The Toyota Crisis—Is the Toyota Brand Sustainable Now that’s It’s Gone Global?

May 9th, 2011 4 Comments

By January 23, 2010, Toyota, the world’s biggest automaker had recalled a total of 9.0 million vehicles after defects came to light, resulting in sudden unintended acceleration (SUA) of Toyota vehicles, allegedly causing 37 deaths. Three major recalls of Toyota vehicles were triggered by (1) accelerator pedals trapped by floor mats, (2) accelerator pedals with poor design problems causing them to stick, and (3) Prius brake problems. [1] The recalls spread throughout the United States, Europe, and even to China.  Toyota had based its brand on quality and reliability.  Thus, this recall went to the heart of what Toyota stood for.  How did this happen?

TOYOTA’S RECENT BACKGROUND

In 2008, the world was in the throes of a global financial downturn which affected multiple industries worldwide, including the auto industry.  The crisis affected European and Asian automobile manufacturers, but it was primarily felt in the American automobile manufacturing industry.  At the same time there was a substantial increase in the prices of automotive fuels linked to the 2003-2008 energy crises.  By 2008, the situation had turned critical as the credit crunch placed pressure on the prices of raw materials.  With high gas prices and a weak US economy in the summer of 2008, Toyota reported a double-digit decline in sales for the month of June, similar to figures reported by the Detroit Big Three—General Motors, Ford, and Chrysler. [2]   On December 22, 2008, Toyota Motor, said it expected its first operating loss in 70 years, indicating how severely the economic crisis was affecting global auto industries including Toyota, the world’s largest automaker. [2][3]

Toyota’s sales in the United States were down 34 per cent and were down 34 per cent in Europe as well. They expected a loss which would be the equivalent of about $2 billion (CDN).” Former Toyota President Katsuaki Watanabe said the impact on the company from the struggling global economy has been “faster, wider and deeper than expected.” “The change that has hit the world economy is of a critical scale that comes once in a hundred years,” Watanabe said, speaking in Nagoya. [4]

KAIZEN, THE 14 PRINCIPLES OF QUALITY, AT TOYOTA 

The Toyota Way, which has produced vehicles known for their exceptional quality and safety, is derived from Kaizen, a way of working that emphasizes continual quality improvement and respect for people.  These principles have enabled Toyota to become an international brand based on quality and safety in its vehicles.  The Toyota way, incorporating Kaizen, or continuous quality improvement, has 14 principles, which include:

  • An emphasis on long-term philosophy, even at the expense of short-term financial goals.
  • Making decisions slowly by consensus, thoroughly considering all options; once decided, implement decisions rapidly.
  • Using only reliable, thoroughly tested technology that serves your people and processes.
  • Level out the workload and work like the tortoise, not the hare.
  • Build a culture of stopping to fix problems, to get quality right the first time.

These are the principles which have made the Toyota brand an internationally respected brand.  [6]

AGGRESSIVE COST CUTTING SAID TO CONTRIBUTE TO DEFECTS

Starting in 2005, aggressive cost cutting measures in production were implemented by Watanabe, then President of Toyota, to reduce losses in sales revenues already incurred in this down market.  A Bloomberg Businessweek article, published online on February 26, 2010, said that the recall crisis stems from cost cuts and growth ambitions.[5]   

“Watanabe, trained as an economist, not as an engineer, also said at a New York conference that Toyota was able to slash time to bring models into production once a design was final to about 12 months, compared with an industry average of between 24 and 36 month.”[5]  “Akio Toyoda, who succeeded Watanabe in June 2009, acknowledged that such changes may have contributed to product defects.  “I fear the pace at which we have grown may have been too quick,” Toyoda, whose grandfather founded the company in 1937, said Feb. 24, 2010, at a hearing in the U.S. House of Representatives. “Priorities became confused, and we were not able to stop, think and make improvements as much as we were able to before.”[5]  Even before unintended acceleration leading to driver deaths cast an unwanted spotlight on the company, President Toyoda had told investors he had become concerned about the company’s fixation with growth and boosting profit. [5]   

 “An annual goal to boost global sales by as many as 700,000 vehicles a year, more than three times the previous volume, led to accelerated production that outstripped the abilities of company engineers and led Toyota to outsource more development work to suppliers”, President Toyoda said. [5] 

“Toyota grew so fast and the process was accelerated so much that there often wasn’t time for engineers to fully review the process before a new tool to build a part had to be delivered, the supplier executive said.”  [5]

Toyota’s use of large-scale cost reduction programs didn’t end after Watanabe stepped down last year, the company said.  The former chief executive’s “Value Innovation” plan has been succeeded by a program known internally as “RRCI,” said Hideaki Homma, a company spokesman. Toyota met with suppliers Dec. 21, 2009, to outline the initiative, Homma said.  As part of that program, Toyota asked suppliers to try to cut costs 30 percent over a period of years that varies by parts maker, said a Japan-based supplier to Toyota who asked not to be named.  [5]

So the cost-cutting initiatives which created the fertile ground for Toyota’s sudden acceleration in vehicles and ensuing unfortunate recalls, seems to still be the order of the day.

This emphasis on short-term gain and drastic production efforts all go against the principles of KAIZEN, which lies at the heart of Toyota’s international brand of safety and reliability. Is Toyota’s brand sustainable when it violates its own core principles of KAIZEN? 

“QUALITY” STANDARDS DON’T TRANSLATE FROM EAST TO WEST

Richard Dasher, Stanford Professor and Director of US-Asia Technology Management Center at Stanford University, speaking on August 26, 2010, as the keynote speaker at the Synergos Series sponsored by the Hayden Group addressed the failure of Japan to translate its values of exceptional performance to vendors in other countries.  He noted that in the Japanese culture they have had the historical practice of falling on their sword if they failed to do their duty.  This is a cultural mindset which still permeates the average Japanese workers’ mind so that meeting deadlines, obligations and commitments are held to a very high standard.  He said that when it came to American workers they allowed circumstances to deter them from meeting deadlines.  He gave an example, saying that American truckers will say it was the ice and snow that prevented them from delivering a shipment on time.  He said for the Japanese this would not be an allowable excuse.  Japanese cultural expectations of sacrificing one’s personal comforts for the greater good, are not carried out in America to the extent it is in the Japanese culture.  He noted that the vendor who designed and manufactured the defective brake for the Prius was an American company. 

Professor Dasher also noted that in 2007, before the recall crisis started, Toyota instituted trainings for parts manufacturing vendors in the United States to attempt to establish a uniform quality standard for manufacturing.  He said that the Japanese cultural standard of quality did not translate to the United States and further attempts were not made.

Becoming global, means Toyota has contracted with vendors from various countries outside of Japan, including the United States.  The question is whether Toyota can translate its emphasis on “quality” in a way that other cultures can accept and embody as part of their daily practices.   Having gone global, cultural differences with their concomitant differences in the values regarding quality perceived by vendors from different nations, raises the question of whether Toyota can sustain their brand based on “quality, safety, and reliability”.

TOYOTA, A GLOBAL COMPANY, SEEN AS A JAPANESE COMPANY, EXACERBATING IT’S PROBLEMS

Professor Dasher pointed out that Toyota, despite having gone global with manufacturers located in different parts of the world, playing key roles in constructing Toyota vehicles, it is still seen as a Japanese company.  He said that Americans seem to associate this recall crisis with a Japanese company, Toyota, even though the culprit for the design and manufacturing problem with Prius came from an American company. 

BP is also a global company but is not recognized so widely as a British company.  When the greatest oil disaster in history was caused by BP, there was little association with BP being a British company.  Yet, when Toyota’s recall crisis arose, it was immediately known as a Japanese company.  The Japanese felt there was some Japan bashing going on here.  When similar recall problems occurred before with Volvo, there seemed to be fewer hullabaloos about it.  The Japanese perspective is that Japan bashing is putting Toyota’s brand more at risk than would otherwise occur with European companies.  Is United States’ Japan bashing a major factor  in contributing to destabilization of the Toyota brand of safety and reliability?  Would this have blown over with less fanfare and alarm if a European company had been involved?  Perhaps, these questions are will take a back seat, depending on whether Toyota realigns itself with its Kaizen principles of continuous quality improvement and respect for human

PUTTING ALL THE FACTORS TOGETHER—IS THE TOYOTA BRAND SUSTAINABLE?

Any successful business, particularly a global one, needs to identify and understand the perceptions of their customers in the local market place and respond effectively to that marketplace.  Japan bashing may be a factor.  Prompt repairs and excellent service will quickly quell those concerns however.  The problem is that even after repairs, some of the recall problems continue on.  This brings into doubt the heart of the Toyota brand of quality and safety.  If this continues, their brand will no longer be trusted and may go the way of Ford and General Motors.  Perhaps, when a corporation gets too big, they are unable to manage quality due to the sheer size and complexity of the organization that is multi-national, making it unable to handle the cross cultural differences in values and work styles. 

These factors combined with the continuing policy of drastic cost reductions, bodes poorly for Toyota as a sustainable brand based on safety and quality.  I feel saddened to see a company that has created and sustained its stellar reputation over the decades, find it is unable to return to its historically valued KAIZEN process, the Toyota Way, emphasizing continuous improvement, respect for their employees by not overburdening them with production demands thus reducing waste, and consensus decision-making which leads to rapid implementation.  Optimistically, one can hope that the leadership at Toyota, will learn their lessons engendered by their vendor design defects and can return to their vision and wisdom of KAIZEN, for its long-term sustainability as a brand known for quality and safety.  That is my hope.

SOURCES: 

  1. The Toyota Recalls: The Damage Control Finally Starts, posted February 18 2010 05:15 PM by Angus MacKenzie, Motor Trend Blog, http://blogs.motortrend.com/6610687/recalls/the-toyota-recalls-the-damage-control-finally-starts/index.html#ixzz0zZ9G3h4K    
  2.  “Automotive industry crisis of 2008-2010” (sic), from Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Automotive_industry_crisis_of_2008%E2%80%932010, p. 3 of 18.
  3. “Toyota Expects Its First Loss in 70 Years”, by Martin Fackler, The New York Times, nytimes.com, December 23, 2008, p. 1 of 2.
  4. “Automotive industry crisis of 2008-2010”, from Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Automotive_industry_crisis_of_2008%E2%80%932010, p. 3 of 18.
  5. “Toyota Recall Crisis Said to Lie in Cost Cuts, Growth Ambitions”, by Alan Ohnsman, Jeff Green and Kae Inoue, Bloomberg Busiessweek, February 26, 2010, http://www.businessweek.com/news/2010-02-26/toyota-woes-said-to-lie-in-cost-cuts-growth-targets-update1-.html
  6. The Toyota Way, http://en.wikipedia.org/wiki/The_Toyota_Way#Translating_the_principles

 

About Roseto Sprouts and Roseto Group:

Roseto Sprouts is a blog of Roseto Group.  Roseto Group is a business and technology consulting firm in the San Francisco Bay Area. We are a coalition of experts in diverse fields offering customized solutions for our clients’ career and business needs. Our services include: Career and Leadership Coaching; Talent Development and Training; Logo, Web design and Social media; Software Engineering Quality and Process; Product Management; Branding and Marketing.

Joyce Kawasaki, J. D. is a consultant, facilitator and speaker, specializing in career transitions, career passions, and employee engagement. She has personally been through 7 successful career transitions and speaks from the voice of experience.  She helps you get past your inner roadblocks to get on track to uncover your career passion!

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4 Comments

  1. Merlin Dorfman says:

    Boeing has also had quality problems with its international vendor/supplier network on the 787 Dreamliner. I’ll see if I can dig up the article.
    American companies don’t have the luxury of thinking “long term.” If they don’t produce high profits every quarter, they will be taken over by somebody who promises quick profits. Hopefully Toyota doesn’t have that problem and can return to their original principles.

  2. Joyce Kawasaki says:

    Merlin, Thanks for this tip about Boeing and how American companies focus on profits from quarter to quarter rather than thinking long-term. According to my research at the time, they have been seduced by the need to show profits as they slashed expenses that ended up sacrificing quality. They continued to do so even after the recalls.

  3. Hey, I run on the Economy News Insider blog. We’re constantly looking for new contributors for the blog, and your writing would fit well with our other content. You should send me an email at info@charitynewsforum.com if you’re interested in getting your writing out on our site.

  4. Big fan of the blog. Keep up the good work. If you’re so inclined, check out my news and media blog at http://macronewsfeed.com/

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