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Toyota
Recall: Five Critical Lessons
Jan 31, 2010
by Michael Connor
Toyota’s announcement of a technical fix for its sticky gas pedals –
which can lead to sudden acceleration problems – is not likely to bring
a quick end to the company’s current recall nightmare.
Having already halted sales and production of eight of its top-selling
cars in the U.S. – and recalled more than 9 million cars worldwide, in
two separate recalls – Toyota faces the prospect of billions of dollars
in charges and operating losses. The Toyota brand, once almost
synonymous with top quality, has taken a heavy hit.
While all the facts are not yet in, it’s clear that Toyota’s crisis
didn’t emerge full-blown overnight. Fixing the problem and
ensuring that something like it doesn’t happen again will require an
all-out effort, from assembly line to the boardroom. Even then,
there are no guarantees. Maintaining a good corporate reputation in the
21st century is tricky business indeed.
Toyota’s case offers a number of valuable lessons for other business
people and companies to consider. Here, for starters, are five:
Aggressive growth can create unmanageable risk. Toyota’s desire to
supplant General Motors as the world’s number-one car-maker pushed it
to the outer limits of quality control.
“The evidence that Toyota was expanding too much and too quickly
started surfacing a couple of years ago. Not on the company’s
bottom line, but on its car-quality ratings,” writes Paul
Ingrassia, a Pulitzer Prize-winning former Detroit bureau chief for The
Wall Street Journal.
Ingrassia, who has just authored a new book on the auto industry, notes
that in 2005 Toyota recalled more cars and trucks than it sold; by
2007, Consumer Reports magazine stopped automatically recommending all
Toyota models because of quality declines on three models.
One wonders if, when accepting management’s plan for aggressive growth,
Toyota’s board of directors exercised appropriate diligence to ensure
that growth could be achieved without betting the entire
franchise. Were quality control and safety part of the
discussion? Maybe gaining market share wasn’t worth the
trade-off. Quick tip to directors of other high-growth-oriented
companies: read up on Merrill Lynch’s experience with dominating the
sub-prime mortgage market.
Get the facts quickly and manage your risks aggressively. One of the
more troubling aspects of Toyota’s recalls (there have been two) has
been the company’s differing accounts of the source of the
problem. The current recall, covering 4.1 million cars, involves
potentially sticky gas pedals. Late in 2009, Toyota also recalled
5.4 million cars whose gas pedals could get stuck on floor mats.
Plus, Toyota says there are some cars affected by both problems.
(For an interesting technical analysis of some of the issues involved,
go here.)
Uncertainty is not an asset, especially when lives could be at
stake. A Los Angeles Times investigation, for example, casts
doubt on Toyota’s explanation, quoting one auto safety consulting group
as saying, “We know this recall is a red herring.” (Read Toyota’s
position here.)
And the questioning is just beginning. A U.S. Congressional committee
headed by Rep. Henry Waxman has already requested copies of emails and
other documents from both Toyota and the National Highway Traffic
Safety Administration, which regulates Toyota with regard to the
recalls. Congressional hearings are scheduled for Feb. 25.
In cases such as this, investigators almost always start with two
time-worn questions. What did you know? And when did you
know it? Answers to those questions provide the groundwork for analysis
of a company’s response and handling of a problem. Were employees
encouraged to flag safety issues to senior management? Were
sufficient resources devoted to investigating the problems?
When did the board become aware of the situation and what did it do
about it?
Companies generally can’t predict when crises might occur.
However, good internal risk assessment programs can help identify those
areas of the business where management should be on the
alert. Robust risk management programs help a company
address problems as they pop up on the internal corporate radar screen
– and before they explode in public.
Your supply chain is only as strong as your weakest link. The reality
is that auto companies make hardly any of their parts. They
assemble cars from parts made by others. In this case, the
offending gas pedal assembly was made for Toyota by a company called
CTS of Elkhardt, Indiana.
It’s far from certain how much blame the parts supplier deserves.
In fact, CTS says Toyota’s acceleration problems date back to 1999,
years before CTS began supplying parts to Toyota. (And the replacement
gas pedal parts Toyota has announced as a fix for the problem will be
made by CTS, suggesting a degree of confidence in the supplier.)
Nonetheless, “(if) you are outsourcing for your entire vehicle line,
[and] the outsourced component is defective, the recall and the
embarrassment is much greater,” iconic car company critic Ralph Nader
told Toronto’s Globe and Mail last week. “The overall message is that
quality control [means] daily vigilance,” Nader said. “You can’t coast
on your reputation because it can fail very quickly.”
Supply chain monitoring is a critical factor for companies that rely on
third-party suppliers. That’s increasingly true for a broad variety of
industries, not just automobiles, as business grows ever more
global. Smart companies will know their suppliers and their
respective strengths and weaknesses.
Accept Responsibility. This is one area where Toyota seems to be
doing a good job, albeit maybe a year or more too late.
Two decades ago, when Audi encountered a safety issue similar to
Toyota’s, Audi took the position that “it was the driver’s fault,”
David Cole, Director of the Center for Automotive Research, told Design
News. Coles says that reaction ultimately hurt Audi’s reputation.
Toyota seems to be avoiding the appearance of passing the buck.
When pressed by the New York Times about problems that might have been
caused by supplier CTS, for example, Toyota spokesman Mike Michels
said: “I don’t want to get into any kind of a disagreement with CTS.
Our position on suppliers has always been that Toyota is responsible
for the cars.”
Accountability matters enormously. Johnson & Johnson’s
1982 recall of its painkiller Tylenol, following the deaths of seven
people in the Chicago area, has earned it a permanent place in the
annals of crisis management. But that recall stemmed from the
deadly act of an outsider (who has never been caught), not any problem
with the product itself, as is the case with Toyota.
Take the Long View. The three leading factors burnishing corporate
reputation these days are “quality products and services, a company I
can trust and transparency of business practices,” writes public
relations executive Richard Edelman, who last week released his
corporate “Trust Barometer” survey for 2010.
That’s unfortunate news for Toyota, given the hand that it’s currently
playing. But the company doesn’t have much choice. By one
estimate, auto industry recalls conservatively cost an average of $100
per car – suggesting that Toyota might be on the hook for at least a
one billion dollar charge. That doesn’t include lost
revenue to Toyota and its dealers from the production shutdown.
And competitors are already trying to woo customers away and capitalize
on Toyota’s misfortune. Disgruntled investors and Wall Street
analysts will make the company aware of their feelings; class action
lawsuits are almost a certainty (one lawyer is already searching for
Toyota customers as clients).
Reputation can be easily lost – and Toyota’s reputation is indeed
threatened – but it’s highly unlikely the company will collapse
completely. And that may be one of the one of the biggest lessons
for other companies as they study how Toyota emerges from this recall
crisis. The reality is that Toyota is positioned for recovery
about as well as it could be – owing, in large measure, to the
reputation for quality products and corporate responsibility it has
developed over the last two decades. That reputation is a
valuable asset, and one that Toyota will undoubtedly be citing and
calling upon, in the weeks and months ahead.
Source: Business Ethics
http://business-ethics.com/2010/01/31/2123-toyota-recall-five-critical-lessons/
Managementhelp.org
Toyota
Ethics: Questions to get to Answers
By David Gebler on April 19, 2010
As opposed to offering opinions without having all of the background
and knowledge, I thought it might be more helpful to start a discussion
about the questions:
Many people have written that Toyota’s problem was that it sacrificed a
core value of safety for profit. To frame the issue this generally is
to miss the point of the real challenge Toyota was facing: not trading
one value for the other, but how to effectively balance the two.
No company can sustain profits if it builds unsafe cars. So Toyota
cannot jettison safety for profit. Similarly, there is always inherent
risk in any product. Even the public assumes some degree of risk.
Toyota, as well as any car manufacturer is not expected to make their
product 100% safe. So how do they decide what is “safe enough”?
Now we can look at an ethics issue. The ethical dilemma is in how
Toyota grappled with that decision. Who had information but didn’t
report it up to senior leadership? Why not? Which stakeholders,
internal and external, were not included in the decision-making process?
The public on both sides of the Pacific does not begrudge Toyota making
a profit. But building complicated machinery that is sold to millions
of people demands inclusion of many voices in multiple decision
processes. If there is a lesson to be learned, it’s the role that
transparency can play in making the tough decision.
One response to “Toyota Ethics: Questions to get to Answers”
Maxwell Pinto
May 12, 2010 at 8:31 am | Permalink
Someone once said “If we don’t take care of the
customer, somebody else will.” Need I say more?
In business, the bottom line is often considered to
be money. Many leaders follow the stockholder approach, rather than the
stakeholder approach (which emphasizes the needs of stockholders and
others, such as employees, customers, suppliers, the government, the
community, and the environment).
We know that business decisions often concern
complicated situations which are neither totally ethical nor totally
unethical. Therefore, it is often difficult to do the right thing,
contrary to what many case studies would have you believe! Moral values
such as respect, honesty, fairness and responsibility are supposed to
dictate our (ethical) behaviour, but are often ignored in times of
stress and confusion, when one must stand by one’s principles.
Leaders often have to deal with potential conflicts
of interest, wrongful use of resources, mismanagement of contracts,
false promises and exaggerated demands on resources which include
personnel. Is it the seller’s duty to disclose all material facts
regarding the product or service in question or is it the buyer’s
responsibility to conduct due diligence? Should the seller answer each
question exactly as it was asked, and ignore some pertinent information
or should he address the spirit of the question? This is a gray area.
For free abridged books on leadership, ethics,
teamwork, women in the workforce, sexual harassment and bullying, trade
unions, etc. send an e-mail request to crespin79@primus.ca.
Maxwell Pinto, Business Consultant and Author
http://www.strategicbookpublishing.com/Management-TidbitsForTheNewMillenium.html
http://www.youtube.com/watch?v=p34hB50lv-8
Source:
http://managementhelp.org/blogs/business-ethics/2010/04/19/toyota-ethics-questions-to-get-to-answers/
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