Thursday, February 18, 2010

Messing up, the Toyota way

World's number one car maker Toyota's handling of the crisis has produced a new case study that will be discussed in B-Schools and by corporate responsibility professionals for years to come.

When the company started receiving safety complaints from customers in the US last year, it decided to play it down. The company executives refused to accept that Toyota cars could have safety lapses. Arrogance? Soon there were fatal accidents involving Toyota cars, allegedly because of faulty brakes and accelerators. The company still did not budge.

Then the US Highway Safety Officials took up the matter with Toyota's US-based executives. Nothing happened. Then, the US officials even made a visit to Toyota's head office in Japan to convince the company that some of their models may have faulty components resulting in fatal accidents. After a lot of effort, the company decided to announce the first recall late last year. The US Transport Secretary called Toyota "a little safety deaf" referring to their feet dragging over the issue.

Even then, there was no clear statement from Toyota on the problems. Soon, more models were discovered having safety problems. More recalls followed, totalling to 8 million cars, roughly the same as the number of total cars sold by Toyota in 2009.

Somewhere, in between, the company attempted to imply that the problem lied with its American component supplier CTS Corp. But CTS promptly denied any responsibility by saying that it had produced the component exactly to the design and specification provided by Toyota.

Then, the company made an interesting decision. It decided to repair the faulty components rather than replacing them, apparently to save costs. There was customer outrage. The company was then forced to change its position and agree to replace the faulty components.

But no statement from the company management was forthcoming to reassure million of Toyota car owners worldwide. And then there was a statement by senior executives, not by the head of the organisation, that only cars in the US and Europe were affected. Customers in the rest of the world need not worry.

Very soon more models were added to the recall list affecting the entire world. Even Toyota Prius, the celebrated hybrid car, was added to the list.

While the company's recall list was growing by the weeks, no apology was forthcoming. Finally, after much PR disaster, the president of Toyota who is a grandson of Toyota's founder, called a press conference in Tokyo to publicly apologise. And when he did it, he did so in Japanese, even though all the affected customers were in the US and Europe. When a few journalists asked him to speak in English, he only offered a few broken words of English. Hardly a confidence inspiring gesture by the head of one of the world's largest companies who is trying to address customer concerns in the US and Europe.

The president appeared the second time to apologise within weeks after the Toyota Prius recall, mainly because this recall affected the Japanese customers as well. Before this, the company maintained that cars produced in Japan had no quality problems, a PR pitch implying that the company only had quality problems in overseas plants. In a way, saying that the employees and suppliers overseas are not able to meet the stringent quality parameters that the company maintains in its home country.

In his apology appearances, the company president tried his best to instill confidence. He asked customers to have faith in Toyota and believe that Toyota has customers at the centre of business model. Talking about the brake-failure problems in some of the models, he suggested that the driver should not panic if the brakes are not behaving. The driver, he advised, should continue to press the pedal and eventually the car WILL stop.

The US Congressmen want the Toyota president to attend a hearing in the Congress on the issue. This was a great opportunity for the company to honestly explain what had gone wrong and how they planned to fix it. But the company told the US Congress that the president is not available and can travel to the US only in April. The company instead offered to send some other executive for the hearing. This again attracted huge criticism, including by US politicians and Japan's transport minister. Finally, after some flip-flop, the president has agreed to attend the hearing. Wonder who are his PR advisers!

Even US president Barack Obama has issued a statement asking the company to fix its problems quickly. Perhaps, it's the first time that a US president has singled out a foreign company to express concerns.

It is being speculated that Toyota's recalls have not ended and there may be more recalls in the pipeline. There are also rumors that the company has been hiding the problems for a long time. Already, Toyota's sales figures have plunged. The stock price has crashed. The company is even considering closing down US plants for a few weeks to prevent an inventory pile up. It also faces potential law suits in the US, including class action, and penalties by the authorities. The company, which prided itself for quality superiority, is now a laughing stock.

There are people who say Toyota will eventually recover from the mess. But the company has not shared, or demonstrated in anyway, how it plans to come out of it. It is still trying to figure out how they landed into this mess in the first place. Most believe that ambition to become number one led to "growth at any cost" approach. And Toyota lost control over quality. Now they are losing market share, every hour.

So, the largest market share does not mean a company is sound and sustainable. The Toyota incident (or should we call it a scandal?) has also raised several new questions about the way the automobile industry operates. More on this later.

Disclosure: I drive a Toyota and I don't know if my car is safe.


Ashwani said...

It is funny tat sometimes organizations forget their responswibility towards the society. In this case, Toyota cannot ignore its responsibility towards the customers who have purchased their vehicles. It is their duty to address customer's problems. Such behavior can harm the reputation of a brand adversely.

Amit said...

I think it is a good example of going too much on one thing and thus neglecting the other. Toyota has been pioneer in environmental issues but somewhere forgot the safety aspect. But more disturbing is the fact of them not accepting the mistake and only doing when faced challenges from authority.

书音 said...

I've always been perplexed by the way Japanese choose to handle matters, which seemingly to have been deeply influenced by pride issues. You picked out the points which pretty much demonstrate their lack of crisis and issues management skills in global context.
Thanks for the insight.
Curious to see how the matter develops.
Drive safe. =)


sondra said...
This comment has been removed by the author.
sondra said...

You might be interested in looking at this website my fellow students and I have created on P&G CSR initiative in ASEAN countries called "Live, Learn and Thrive". Here's the link:

I believe P&G has been rather responsible to its stakeholders.
Let me know what you think! (: