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Executive Summary

Toyota Motor Corporation has strived to build quality Automobiles. The company has built a worldwide reputation for manufacturing affordable quality automobiles. In 2008 Toyota was one of the world’s largest automobile successfully exceeding General Motors in sales and production. Toyota’s vehicles are sold in more than 170 countries and regions under the Toyota, Lexus, Daihatsu and Hino brands. Since late 2009, Toyota has suffered a widely publicised severe crisis due to unintended quality problems in its vehicles which triggered Toyota’s largest recalls of its vehicles around the world. Many researches have suggested that the recalls made by Toyota were as a result of neglect to quality and failed implementation strategic planning.

Introduction

Toyota Motor Corporation is one of the world\'s largest automobile manufacturer. In 2008 Toyota became the world’s largest carmaker when it successfully exceeded General Motors in sales and production (Feng, 2010).  At the core of the company’s success is the Toyota Production System (TPS) established by a Toyota engineer named Taiichi Ohno based on the basic philosophies of jidoka and Just-in-Time. According to Ohno (1990) the goal of the TPS is to increase profits by reducing costs through the elimination of non-valued added waste. To achieve cost reduction, production must be able to react to the changing market conditions both quickly and flexibly. Ohno describes TPS as “making a factory operate for the company just like the human body operates for an individual”. Surowiecki (2008) mentions that Toyota’s business philosophy is based on placing the customer first, continuous improvement and innovation, enabling them to repeatedly outperform their competitors on quality, productivity and cost reduction

However, this leading position of Toyota in the automobile market changed, where in 2009 Toyota suffered a severe crisis. According to Connor (2010) Toyota made its largest recalls of approximately 9 million vehicles globally in two separate recalls. Feng (2010) indicates that this is following a series of issues such as floor mat, acceleration pedals and software glitches that affected braking on some models, all of which were related to unintended acceleration problems. This was exacerbated by a fatal crash of a Lexus ES 350 that happened on 28 August 2009 which was highly publicised, due to the gas pedal was stuck and the car was out of control. Davies (2016) reported that, recently Toyota has been forced to recall approximately 2.9m vehicle worldwide, over possible cracks in the fuel emissions control units, which may expand causing the airbags to partially inflate. In South Africa over 500 vehicles will be affected by the global recalls which include 260 units of the Lexus CT 200H and 270 Toyota Prius models (Mongoai, 2016).

Discussion

7. Toyota’s problems: flaws in the company’s strategy or its implementation efforts.

According to Hill et.al. (2015), a strategy is a set of related actions that managers take to increase their company’s performance. Strategy implementation entails designing the best organisation structure and the best culture and control systems to put a chosen strategy into action. According to Cole (2011), Toyota took priority on the strategy of rapid growth over the company’s traditional focus on quality. Toyota rapid sales growth and profits while downplaying the risks associated with this strategy.

Aggressive growth strategy

According to Cole (2011), Toyota’s rapid growth was influenced by the appointment of Hiroshi Okuda as the company’s new president in 1995. He was known for his aggressive efforts and designed a global growth strategy known to be “vision 2005”. The aim was to rapidly increase Toyota’s global market share from 7.3% in 1995 to 10% over a decade which later changed to 15% by 2010. Toyota’s aggressive growth targets were out of character as it was a conservative company under the family leadership which had pursued growth cautiously.

Staffing problems

Toyota executive in 2010 reported that, the company is facing internal manpower shortages. The accelerated growth and increased product complexities exerted strain on the company’s design, engineering and manufacturing divisions which lead to the company having to use a large number of new contract engineers to boost engineering capacity, hiring a significant numbers of new employees and contracting with new non-Japanese suppliers which further exacerbated the problems. The influx of new, mostly non-Japanese-speaking engineers and overseas suppliers during a short period of time led to problems of coordination and miscommunication. Less experienced Toyota engineers were increasingly assigned to global technical centres to work with and monitor new overseas suppliers, who were also inexperienced in Toyota practices and standards. The result was a convergence of inexperience, with the key parties insufficiently trained in Toyota’s standard practices (Cole, 2011).

Supply chain outsourcing

According to Steven, Dong and Corsi (2014) product recalls are frequently connected to the globalization of supply chains. Globalization has, at times, promoted inconsistency in quality control and standards, leading to quality problems and failures. Outsourcing to a smaller supplier base may lead to fewer recalls at low levels of outsourcing. However, it may exacerbate the impact of outsourcing on recalls at high levels of outsourcing. Feng (2010) mentions that there were reports pointing out that, in recent years Toyota has been demanding that suppliers make parts more cheaply. Those accelerate pedals which had the potential sticking risk were mainly made by Toyota’s major supplier CTS Corp.

8. Assessment of the role of the company’s policies, operating practices and culture

Policies and operating practices

Thompson et al. (2012) stresses the importance of instituting policies and procedures that facilitate strategy execution as they provide top to down guidance and consistency in the performance of organisational activities. Toyota’s success can be attributed to its ability to provide high quality automobiles, developing new innovative technologies. This is further echoed by Connor (2010) suggesting that Toyota’s consistent delivery of superior quality, reliability and durability has been the key success factors for its number one global leadership position in the automobile industry, succeeding its rival General Motors. According to Fanaru (2010) the Japanese believe that nothing is so good that it cannot be improved, so they constantly struggle to increase the quality of everything they do. This attitude is expressed by a single word: “Kaizen” which means “continuous improvement” and is the key word to guide them towards perfection.

Many researches have postulated that Toyota Productions System (TPS) has been the driving force to the success of the company. The goal of TPS is cost reduction and improvement of productivity which is attained through elimination of waste which according to Monden (2012) are excessive production resources, overproduction, excessive inventory, unnecessary capital investment, and excessive workforce, which means that when a problem occurs, the equipment stops immediately, preventing defective products from being produced. This helps Toyota create the high quality vehicles at the lowest cost and fastest pace and is known to be “lean manufacturing”.

However, according to studies conducted by Takeuchi, Osono, and Shimizu (2008), their research shows that (TPS) is necessary but by no means is sufficient to account for Toyota’s success. Toyota intentionally embraces contradiction, opposites, and paradox. The company often want the company to break free from established routines by setting tough goals. These tough goals however, contribute to enhance employees’ consciousness and self-worth, and they are very effective to management thinking.  According to suggestion by Magee (2007), the other reasons for Toyota’s success include long-term planning, studious speediness, an open mind, obsession with waste, and humility.

Organisational Culture

According to Rose (2015), organizational culture includes the shared beliefs, norms and values within an organization. It sets the foundation for strategy. For a strategy within an organization to develop and be implemented successfully, it must fully align with the organizational culture. Rose (2015), further mentions that a stable culture is one that will systematically support strategy implementation and one that fosters a culture of partnership, unity, teamwork and cooperation among employees. According to Liker and Morgan (2006), building a culture to support excellence is a fundamental part of leadership who behave in a manner consistent with the core belief they embrace. At Toyota, the culture is the system.  

Toyota uses teams in most of its business which promotes team work to maximize human resource capabilities in innovation and success. Toyota facilitates continuous improvement through learning and utilises information gained through the activities of individual workers to develop policies and programs for better results. And then, quality is at the heart of Toyota’s organizational culture. To effectively integrate quality in its organizational culture, the firm uses the principle of “The Toyota Way”, which says, “build a culture of stopping to fix problems, to get quality right the first time.” The Toyota Way is a set of principles that defines the business approaches used in the company (Meyer, 2015). According to Liker (2004), The Toyota Way is about unique approach to Lean Management. It is a system designed to provide the tools for people to continually improve their work. Liker describes the 14 principles that constitute The Toyota Way which are categorised in a 4P model: Philosophy, Process, People & Partners and Problem Solving.

3. Does the company’s strategy merit change because of recent recalls

Poor Management Decisions

Toyota’s problems have been linked to poor management decisions, according to Cole (2011) where the company’s executives failed to respond aggressively to early signs of quality problems, despite receiving customer complaints as early as 2002 related to unintended acceleration. Toyota executives had a number of warnings about its deteriorating quality.

Change in business strategy

According to Kourdi (2015), a business strategy needs to be relevant to its employees, shareholders and customers. As well as increasing its profitability and value and meeting any other goals, the strategy also needs to take account of present realities and future trends. Toyota’s business strategy, in particular competitive strategy, has been focused on product leadership (quality/safety and reliability), price competitiveness (fuel efficiency and affordability) and customer experience.  Toyota already has a global presence. As such Thompson (2016) writes that Toyota’s market development is just a supporting intensive growth strategy for the business. In this intensive strategy, Toyota grows by entering new markets or selling to new market segments. However, the company already has presence in most markets around the world. Also, the firm already sells its products to every market segment. This intensive growth strategy supports Toyota’s cost leadership generic strategy by maximizing the company’s global market presence

According to Gu (2010), Toyota pursued a cost-leadership strategy by adopting lean production, careful choice and control of suppliers, efficient distribution, and low servicing costs from a quality product. In contrast, Toyota has been very successful in differentiating on the basis of superior design, quality and technology in that, Toyota was the first successful mass produce of the hybrid car on the market when it released the Prius and Lexus, which Toyota gained a large portion of the market share in the area of hybrid cars. Toyota’s aggressive strategy included pursuing high growth, market share, financial performance and shareholder returns focusing on driving shareholder value, neglecting quality, safety and customer focus.

According to Gu (2010), strategic execution demands rigid planning and translation into concrete actions, after a strategy has been analysed and formulated. However, Toyota failed to effectively execute its growth strategy, concentrating on the market leader, increasing sales and overlooking the business functions which operate together with successful implementation of strategy. Cole (2011) suggests that, Okuda convinced corporate leaders to pursue rapid sales growth and profits while downplaying the risks associated with this strategy. The rapid growth gave management little opportunity for adjusting its systems and practices to accommodate such strong growth. Without specific policies that preserved the traditional quality focus, key decisions affecting product development, supplier management and production became biased in favour of meeting sales, delivery, cost-cutting and profit targets.

Importance of stakeholder analysis

Feng (2010) suggested that, how a firm communicatively responds to the crisis can influence its stakeholders’ perceptions of the corporate reputation, and in turn impact their future purchase intentions. A company must be sensitive to how stakeholders perceive corporate actions and responses to crisis. Thompson et.al (2012) suggests that diagnosis of a company’s internal and external environments is a pre-requisite for mangers to succeed in crafting and executing a strategy that is in line with the company’s activities. Kalb (2012) reported that, when complaints of self-acceleration were first reported, Toyota did not know how to handle them. Instead of reassuring the marketplace, Toyota acted in a way that caused owners to fear for their safety and prospective buyers to look for other makes and models.

4. Arguments that Toyota’s image has been irreparably damage by recalls

Feng (2010) suggests that when facing a crisis the former and present reputation of a firm would be shaken, and it might be twisted in something unfavourable for the organization. Greyser (2009) affirms that, how the company handles the crisis and what the reputation of the company is viewed by stakeholders may imply whether the firm can survive/recover or not. It is critical for organisations to recognise what is the issues generating the reputational threats, who is/are involved, and figure out what and how to respond the crisis.  Toyota’s reputation was tarnished leaving a major dent to the company’s image following the highly publicised recalls of Toyota vehicles for a range of problems including unintended acceleration, faulty brakes, sticky gas pedals and ill-fitting floor mats. This was further exacerbated by Toyota’s failure to respond to complaints timeously and transparently. According to Decker (2012) Toyota received complaints about serious problems in some of its vehicles years before its recalls. However, Toyota refused to accept that some of its vehicles contained serious and dangerous defects and ignored complaints or treated the complaints as isolated incidents and refused to take responsibility.

According to Decker (2012) a firm possessing ‘reputational capital’ will suffer less harm to its image from negative publicity than a firm that does not have a good reputation. Admitting wrongdoing in response to allegations generally yielded a more positive image of the firm than did either denial or declining comment. Through crisis management planning and implementation, organizations can be better prepared to deal with unforeseen events that may cause serious or irreparable damage (Zhao and Fan, 2007). Tucker and Melewar (2005) have found that news media and internet are certainly a substantial threat to any corporate reputation since the public are more sensitive to a corporate scandal. Feng (2010) suggests that, most stakeholders will learn about a crisis through news reports and online social media, therefore the news media and the internet play a critical role in affecting people’s perception in a crisis. Toyota’s crisis was widely publicised and received full coverage of the recall issues. As a result, Toyota was subjected to the most intense scrutiny. Most of the relevant coverage were negatively reported and to a large extent raise stakeholders’ uncertainty, confusion, criticism, questioning, and non-confidence toward Toyota, of which Toyota’s reputation and brand image perceived by stakeholder were pounding (Feng, 2010).

Although the former research suggests that Toyota’s image has been damaged, Thompson et al. (2012) stated that industry analysts saw the recalls as a positive as the company took responsibility for their actions and halted production while it addressed the issue at a great cost. Feng (2010) suggests that, researchers have demonstrated that good prior brand image and reputation have the potential to protect a company from harm caused by crises. In this way, Consumers’ existing positive expectations may provide firms with a form of insurance against the potentially devastating impact of crisis. According to Feng (2010) this can be seen by Sweden consumers. The crisis was not a really big deal that influence Toyota brand in Sweden. This is due to the fact that, Toyota owners and new customers in Sweden do not exhibit much anxiety and panic by the recall events and all believe that Toyota will recover in the future and regain its reputation. They tend to trust in Toyota’s reputation, without perceiving the crisis as big as what has been reported in American mass media. Although with a little worry about potential safety problem, most of loyal consumers still think that Toyota cars are quality and energy saving with relatively good prices

5. Is Toyota losing its quality image?

Toyota has a long history of building safety, reliable and high quality vehicles However with the recall crisis, it is evident that Toyota’s found itself embroiled in serious quality issues with its vehicles following quality complaints and safety problems involved in Toyota vehicles. Although Toyota’s quality image among consumers suffered with the recalls and lost their quality edge and the company’s public reputation was ruined not only by the recalls but also by the fact that the company concealed the defects and did not act appropriately, according to several analyst had the view that despite the recalls, Toyota’s reputation as a quality car maker remained unscathed Thompson el al. (2012). According to Feng (2010) Akio Toyoda, Toyota’s CEO, issued his public apology candidly at a news conference in Tokyo on Feb 5th 2010, emphasizing that they will “go back to the basics of “customer first” and “genchi genbutsu”(go to the source to find the problem) by improving products quality around the world. To verify the cause of recalls and improve quality, Toyota set up a committee headed by its president Akio Toyoda in early 2010, a Global Quality Task Force. The committee was to inspect every process in the Toyota Production System to ensure delivery of quality products to customers and retain its quality edge over rivals (Toyota, 2010). Liker (2010) reported that one of Toyota’s plants in Georgetown reduced defects found in final inspection by more than 40% which makes the Camry was already producing some of the best quality in the country. In 2009, 10 of the coveted JD Power initial quality awards for the best vehicles in a segment went to Toyota or its Lexus unit more than any other automaker.

6. Conclusion

The focus on rapid growth strategy made Toyota to lose focus on their trade mark of quality and customer focus. This impacted on a demand for increased manpower and complex production. The result was mass recall of vehicles which affected the company’s reputation that saw it suffering big financial losses.

Recommendation

Crisis and communication strategy

Though crises often happen unexpectedly and are not predicted, most crises are as a result of ineffective management in organisations (Feng, 2010). In order to effectively manage crises, it is important for a global company to prepare for overseeing an event across national borders. It will help companies effectively assess the crisis situation and take appropriate response strategies from the initial time. Toyota should have functional risk management team or crisis management team. The team members should be well trained to act decisively and quickly. Effective and timely actions are very important to recover from crisis (use media platforms and other disclosure mechanisms to inform the public when confronted with a crisis).

Focus on quality

Good quality is the basic for building good reputation. Companies should always put quality in the first place and never lose attention to it (Feng 2010). Toyota should enforce quality control measures with its suppliers, source from reputable suppliers and control production so that defects get corrected early before they impact on the final product. Importantly, Toyota should train all personnel adequately so they can produce high quality products.

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