Jeffrey Liker and Timothy Ogden authors of Toyota Under Fire, explain the causes and effects, the hows and whys of Toyota’s recent crises — and how the automaker plans use the lessons of the past two years to drive future growth.
Beginning in the summer of 2008 when U.S. gas prices spiked, then on its heels came the most severe recession since the Great Depression, Toyota, and all other automakers, began a battle with tough economics. While other automakers responded in the traditional wayclose plants, layoff thousands of people, reduce R&D expenditures, delay payments to suppliers and negotiate lower part costsToyota in many ways maintained business as usual. There were no involuntary layoffs, R&D expenditures remained the highest in the industry, and distressed suppliers were helped through early payments. The result by the summer of 2009 was a return to profitability, large increases in production, and Toyota on the road to once again demonstrating its adaptability, resilience, and the benefits of living its valuesthe Toyota Way.
Then a tragic and fluke accident occurred in August, 2009 when a loaner Lexus vehicle from a dealer inexplicably accelerated out of control in San Diego killing its four occupants. One of the passengers called 911 while this was going on giving a horrific description of what was happening that captured the nations attention in a very emotional way. Immediately investigations started into the problem. Critics of Toyota observed that in the National Highway Transportation Safety Administration (NHTSA) database of customer complaints Toyotas complaints were elevated shortly after electronic throttle control was introduced and the media began speculating that computers were causing this unintended acceleration. Even when a police report came out in the Fall of 2010 that showed very clearly that the problem was that the loaner vehicle was prepared incorrectly by the dealer and they mistakenly put an all weather floor mat from a sport utility vehicle into the passenger car, and with its large size, it entrapped the gas pedal, speculation continued about electronics problems. Suddenly complaints of sudden acceleration and accidents due to acceleration climbed through the roof, law suits were filed, expert witnesses for lawyers suing Toyota got a national stage, and congress got in on the act holding public hearings about Toyota unintended acceleration. Toyota, under pressure ended up recalling over 10 million vehicles to cut the size of the gas pedals and increase the distance from the floor and then to solve a different problem with gas pedals that could get stuck in a high idle position or return slowly. Toyota, a paragon of virtue and top quality and safety, began to be portrayed as a villain that hid problems and had lost its focus on customers.
On February 8, 2011, NHTSA publically summarized a report it paid NASA to produce based on an intensive Ten-month study of Toyota vehicles. The verdict: no evidence of electronic problems. This led some to speculate that this whole crisis was manufactured by the media and government and there was an underlying political motivation.
In Toyota Under Fire: Lessons for Turning Crisis into Opportunity, we do not speculate on conspiracies, but examine how Toyota was able to navigate through these twin crises and as it turns out emerge a stronger company. In the midst of the recall crisis its stock price, sales, and quality ratings plummeted. Within six months these were all back up near their pre-recall levels and Toyota ended 2010 as the largest auto company globally, with the largest U.S. retail market share, and with more quality awards by far than any other automaker. How did they do it? We summarize their positive response with four main lessons:
Lesson 1: Your Crisis Response Started Yesterday
One conclusion rises to the top: turning crisis into opportunity is all about culture. Its not about PR strategies, or charismatic leadership, or vision, or any specific action by any individual. Its not about policies or procedures or risk mitigation processes. Its about the actions that have been programmed into the individuals and teams that make up a company before the crisis starts. In our estimation, Toyotas most important decision in handling the recession crisis was to keep a conservative balance sheet, lots of cash on hand, and an excellent credit rating during the boom years before the recession. Toyotas financial position was what allowed it to keep investing in people and processes even while it was operating at a $4 billion loss. The most important decision for the recall crisis was not to lay anyone off during the recession, but instead to take that time and invest in developing people and deepening the Toyota Way culture.
Lesson 2: A Culture of Responsibility Will Always Beat a Culture of Finger-Pointing
It is common sense that organizations that encourage taking responsibility and solving problems perform better than those that allow finger-pointing and passing the buck. But how much can any person or company take responsibility for? Should a company take responsibility for being hit hard by the Great Recession or for the damage done by misleading media reports? Various Toyota leaders took responsibility for both crises. By not pointing fingers Toyota was able to turn the energy from the crisis from anger or despair to positive improvement energy. The starting point was to take care of customers which Toyotas customer service center and dealers did with a level of speed and excellence that sales of recalled vehicles actually exceeded sales of non-recalled vehicles. Then energy turned to looking in each function and finding opportunities for improvement to respond more quickly to every customer concern, whether rooted in technical defects or customer perception.
Lesson 3: Even the Best Culture Develops Weaknesses
Theres no question that, after years of studying the company, we believe that Toyotas investment in a shared culture of continuous improvement is remarkable and practically unique. For evidence of the success of that investment, one need look no further than the companys nearly continuous rise over the last 60 years. Despite that commitment and investment, however, the company still encountered difficulties that were directly attributable to weaknesses in the culture. Toyota failed to live up to its own standards in a number of areas. The lesson here is that even the best culture can and will develop weaknesses and the greatest threat to a culture of continuous improvement is success.
Lesson 4: Globalizing Culture Means a Constant Balancing Act
The strength of the Toyota culture is that it is shared. Developing a shared corporate culture across varied national cultures is perhaps the biggest challenge facing modern multinational corporations. Toyota made remarkable investments in bringing the Toyota Way overseas. Still, despite the progress that Toyota has made, the balance between centralized and decentralized, global and local, is even harder than most people think (and most people think its very hard). As a result of working through this crisis Toyota determined that it was out of balance toward too much centralization and took bold actions to provide more power and influence to local leaders.
It is difficult for any large and visible company to avoid a crisis. It happens whether it is the fault of the company or not. What happens next depends on how the company responds. We believe Toyota as a case study demonstrates the power of investing in a strong culture of continuous improvement, one that takes responsibility and uses problems as opportunities to learn and grow a little stronger every day.