Toyota: Back to Basics after Crisis

Toyota: Back to Basics after Crisis
Case Code: BSTR448
Case Length: 21 Pages
Period: 2008 - 2013
Pub Date: 2014
Teaching Note: Available
Price: Rs.500
Organization: Toyota
Industry: Automotive
Countries: USA
Themes: Crisis Management, Organizational Learning
Toyota: Back to Basics after Crisis
Abstract Case Intro 1 Case Intro 2 Excerpts


The Recall Crisis

Industry analysts felt that in a bid to become the number one automaker in the world, Toyota had begun focusing on expanding rapidly, rather than on its unique selling proposition – product quality. As Toyota ramped up vehicle production, its employees started straying from the Toyota Way of rigorous quality control and continuous improvement in manufacturing methods. As a result, several errors reportedly crept in during vehicle development. The company overlooked these issues and continued with product launches in the overseas markets, observers said.

This led to consumers experiencing problems in their vehicles. In the US market, despite growing sales, Toyota found itself faced with a rising tide of complaints. Analysts attributed the quality lapses to Toyota's shifting its focus from quality to growth and the drastic cost-cutting measures that the company had undertaken. They also blamed the company's organizational structure for the problems, saying that it hampered smooth communication between Toyota’s headquarters and its offices in other countries...

Diagnosing the Root Causes

Toyota decided to discover the root causes for its quality and safety issues. One of the major root causes identified by Toyota was that it did not listen much to its customers' concerns and perspectives. Another major root cause identified was the company's attempts at maintaining close control and efficiency. Moreover, the silo culture 8 that had seeped in and the centralized decision-making did not allow a quick response. Toyota’s headquarters was in Toyota City, Japan. The company's R&D operations, Japanese manufacturing plants, and its primary suppliers were all based at or near Toyota City. The North American operations did not operate as independent entities. They were overseen by the Japanese management. The design and engineering for the majority of the vehicles was done in Japan; the North American region’s engineering department was responsible only for specific customization of the overall design for that particular region....

Creating Opportunities from the Crisis

Having understood the depth of the problem, Toyota felt that the crisis could be constructively turned into an opportunity by following its core principles. Commenting on Toyota's attempt to take its company Back to the Basics, Akio said, "When my grandfather brought Toyota into the auto business in 1937, he created a set of principles that has always guided how we operate. We call it the Toyota Way, and its pillars are 'respect for people' and 'continuous improvement.' I believe in these core principles. And I am convinced that the only way for Toyota to emerge stronger from this experience is to adhere more closely to them."...

North American Quality Advisory Panel

On April 29, 2010, Toyota created the North American Quality Advisory Panel with the stated purpose to "bring an outside perspective and provide objective advice to the highest levels of Toyota's North American management with respect to content, implementation, and further development of [its] quality and safety processes."

Six quality and safety experts were appointed to the North American Quality Advisory Panel. They worked closely with the automaker's leadership team and the North American Quality Task Force. The experts were responsible for advising Toyota’s North American affiliates on quality and safety issues. In addition to this, the advisory panel also suggested that Toyota should appoint executives for safety and give decision-making power to executives outside Japan. Commenting on setting up of the panel, Angelo, said, "Engaging the experience and counsel of independent experts is a critical component of this process. We are honored to have each of these accomplished leaders partner with us to help ensure that we achieve our goals." ....

Other Measures

While Toyota focused on creating value from the crisis, in April 2010, it agreed to pay a whopping US$16.4 million fine imposed on it by the NHTSA in the US for failing to notify the US government about its vehicle defects. 16 This was part of the automaker’s crisis containment strategy.

To give more authority to its regional heads, Toyota appointed four American engineers, who were one step below chief engineer and were the ultimate authority to take decisions on vehicles manufactured especially for the US market.

Toyota also set up regional product quality field offices to give a strong regional engineering presence in each part of North America. Each of the six centers were responsible for investigating consumer issues and a particular technical specialty associated with regional, geographical, or environmental conditions in the area....

The Impact

Toyota felt that its efforts of turning a crisis into an opportunity had worked in its favor. This was evident when the automaker received the 2010 Insurance Institute for Highway Safety (IIHS) Top safety Pick Award. The IIHS rated vehicles based on how well they protected drivers and passengers inside the car from front, side, and rear impacts and from rollovers. The cars were also looked at for their electronic stability control.

According to market intelligence firm Starch Advertising Research, from May 2010-December 2011, consumers positively disposing toward the Toyota brand had increased to 70 percent. This was an increase of 11 points from 59 percent from January 2010 through April 2010...

The Road Ahead

Despite the turnaround, Akio aimed to sustain the growth and said, "We have to keep improving, getting better and better, not taking for granted that we have recovered." To avoid such a crisis in future, Akio aimed to create a more nimble, transparent, and globally-minded organization. In 2013, Akio announced his decision to keep setting up of new plants on hold till 2015 so as to keep costs low. This also reflected his decision to focus on making Toyota a leaner organization giving more autonomy to regional divisions and foreign executives.

In March 2013, the company announced a management overhaul in keeping with Akio's vision of creating a nimble, transparent, and globally-oriented organization to prevent the recurrence of mistakes. The company appointed Mark Hogan, an independent consultant and former GM group vice-president, as a board director. This marked Toyota’s first appointment of an outsider in its 76 year-history. Toyota also promoted four non-Japanese managers for overseeing regional divisions. Commenting on the changes, Akio said, "The objective of the changes being announced today is to build an organization where people can take ownership of their work as we enter a new phase of growth in vehicle sales."...


Exhibit I: Toyota Production System
Exhibit II: Toyota's Milestones
Exhibit III: The Toyota Way
Exhibit IV: Toyota's Financials
Exhibit V: Toyota's Recall Timeline
Exhibit VI: Six-point Plan Adopted by the North American Quality Task Force
Exhibit VII: Safety and Quality Measures Recommended by the Special Committee on Global Quality
Exhibit VIII: Structure of the Special Committee on Global Quality
Exhibit IX :Recommendations Made by the North American Quality Advisory Panel

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