Introduction

The case study is based on Toyota, a Japanese multinational corporation headquartered in Aichi, Japan.

In 2007, Toyota entered the “Big three space” by overtaking Ford in sales and continued the

momentem during the first quarter of 2008 by overtaking GM in worldwide sales. However, due to the

recent unintended acceleration recall, Toyota has fallen back to fourth place in sales, with Honda

trailing in fifth place, allowing the Detroit Three to reclaim their Big Three title.

In the following paper we look at how Toyota achived it’s position as number one. The “Toyota way’’

is analysed along with how the toyota workforce contributes to the companys success.

In the last few months, Toyota recalled 8 million vehicles and halted production on 11 different models

due to a plague of sudden accelerations in its cars. The crisis has rocked an auto company that for a half

century had been synonymous with safety and reliability. The recent debacle at Toyota which has seen

the company lose a reported $155 million per week and an astonishing $30 billion loss in Toyota’s val -

uation on the stock market.

We take a look at how Toyota handled the recall crisis and evaluate if they have done a good job so far

or if things could have been done better.

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Workforce as a Competitive advantage

“If you want one year of prosperity, grow seeds, If you want ten years of prosperity grow trees, If you

want one hundred years of prosperity, grow people.” Chinese proverb

Toyota's philosophy of empowering its workers is the centerpiece of a human resources management

system that fosters creativity, continuous improvement and innovation by encouraging employee par-

ticipation. An intelligent and integrated human resources strategy is the only sustainable competitive

advantage an organization can have whilst every other corporate asset can be bought or replicated vir-

tually overnight.

A common expression heard around Toyota is “We do not just build cars, we build people. What Toy-

ota does is gather competent and trainable people around the world and with considerable time and ef-

fort develop high levels of talent in the masses. The philosophy of developing people is so pivotal to

Toyota that six of the fourteen principles outlined in The Toyota Way are related to it:

Principle 1.  Base management decisions on a long-term philosophy even at the expense of short-term

financial goals. Perhaps the most important long-term investment Toyota makes is in its people.

Principle 6.  Standardized processes are the foundation for continuous improvement

Principle 9.  Grow leaders who understand the work, live the philosophy and teach it to others

Principle 10.  Develop exceptional people and teams who follow your company’s philosophy

Principle 11.  Respect your suppliers by challenging them and helping them improve

Principle 14. Become a learning organization through relentless reflection and continuous improvement

Toyota believes that you must truly have a passion for developing the most highly skilled work force

and know that in doing so the financial gain will take care of itself.  The overriding philosophy within

Toyota that allows them to persist in spite of the challenges is that only people are able to think, to

solve problems, and to improve. 

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What are the major HR issues that Toyota will face in the future

Human errors that lead to corporate catastrophes could be the result of faulty HR processes, especially

those related to acquiring, developing, motivating, and managing labor. If the root cause of the prob-

lems Toyota is facing is failure by employees to make good decisions, confront negative news and

make a convincing business case for immediate action, then the HR processes that may have influenced

those decisions must be examined. The HR processes that must at least be considered as suspect in-

clude rewards processes, training processes, performance management processes and the hiring

process.

1. Rewards and recognition - Were the rewards for demonstrating error-free results so high that

obvious errors were swept under the table?

2. Training - If Toyota’s training was more effective, would the managers involved have been

more successful in convincing executives to act on the negative information received?

3. Hiring - Were their hires poor learners that did not change as a result of company training?

4. The performance management process - Was this so poorly designed that it did not identify

and report groupthink type errors? Did Toyota’s high level of trust of its employees go too far

without reasonable metrics, checks, and balances?

5. The corporate culture - The corporate culture created leaders so concerned with “saving face”

and so adverse to negative publicity, that they for years postponed making the announcement of

a massive recall. Was the corporate culture so biased toward positive information that employ-

ees learned not to make waves, in spite of their professional responsibility to be heard on safety

issues?

6. Leadership development and succession- Was the leadership process producing the wrong

kind of leaders with outdated competencies?

7. Retention - Did the retention program ignore people that brought up problems and as a result,

did these whistleblowers often leave out of frustration?

8. Risk assessment - HR should have worked with corporate risk management in order to ensure

that employees were capable of calculating the long-term actual costs of ignoring product fail-

ure information.

Toyota’s problems are not the result of a single individual making an isolated mistake, but rather

due to a companywide series of mistakes that are all related to each other. It is vital that HR period-

ically test or audit each of the processes that could allow this type of billion-dollar error to occur.

Toyota Culture3 | P a g e

Toyota's management philosophy has been reflected in the terms "Lean Manufacturing" and Just in

Time Production, which it was instrumental in developing. Toyota's managerial values and business

methods are known collectively as the Toyota Way.

The "Toyota Way" is an expression of values and conduct guidelines that all Toyota employees should

embrace. Under the two headings of Respect for People and Continuous Improvement, Toyota sum-

marizes its values and conduct guidelines with the following five principles:

Challenge - We form a long term vision, meeting challenges with courage and creativity to real-

ize our dreams.

Kaizen - We improve our business operations continuously, always driving for innovation and

evolution.

Genchi Genbutsu – We believe in going to the source to find the facts to make correct deci-

sions, build consensus, and achieve goals at our best speed.

Respect – We respect others, make every effort to understand each other, take responsibility and

do our best to build mutual trust.

Teamwork – We stimulate personal and professional growth, share the opportunities of devel-

opment and maximize individual and team performance.

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The Toyota Way has four components:

Long-term thinking as a basis for management decisions.

A process for problem-solving.

Adding value to the organization by developing its people.

Recognizing that continuously solving root problems drives organizational learning.

Toyota believes that people are the organization’s most significant asset. Learning organizations invest

in the skills and knowledge of people. Their shared vision motivates them to make improvements be-

yond merely meeting their customers’ needs.

There are 14 principles belonging to the Toyota Way. Principles 1,6,9,10,11 and 14 focus primarily on

developing people have been mentioned above: The rest are:

2. Create continuous process flow to bring problems to the surface

3. Use "pull" systems to avoid overproduction

4. Level out the workload

5. Build a culture of stopping to fix problems, to get quality right the first time

7. Use visual control so no problems are hidden

8. Use only reliable, thoroughly tested technology that serves your people and processes

12. Go and see for yourself to thoroughly understand the situation

13. Make decisions slowly by consensus, thoroughly considering all options; implement decisions

rapidly

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Market Forces impacting Toyota and Recommendations

Strategy formulation often begins with an assessment of the internal and external factors that will affect

the organizations competitive situation.

Strengths

The "Toyota Way 2001," - Respect for People and Continuous Improvement 

Large range of vehicles

Maximizes profits through efficient lean manufacturing approaches

Strong brand image based on quality, environmental friendly, customized range.

Weaknesses

Japanese car manufacturer - seen as a foreign importer.

Exposure to fluctuating economic and political conditions in operating markets.

Toyota produces most of its cars in US/Japan whereas competitors may be more strategically

located worldwide to take advantage of global efficiency gains.

Criticism due to large-scale re-call made in 2009.

Opportunities

To expand more aggressively into new segments of the market. (Aygo model)

To develop new cars which respond to social and institutional needs and wants.

Continued global expansion - especially in the emerging markets

Threats

The recent recall fiasco faced by Toyota will take time to show signs of recovery in terms of

Market Share, Sales, Consumer Trust and Brand image.

Saturation and increased competition

Shifts in the exchange rates affecting profits and cost of raw materials.

Changing demographics e.g. number of large families is declining and Changing

Rising oil prices (fuel costs) and the costs of maintaining cars.

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Industry analysis using Porter’s five force model:

Potential new entrants – Heavy investment acts as barrier to entry. However, there are new en-

trants from China, South Korea and new plants from Eastern Europe.

Rivalry among competitors – Heavy competition to make the highest sales and maintain market

share (Big three).

Threat of substitute products –With Continuous Improvement being at the core of Toyota,

threat of substitutes may be minimal.

Bargaining power of Buyers – The oversupply in the car market has shifted the greater power

to the consumer.

Bargaining power of suppliers – According to the Toyota way, suppliers are considered an in-

tegral part of the team and trust supersedes price.

Toyota needs to capitalize on their strengths such as the “Toyota Way”, their workforce, systems, and

the image of being a supplier of high quality vehicles at affordable prices. The opportunities for Toyota

are endless with new customer segments to capture and new product features to introduce to its existing

models. Whilst the industry does pose threats of new entrants and intense competition, Toyota has their

competitive advantage of people and systems.

However, caution is advised due to the recent recall incident. Whilst recalls of any nature impact car

manufacturers, Toyota need to be smart and recover in the most graceful manner. The negative public-

ity caused by recalls takes a long time to fix. Thus Toyota need to slowly but steadily succeed at dam-

age control.

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Toyota Recall Fiasco

Key to Toyota's problem is its perceived delay in identifying and addressing the situation. The recall

exposed Toyota’s larger issue: their inability to resolve a crisis that reportedly first surfaced in 2002

when complaints of sticky accelerators spiked. In 2005, Toyota recalled more vehicles than it sold.

Two years later, Consumer Reports stopped automatically endorsing Toyota vehicles due to what it

considered declining quality. Recent news reports suggest that Toyota failed or refused to disclose

vehicle problems to federal regulators over a period of years. Whatever Toyota says now, and however

well it acts, there is a sense that it ignored the problem until it was forced to take action.

The Detroit response: Ford implied that it can stand on its own and isn't exploiting the opportunity to

steal Toyota customers, Chrysler showed that it's focusing on its own brands and that their cars sell

themselves. GM offered a month-long incentive to Toyota and Lexus buyers. 

What happens before a crisis – creating the right culture to avoid crisis incubation, developing

workable crisis management plans and processes, and training managers likely to be part of a crisis

response team – will play a large part in determining the fate of the organisation in the event of a crisis.

Full recovery requires continued communication and actions to regain the trust of stakeholders affected

by the crisis.

As chairman I would do the following to handle the situation and take the corrective action mentioned

below:

Be honest about the situation and stay calm.

Say “I’m Sorry.” and take responsibility.

Start talking and be visible.

Put people before business

Enlist your friends to endorse and support your brand. Publicize testimonials from satisfied

Toyota customers etc.

Know when to get back to business

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How can Toyota make a comeback?

Swift fixes that work - for owners, potential repurchasers, and prospective buyers,

Resolution of the problems to the satisfaction of U.S. and Japanese investigators,

No further difficulties on the road for the affected or other models,

Extended warranties to reassure current owners, and

Internal activities that offer assurance that Toyota truly understands why the problems occurred,

reveals them publicly, and is undertaking actions to prevent any recurrences.

It may take a long time before initiatives by Toyota reassure current owners or prospective buyers. But

not doing them will guarantee that car consumers will explore, even seek, other brand alternatives.

It is imperative that Toyota addresses the internal issues it currently faces to avoid a recurrence in the

future. It seems Toyota had a culture ill-equipped to quickly identify and address flaws. The challenge

is created by two elements of culture: firstly, an obsession with quality, which means that anything less

than perfection is seen as shameful and embarrassing. As mentioned above, the corporate culture cre-

ated leaders so concerned with “saving face” and so adverse to negative publicity. The second element

is a hierarchical approach to management and a lack of open communication. Where this exists, junior

employees who are best placed to spot early signs of crisis feel unable to point out flaws. As a result,

problems go unnoticed and unresolved until they explode into a major crisis.

Thus Toyota need to take drastic steps to change the organisational culture to one that is vigilant for

potential crises, has open lines of communication from staff to management, and a willingness to

address unpleasant truths.

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Conclusion

The above paper gives an overview of the Toyota culture, The Toyota way, The HR issues faced and

where Toyota stands in the Global environment. We conclude with the current recall fiasco that Toyota

faced and have looked at what it can do to essentially recover.

Toyota is a global brand which has great value. The way in which they operate their business is a case

study for most organisations today. True, they are going through a PR crisis with the recent recalls and

competition like the big three basking in the glory of the Toyota crisis. It will take time for the brand to

get back its original status. However, I believe with the right leadership and internal cultural changes

Toyota is on the road to recovery.

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References

Financial Times 2001- Report reproduced Oct. 3, 2002, Public Affairs Division, Toyota Motor

Corporation.

Excerpt from Toyota Talent - Chapter 1: the Toyota way

How HR Caused Toyota to Crash by Dr. John Sullivan / www.humanresourcesmagazine.com.au

4 March 2010 (Dr John Sullivan is professor and head of the HR program at San Francisco State

University, and is a noted author, speaker and advisor to corporations around the globe).

Toyota culture: the heart and soul of the Toyota way By Jeffrey K. Liker, Michael Hoseus, Center for

Quality People and Organizations

The Toyota Way by Jeffry K Liker Reviewed by: Karishma Kamboj ( July 2006)

Principles of Management by Daft Richard L (2009)

http://marketingteacher.com

Accelerating towards crisis: a PR view of Toyota's recall Jonathan Hemus guardian.co.uk, Tuesday 9

February 2010

Automotive News- 1/27/10

Toyota’s crisis response is a two part story By Henry Fawell (February 12, 2010) ( Henry Fawell is a

communications consultant for Womble Carlyle Sandridge & Rice PLLC in Baltimore and also served

as press secretary to Maryland Governor Robert L. Ehrlich, Jr)

Harvard Business School Faculty on Toyota Recall Press Release Feb 16 2010 - Professor Stephen A.

Greyser Richard P. Chapman Professor of Business Administration, Emeritus

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Toyota's incentive deals drive interest. Can the company drive pricing back up? Posted by: David

Welch on March 10, 2010 Bloomberg Business Week

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