare for events that could have a damaging impact on the organisation. How an organisation responds to and attends to a crisis can make the difference between success and failure. It may not be always possible to prevent a crisis, but the manner in which any unexpected event is handled by an organisation can determine the organisation’s commitment to dealing with organisational crises and hence restore confidence in the organisation’s stakeholders. If an organisation handles the crisis facing it lackadaisically, it is likely to lose confidence among its stakeholders, particularly customers, and this could lead to its downfall. In view of this, this paper analyses Toyota’s recent product recall crisis. The purpose of the paper is to analyse the crisis, its impact or potential impact, and how Toyota went about resolving the concerns. Toyota’s success and how its organisational crisis ensued Toyota is a carmaker that has built a world-class image over the years. According to a review of a number of literature sources by Fan, Geddes and Flory (2011, p. 5734), Toyota established a top-notch company brand reputation premised on its devotion to quality, constant improvement, reliability, orientation towards customers, and excellence in design and manufacturing. Toyota also earned a reputation for its commitment to its people and the environment (Guffey 2008, p. 34). This reputation brought many benefits including customer loyalty, a significant market share, and financial stability. However, Quech et al. (2010, cited by Fan, Geddes & Flory 2011, p. 5734) and Steinmetz (2010, cited by the same authors) argue that Toyota’s fast growth put strains on the company’s production aspects such as design, manufacturing, and engineering, which led to a series of quality concerns and product recalls commencing in 2003. Public focus on Toyota’s car quality issues started in 2009. Fan, Geddes and Flory (2011, p. 5734) report that a major quality problem was noted on 10 September 2009 when a soundtrack of a 911 call of a car crash that occurred on 28 August 2009 was released. The car was being driven an off-duty high patrol officer in California, and the crash resulted in the demise of the officer and members of his family. According to a review of the same case by Knoespel (2011, p. 1), the highway patrol offer had called 911 to report that the accelerator pedal of his Toyota Lexus car had stuck, making the car race at over 100 mph. The vehicle finally crashed into another vehicle, killing all four passengers. It was established that the incident occurred due to an unmanageable acceleration, and this resulted in the recall of 3.9 million cars in the United States on 29 September 2009. The problem was attributed to mat floor problems that led to sticking accelerator pedals. Towards the end of 2009, Toyota became the subject of media attention in the United States as well as by the United States government after multiple injuries and deaths were attributed to accidents due to inadvertent and uncontrolled acceleration of Toyota car models (Austen-Smith, Diermeier & Zemel 2012). Between the end of January and early February 2010, Toyota recalled 2.3 million more cars which had sticking accelerator pedal problems. The company also put on hold the selling of eight of its makes in North America, increased recalls in China and Europe, and closed various manufacturing plants. Toyota apologised through its president, Akio Toyoda for the recalls. However, in spite of the company’s recall of millions of cars which had floor mats that could jam the accelerator pedal and a subsequent recall to enlarge the space between the accelerator pedal and the floor mat, the company remained adamant that there was no fundamental defect and also defended itself against media reports and regulatory statements that went against its position (Austen-Smith, Diermeier & Zemel 2012). But the problems persisted and another major recall involved Toyota’s best selling model, the Prius Hybrid, which had braking problems. The total number of cars recalled worldwide between 2009 and 2010 was about eight million, out of which six million recalls were for cars sold in the United States (Fan, Geddes & Flory 2011, p. 5734). See the appendix for a summary of some of the major events that were part of the crisis. As the impact of the crisis escalated, Toyota was also criticised for it reluctance to share information from its data recorders regarding possible malfunctions in electronic throttle controls, sticky gas pedal controls and the braking problems experienced in the Hybrid Prius (Austen-Smith, Diermeier & Zemel 2012). In view of this, the United States Department of Transportation, in collaboration with the National Highway Transportation Safety Board, raised inspection of Toyota vehicles. Congressional enquiries were organised in March 2010 (Fan, Geddes & Flory 2011, p. 5734; Pride, Hughes & Kapoor 2011, p. 242). Although at the start Toyota’s brand reputation seemed to protect it from the widespread criticism, the company’s further responses were perceived to be unsatisfactory and started straining the confidence of the public, consumers, government officials and regulators (Fan, Geddes & Flory 2011, p. 5734). US regulators threatened to slap Toyota with a multimillion-dollar fine for delaying the recalls while it knew very well that they were necessary (Pride, Hughes & Kapoor 2011, p. 242). Austen-Smith, Diermeier and Zemel (2012) assert that by the time Toyota president apologised in his testimony to the United States Congress, the company’s stock price had declined significantly – by 20 percent, which was a $35 billion loss of market worthiness. On top of this, Toyota vehicle sales in the United States declined by 16 per cent in January 2010 and a further 8 per cent in February the same year (Fan, Geddes & Flory 2011, p. 5734). Another major product recall conducted by Toyota was done on 20 October 2010 when the company embarked on a voluntary safety recall that encompassed several of its models like the Lexus, Highlander and Avalon. The company claimed that the reason for the recall was due to technical hitches in the fuel pump and brakes (Tabuchi 2010, cited by Anderson 2012, p. 22). In its media release, Toyota gave an account of the possibility that the amount of brake fluid could gradually seep out from the master cylinder, resulting in illumination of the brake warning lamp. The company warned that if this continued, the driver of the affected vehicle could gradually experience a decline in braking performance (Anderson 2012, p. 22). It is obvious that both recalls have raised questions about the quality as well as safety of Toyota vehicles. The recalls, when viewed from Toyota’s viewpoint, this can be termed as an organisational crisis, and this view is supported by (Anderson 2012, p. 22). How Toyota responded to the recall crisis Anderson (2012, p. 23) reports that in order to revamp its image, Toyota attempted to take a proactive standpoint that emphasised corrective action of the malfunctions. Holstein (2010) asserts that the company’s problem-solving mechanism was totally broken down as there was no clear authority in handling the ensuing problems. At the start, Toyota declared that floor mats were the cause of the malfunction. Thereafter it blamed the accelerator pedals, which were manufactured by a United States-based supplier and thus confined the hitch only to the United States. The company also stressed that when it made recalls, the repairs reflected its commitment to be more effective in dealing with potential flaws. This point was presented in a series of commercials that the company developed so as to respond to the crisis. In deed, Hemus (2010) adds that Toyota did several things right in responding to the car recall predicament. This is because the company’s spokespeople filled the news media with reassuring messages, its public relations people tweeted and blogged continuously to fill the information void, Toyota’s website was full of information regarding the crisis, and its call centre was moving efficiently with customer enquiries. In addition, Toyota president’s speech which conveyed an apology for the malfunctions in February 2010 was featured at the homepage of the company’s website for several months (Feng 2010, p. 1). An analysis by Anderson (2012, p. 28) shows that Toyota produced various commercials to respond to the safety problems involving brakes and fuel pumps. Anderson identifies six commercials that Toyota created as an organisational response to the crisis. The commercials specifically emphasised Toyota’s commitment to safety and its history as a company with a high brand reputation. The commercials are shown in the table below: Title Location Safety first Recall information page at Toyota.com Restore Recall information page at Toyota.com Commitment Recall information page at Toyota.com Toyota invests in technology and safety Toyota’s YouTube channel Toyota star safety system – helping Toyota’s YouTube channel Toyota star safety system – accident Toyota’s YouTube channel Source: Anderson (2012, p. 29) Through its “Safety First” commercial, Toyota emphasised the investments and changes that it was making in order to guarantee safety to its publics. The “Restore” commercial was intended to highlight the history associated with the company, including its positive organisational image. The messages in the “Restore” commercial emphasised new safety practices, organisational procedures, safety and Toyota’s good historical background. Through the “Commitment” commercial, the company portrayed its commitment to safety. However, the company also stated that it did not fulfil its publics’ expectations and explained that it would work to correct this. In the other commercials which were featured on Toyota’s YouTube channel, the company aimed to show that it cared and that it understood that everyone deserved to be safe. The company also emphasised that it had new safety systems in its cars and highlighted that the safety aspect is embedded in its manufacturing operations right from the concept design stage (Anderson 2012, pp. 29-30). The problem with Toyota’s response to the crisis is that it waited for the car recall crisis to become very huge and for its hand to be forced by government intervention in the crisis before it acted (Pangarkar 2011). According to Hemus (2010) and Sodhi and Tang (2010, p. 198), central to the company’s problem was its apparent delay in identifying and addressing the condition before it escalated. Toyota seems to have taken comfort in the belief that the problem was minor and its impact would eventually wane. As Pangarkar (2011) puts it, if Toyota had taken earlier response measures, the overall costs of the recall (particularly the costs due to second hand order effects), most probably would have been lower. Thus, whatever Toyota said later, and however it acted, there was (and there is still is) a feeling that the automaker disregarded the problem until it was compelled to act. Hemus (2010) argues that Toyota lived in denial all the time that the problem was developing, and it seems to have followed the Japanese maxim that goes: “If it stinks, put a lid on it.” All the same, the long-term damage to the company due its delay in handling the problems that were at hand is immeasurable (Sodhi & Tang 2010, p. 198). How could the company have responded? The question above can be answered by applying the “Failure of Hindsight” theory as stated by Toft and Reynolds (1994, 1997 – cited by Waring & Glendon 1998, p. 84). According to this theory, isomorphic learning can be achieved by evaluating intrinsically comparable systems of operation across an industry. Toft and Reynolds opined that disasters are generally low-frequency occurrences when viewed in the perspective of any one organisation or activity. They noted that in order for an organisation to learn from the knowledge of handling different kinds of risks, they should be able to learn from the experiences of each other. Toft and Reynolds argued that the reason why the same problems keep recurring in an organisation is because whatever is learned from mistakes is passed only to managers in the organisation or department concerned. A good approach according to the two authors would be to transmit the information about the problem through the use and implementation of a good organisational “safety culture” (Borodzicz 2007, p. 26). According to Waring and Glendon (1998, p. 84), this should be premised on both official inquiry findings as well as further qualitative research. From the above analysis, Toyota should have investigated the problem of sticking accelerator pedals in cars as soon as the first problem was reported instead of sitting and trying to wish the problem away. Hemus (2010) argues that the most efficient management of a crisis occurs before the problem at hand becomes unmanageable during its development phase. Ulmer, Sellnow and Seeger (2010, p. 181) similarly note that effective organisations learn directly from their own failures and from the failures of similar organisations. The knowledge acquired from the experiences thus produces organisational memory. If an organisation is able to preserve such memory, it has a better repertoire for managing or avoiding crises. For Toyota’s case, problems had been experienced as early as 2003 when some recalls were made. Thus, if the company had made such a decision in 2009 when the first case of a stuck gas pedal was reported, there would have been no major problem as the company would have portrayed itself as a company willing to correct any potential errors or flaws soon as they are detected. After all, as Feng (2010, p. 2) points out, cars at the present time have become more sophisticated in features and functionality. Hence, as more and more complex systems are incorporated in modern automobiles, it is increasingly becoming more demanding to carry out comprehensive quality control testing. With such intricacies, minor errors can lead to car failure and it is only wise that an automaker be prepared to take responsibility if such errors lead to significant problems. The extent of Toyota’s crisis can therefore be attributed to its non-response at the start of the problems since it was not the only company recalling cars for possible errors (Hinchcliffe & Kim 2012, p. 75). It is clear that Toyota failed to tackle the real problem as soon as it arose and instead looked for possible areas where blame could be projected. As Seel (2012, p. 408) notes, in many instances organisations fail to learn from past experiences by reconstructing the event narrative and blame projection after a crisis. They do this in such a way that perceives the failure as a function of the performance of an individual rather than the entire organisation or system. For Toyota’s case, the first point to lay blame was the United States based supplier of accelerator pedals. Conclusion and recommendations In summary, although Toyota’s quality problems dates back to 2003, the company did not take corrective measures in time, and this lead to a repeat of mistakes which eventually led to the organisational crisis between 2009 and 2010. The failure of hindsight theory can be used to explain the point that Toyota did not put in memory the problems that had been noted since 2003, which could have helped it to avert the 2009 crisis. And when a significant problem emerged in 2009 the company still could not responsibility chose to blame suppliers and took comfort in the fact that it had a good reputation. Even though the company later took proactive approach to manage the crisis, the damage was already done. To avoid a repeat of the 2009 crisis, it is recommended that Toyota should take a proactive approach of examining problems as soon as they arise. It should not rely on its reputation to believe that it cannot experience a major crisis. Toyota should also follow Hemus’ (2010) advice that the most efficient crisis management occurs before the problem grows out of control and pay attention to even the slightest of issues which could potentially affect its cars. References Anderson, L 2012, ‘Recalling Toyota’s crisis: Utilising the discourse of renewal’, Journal of Professional Communication, Vol. 2, No. 1, pp. 21-42. Austen-Smith, D, Diermeier, D & Zemel, E 2012, ‘Unintended acceleration: Toyota's recall crisis’, Harvard Business Review, viewed 13 April 2013, Borodzicz, E P 2007, Risk, crisis and security management, John Wiley & Sons, New York. Fan, D, Geddes, D & Flory, F 2011, ‘The Toyota recall crisis: Media impact on Toyota’s corporate brand reputation’, AAPOR, viewed 12 April 2013, Feng, Y 2010, ‘Toyota crisis: Management ignorance? – A Swedish case of consumers’ perceptions’, Master’s Dissertation in Management of Innovation and Business Development, Halmstad University. 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NBC News n.d., ‘Toyota recall timeline’, viewed 17 April 2013, Pangarkar, N 2011, High performance companies: successful strategies from the world's top achievers, John Wiley & Sons, New York. Pride, W M, Hughes, R J & Kapoor, J R 2011, Business, 11th ed., Cengage Learning, New York. Seel, N M 2012, Encyclopaedia of the sciences of learning, Springer, New York. Sodhi, M S & Tang, C S 2010 (eds), A long view of research and practice in operations research and management science: the past and the future, Springer, New York. Ulmer, R R, Sellnow, T L & Seeger, M W 2010, Effective crisis communication: moving from crisis to opportunity, 2nd ed., Sage, London. Waring, A & Glendon, A I 1998, Managing risk, Thomson Learning, London. Appendix Toyota’s organisational crisis timeline Source: NBC News http://www.nbcnews.com/id/35240466/ns/business-autos/t/toyota-recall-timeline/ Read More