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Crisis and Disaster Management: Toyota Company

Crisis and Disaster Management: Toyota Company

Executive Summary

In this report, the focus is on Toyota Company recall crisis that almost paralysed its operations. The reports start with the focus on the crisis management where various aspects are discussed. In the first part of the report, the focus is on the sources that led to the recall crisis in Toyota Company. Toyota crisis resulted from the internal sources when the company focus changed to the growth of automobile rather than concentrating on quantity. The turning point of the crisis was in 2003. The aggressiveness characteristic was adopted and the risk that came with the strategy ignored. However, the crisis had started in the 1990s, and it was only after 2003, that it became a major crisis. The paper also discusses the stakeholders affected by the recalls. In the final part, the report discusses the proposal for ensuring the continuity of the business as well as the justification for the proposals.

 

 

Table of Contents

 

Executive Summary. ii

1.0 Introduction. 1

1.1 Identification of the source. 1

2.0 Turning point 2

3.0 Pivotal Crisis and the phase of crisis. 2

3.1 The phase of crisis. 2

3.2 Pivotal crisis. 3

4.0 Stakeholders affected by crisis. 3

5.0 Proposal for effective business continuity. 4

6.0 Evaluation of proposals. 4

7.0 Conclusion. 5

Bibliography. 6

Appendix. 8

 

 

 

 

 

Crisis and Disaster Management: Toyota Company

1.0 Introduction

It is probable for the companies to find themselves in crisis. In the wake of the crisis, there is the need to develop the strategies that would facilitate effective crisis management. The crisis brings difficulties in the management of the companies, resulting in financials losses and sometimes causing the companies to terminate their operations (Insurance, 2013 p. 42). Crisis refers to the a disruptive event that that has the probability to attract the public attention and may affect the operations of the company, destroy the reputations of the company and retard the future developments and the growth prospects of the company (Moore & Seymour, 2005, p.31). Gilpin and Murphy (2008, p.15) noted that the crisis has the lowest chances of occurrence, and when it occurs, it has a huge impact on the operations and the financial viability of the company. The stakeholders of the company consider the company’s crisis to be threatening both in the social and the personal life.

1.1 Identification of the source

The major cause of the Toyota arose internally. Toyota had been continuously in the crisis. Many people questioned the Toyota quality standards and the production process for the malfunctions that caused the company to recall millions of cars since 2007. The entire crisis became public in the year 2009, and the company is still affected by the crisis up to date. First, the company had changed from the traditional focus on the quality of the intended increased growth. After Hiroshi Okunda appointment as the new president of the Toyota, the company aggressiveness resulted in the increase of the market share globally.

In 1995, the company targeted a market share of 10%. After attaining a 9.7% market share in 1998, the company increased the targeted market share to be attained by the year 2010 to 15%. The target made the company hire new engineers under the contract terms, new employees and giving contracts to the suppliers who were not based in Japan. The management team concentrated on the growth so much that they forgot to ensure adherence to the measures that would guarantee the delivery of the quality products (Flint & Flint, 2010, p.01). The management lacked the specific quality policies, bias towards the increase in the sales and profits. Moreover, the efforts towards decreasing the cost of the production made the company to relax in the efforts directed towards assuring the delivery of the quality products.

Secondly, the increased complexity of the cars and the operations caused the emergence of the crisis. In addition to the extended growth, Toyota had introduced new advanced models of the vehicles. Cole (2011, p. 01) noted that the increased number of the increased reduction of the lead-time required before the sales are made.  After the approval of the external design reduced, a maximum of the twenty months undermined the workers capability to adhere to the quality. Moreover, the hired contract engineers were not aware of the traditions and the standards of the company’s quality. The collaborative relationships between the company and the suppliers deteriorated too. The suppliers produced 70% of the sub-assemblies used to improve the value of the Toyota vehicles. Nevertheless, the suppliers had found that the relationships with the Toyota Company largely deteriorated due to the inexperienced employees of the Toyota, who did not know how the activities of the Toyota were carried out. The combinations of the inexperienced engineers, problems with the suppliers and the increased orientations towards the growth led to low adherence to the quality of the automobiles.

The company’s growth prompted it to increase the number of the hired engineers. The outside engineers were carrying 30% of the projects carried out by the company globally. The company had also hired suppliers from outside Japan who were also unfamiliar with the way activities were done at the Toyota. The engineers hired meant that the company had to come with the new policies to incorporate them into the company (Yan, 2015 p. 1). The management of the new engineers challenged the company especially on the assurance and the control of the quality. The new engineers had been hired to work in the new centres in the world where they had to deal with the new suppliers.

The process challenged the traditional way the company ensured adherence to the quality of the automobiles. First, the senior management of the company did not have the capability to monitor the activities of the new engineers closely. Secondly, the strong communication and the coordination of the company’s engineers and the suppliers of the company could not rely anymore on the assurance of the quality. That meant that there was reduced cooperation, coordination and the communication between the engineers and the suppliers.

Moreover, the company had a huge number of the employees who were inexperienced and unfamiliar with the activities of the company. The executives of the company were also known to be reluctant to take action when cars with the questionable quality were noted in 2004. For instance, the company had recalled pickups in Japan due to the problems with the steering problems. Nevertheless, the recalls were never extended to the USA until after one year. The problems increased without being controlled until they became public when the accidents resulting from the cars manufactured by the company increased.

2.0 Turning point

According to the president of Toyota Company (Akio), the turning point of the crisis was in 2003 when the sale of the company grew at a faster rate than the company could manage. The focus on growth is altered the traditional culture of the company where the set priorities became disorganized. Unlike the traditional focus on the quality of the automobile products, the company focused on the growth (Cole, 2011 p.32). Traditionally, the company had a conservative culture and the aggressive strategy was out of place. When the company was under the family management, it had opted to follow the growth in a cautious manner. For instance, the company was the last one to make the decision of manufacturing vehicles in the United States.  Based on the quality standards and the cost advantages, it was obvious that it was easy to win the American automobile consumers. However, the company management had taken the decision to approach the company’s capability to decrease prices and prevail in the American market in a careful manner. As an alternative, the company had decided to rely on the brand standing as well as the dependability to expand in the market. Okunda (the president then) persuaded the company leaders to pursue the rapid growth option while ignoring the risk that came with the strategy.

3.0 Pivotal Crisis and the phase of crisis

3.1 The phase of crisis

Toyota is the acute stage of the crisis. At this stage, the public can easily recognise that the company is in the crisis. The managers of the company have made the efforts to contain the crisis but it is growing day by day. The company has responded to the problems of the vehicle’s quality by recalling millions of the vehicles sold.  Toyota brand was growing steadily and had become the leader of the automotive industry due to the quality of its automobiles. Recently, the company recalled 6.39 and 6.5 million vehicles in 2014 and 2015 (Riley & Chang, 2015, p.01, Yan, 2015, p.01).

The quality of products led to the lower cost, and this would trickle due to a large market share. After the release of every car, the reputation of Toyota grew proportionately (Finch, 2009 P. 473). It became a leading company used by other automobile manufacturers as a benchmark. However, in the wake of the 1990s, the song of quality changed and the quantity was its main objective in the market. As such, the company market share grew but is reputation was declined. The quality of the vehicles was traded for quantity, and the company adopted a culture of secrecy n its operations. It reacted slowly to the claims of the customers concerning the defects of sold vehicles. The strategy to react slowly to the reactions of the customers and the secrecy was no longer working. Because of this, the company started experiencing brand attrition, and the market share declined significantly.

3.2 Pivotal crisis

Toyota had built a very reputable brand before the huge recall of the cars took place. The increased gain in the positive brand made the market share, financial strength and the customer loyalty to increase rapidly. The company had concentrated on how to improve the customer’s loyalty, automobile improvements and the focus on the increased designs of the vehicles. Nevertheless, the company had focused largely on the growth and the compromised on the quality. The quality of the company gained national attentions after the company recalled 3.8 million vehicles in USA (Cole, 2011, p.29). The main problem was the acceleration where the drivers had no control. The matter rose when a car crashed in 2009 and killed a high patrol officer based in California together with his family.

The tension over the quality of the Toyota vehicles grew further from the increased recall. In 2010, the company made further recalls of 2.3 million vehicles. The company suspended the sale of certain types of the vehicles in the North America. Moreover, the recalls were extended to China and Europe and some of the manufacturing plants of the company were closed down (NBC, 2010 p. 1). From the crisis reported in the year, 2009 and 2010 caused the popularity of the brand of the company to decrease. The members of the public and the government official had lost trust in the company’s products. The National Highway Transportation Safety Board also increased the investigations on the quality of the company vehicles. In 2009, the profits of the company decreased by 16% and 8.7% on January and February respectively (Fan, et al., 2013, p.5735).

The company continued with the recall even in the years that followed. In 2014, Toyota recalled 6.39 million vehicles in the whole world (Yan, 2015, p.01). The models recalled included the Corolla, Highlander, Matrix and the Camry. Further, the company recalled the twenty-seven models in 2014. The cars recalled by the company increased to 6.5 million and this time the problem was window switches (Riley & Chang, 2015, p.01).

Toyota Company realised the power of the social media during the event of the recall crisis. Scott De Yager, who supervised the activities of the social media at the Toyotas sales department, said that the talks in the social media about the company could not be ignored. He said that the social media revealed a lot about the reputation of the company in the world sales. The manager said that the social media is a race without a finish line. The managers of the companies are supposed to respond to the needs of the customers without waiting for the rise of a crisis because of the uncontrolled social media (Auffermann, 2010, p. 19). Rajasekera (2013, p.09) noted that Toyota identified the significance of the social media on the effects of the company’s brand. A team was formed to control the public opinions on the activities of the company and the confusion of the public over the matters related to the cars recalled. More than ten groups opposed the activities of Toyota Company. (Rajasekera, 2013, p.10).

4.0 Stakeholders affected by crisis

The major stakeholders affected by the crisis of the company were the customers of the company. The company’s crisis affected the customers who had bought the cars already and those that had not bought yet. Many of the customers who had bought the cars from a reputable company returned their vehicles. Because of the recalls, the customers had to consider other means of transportations. Moreover, the new customers avoided the vehicles from the Toyota due to the increased recalls related to the quality of the vehicles. Notably, the recall was initiated after the fiery crash that led to the death Mark Saylor and his family members. In this accident, the car had accelerated uncontrollably.

Moreover, the shareholder of the company was affected by the decrease in the share price as well as the reduction of dividend due to the fines the company paid. Due to the recalls, the company’s share price had decreased by 20% in one month (Brauer, 2014, p.01). As a result, the company had made a promised to pay $25.5 million to the shareholders who had lost their money due to the decrease in the stock prices. The company had also paid fines totalled $65 million for the failure to ensure adherence to the safety laws that has been established by the federal government (Undercoffler, 2014, p. 01).

Toyota has made adequate efforts to gain the trust of the customers and the shareholders. The company spokesperson has used the media platform to guarantee quality to the customers. The public relations employees have used the social media such as tweeter, facebook, twitter, and blogs to give vital information to the customers (Hemus, 2014, p.01). The company used the blogs and the social media to fill the information gap that existed between the customers. Kello (2010, p. 20) noted how the Toyota Company used the TV and background music to regain the trust from the consumers. The company also used testimonials to gain the public confidence in the company. A critical example is a mechanic who confirmed his confidence with the Toyota Company (Kello, 2010, p.20).

5.0 Proposal for effective business continuity

The crucial actions that the company should take are to put strategies that would ensure the traditional adherence to the quality. The company had to ensure adequate communications and the collaboration between the suppliers and the engineers. Nevertheless, effort to realise the required growth, the company hired new suppliers and the engineers. The new suppliers and the engineers who lacked knowledge on how the activities were being done at the Toyota could not guarantee the quality. The company’s brand name has already been affected negatively. The impacts of the crisis have continued to affect the company.

Besides, it is important for the company to make the appropriate crisis management skills to handle any crisis in the future. Despite the fact that the company was facing a recall crisis, the problem was further aggravated by the management inability to handle the crisis. It was unfortunate that the company representatives were quick to give unverified answers and to some extent deny some of the allegations without proper investigation. The issue of inappropriate crisis management led the company to make more loss due to the litigation cases.

6.0 Evaluation of proposals

Having a crisis management team is one of the greatest assets of a company destined managing the risks that come in a case of unexpected feedback from the market performance. It is important for a company to have a pre-phase management plan to reduce known risks that may lead to crisis. The processes involve developing a planned training; develop crisis management group, and conducting various tests on the effectiveness of the plan (Gilpin & Murphy, 2008, p. 35). If Toyota had a good crisis management, the extent of the loss caused by inadequate crisis management team would not have occurred. The purpose of the crisis management group is to mitigate the loss in case of crisis (Thethirdroad.com, 2015 p. 1).

Apart from having a good crisis management team, it important to control and adhere to quality rather than the volume of products when expanding the market share. Product development is the key to improvement of products (Coombs, 2007 p. 2). A strong commitment to the product development and the design is a key element in avoiding the product recalls. Chances of recalls are reduced significantly when the management team focus on product design and quality (Harvard Business Review.1996. 4).

7.0 Conclusion

Maintaining quality is an important element that allows the company to not only grow in the market but also survive in the market. Focus on the product quantity or the volume of sales eliminates the possibility of focussing on the quality of products. The case of Toyota Company focus on the growth of growth of the market share made the company get losses from the recalls as well as litigation cases from various stakeholders.

The phase of company’s decline in the quality started in the 1990s when the company started to ignore the claims from the Toyota automobile consumers. At the time, the company adopted a strategy of responding slowly to customer complaints and keeping secrets of the automobile products. However, in the year 2003, the major focus on growth in the markets was adopted, and the strategy ignored the inherent risk that accompanied the decision. Because of the decision, major recalls started in 2003, and even 2003 recalls took place.  To allow the business to continue, the essence to control the quality of products quality as well as having a well-equipped crisis management team is unavoidable. While the crisis management team mitigates the loss, the quality minimizes the chance of recalls.

 

 

 

 

 

 

 

 

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