Case Study Of Toyotas Vehicle Recall Management Essay

Case Study Of Toyotas Vehicle Rec tout ensemble topical anaestheticizesing EssayThis teach centralizees on the jeopardize of infection of temperal damage from a crisis spot get out and uses the Toyota c tout ensemble in crisis as a case study. The study examines Toyotas actions as relates to preserving its genius as more than 8 million of its motor vehicles be draw backed from 2009-2010. In bon ton to do this, Toyotas actions be benchmarked against critical risk factors identify in the Roads to blast accounting leaveed by Cass Business aim for crosstie of Insurance and Risk Managers in Industry and Commerce (AIRMIC).The findings from the case revealed that a serious breakd let in Toyotas culture and a violation of its all the way stated principles of forest and customer-focus were the root causes of its subject area cardal decline. Upon ap labored examination of the Toyota case, we find that the Toyota crisis escalated studyly because the keep play along seemed to grant no plan whatsoever to prepare for a crisis of the order of magnitude it set about and hence failed to protect its composition. The case goes on to highlight conf utilize risk oversight that offer be in somaticd by bloodes, managers and chief operating officers to preserve their genius in crisis situations and avoid common pitfalls that tone down to temperal decline.T fitted of prototypes decision maker summaryThis paper explores the subject of somatic reputation and the risk a crisis situation poses to a unions reputation. The master(prenominal) objective of this study is to take risk management littleons from a crisis situation that can be used by managers and CEOs to avoid reputational decline in similar circum lieus. The paper is structured as a case study that focuses on Toyota go Corporation as it faced the greatest menace to its reputation the recall of its vehicles in 2009. It explores pick out factors that do Toyota vulnerable during t he recall and explores the effects of the recall on Toyotas reputation.In order to determine the underlying risk factors that exacerbated the crisis, Toyota is benchmarked against critical risk factors place in the Roads to Ruin circulate a inquiry report on risk management by Cass Business School for AIRMIC. The report was chosen because it provides a large source of lessons about risk, risk depth psychology and risk management by enlarge oer one vitamin C specific lessons about risk from distinct case studies of companies in reputation-damaging crisis situations.Upon closer examination of the details of the Toyota case, we find that Toyotas reputation was change because the comp both seemed to put on no plan whatsoever to prepare for a crisis of the magnitude it faced and hence failed to protect its reputation. Amongst former(a) reasons for Toyotas reputational decline were these factors management were non communication effectively with stakeholders during the crisis decision devising was centred in Japan where the companionship was head-quartered making the crisis response very slow. We excessively find that Toyota shelved its unified value which do it a symbol for quality in its quest for growth.In order to understand the Toyota crisis, the paper starts off with a brief introduction of Toyota travel Corporation, highlighting its line of descentes and its reputation before the recall crisis. A clockline of the recall is also holdd to provide an over watch of the flow of events during the period under review. Literature on in mergedd reputation, its richness and ownership is reviewed in the second part of this study whilst chapter threesome sets out the methodology employed in this study. Chapter four and five dollar bill represent the crux of this institute examining Toyotas actions in more detail. The research do ends with important recommendations for managers for preserving reputation in a crisis situation.Table of Con ten-s pottsCHAPTER 1 IntroductionGlass, China, and reputation are easily cracked, and neer hale mended. -Benjamin Franklin.A few historic period ago, if we talked about companies with superb reputations, the Japanese cable carmaker Toyota exponent nonplus been mentioned. 2008 in particular was a good year for Toyota Toyota was arguably one of the top brands institutionwide, scoring high points for reliability and product quality on various reputational studies. It was the 6th top brand in the world according to interbrands Top 100 brands in the world list and was super reputed for its reliability, customer-focus, and world-class quality. By the 27th of February, 2009, Toyota had moved up to third office staff on the Worlds Most Admired list, behind unless Apple and Berkshire Hathaway. The company had the coveted AAA rating from Fitch and customers and car-enthusiasts a wish wellhead had come to rival Toyota with quality. Even the companys philosophies, visions and advertising campaigns were unequivocal in stressing its dedication to quality save as Toyota recalled vehicle aft(prenominal) vehicle in 2009, its pristine reputation for quality was badly damaged. Toyota literally drove into a reputational crisis resembling it had never seen before the crisis was exceptionally damaging to the companys reputation as it struck its comprehend core competence safety and quality.Company BackgroundTOYOTA MOTOR flock is a Japan-based company mainly pursue in the automobile and fiscal business. The Company ope pass judgment through three business divisions. The Automobile segment is engaged in the design, manufacture and sale of car products including passenger cars, minivans and trucks, as advantageously as the colligate parts and accessories. The Finance segment is involved in the provision of financial operates related to the sale of the Companys products, as well as the leasing of vehicles and equipment. The Others segment is involved in the design, man ufacture and sale of housings, as well as learning and communication business.For its automotive operations which is the focus of this study- Toyota produces and sells passenger cars, minivans and commercial vehicles, much(prenominal) as trucks. Toyotas vehicles can be sort into two categories conventional engine vehicles and hybrid vehicles. Toyotas product line-up includes sub bundle up and compact cars, mini-vehicles, mid-size, luxury, sports and specialty cars, recreational sport-utility vehicles, pickup trucks, minivans, trucks and buses. The Companys subcompact and compact cars include the four-door Corolla bar and the Yaris.In North the States, Europe and Japan, Toyotas luxury line-up consists primarily of vehicles and early(a) luxury sport-utility vehicles sell under the Lexus brand name. Toyota sport-utility vehicles available in North America also include the Sequoia, the 4Runner, the RAV4, the Highlander, the FJ Cruiser and the Land Cruiser, and pickup trucks avai lable are the Tacoma and Tundra. Toyota also sells the Century limousine in Japan. Toyotas product line-up includes trucks (including vans) up to a gross vehicle weight of five tons and micro-buses, which are sold in Japan and in overseas markets. Trucks and buses are also construct and sold by Hino, a subsidiary of Toyota. Hinos product line-up includes large trucks with a gross vehicle weight of over 11 tons, medium trucks with a gross vehicle weight of between five and 11 tons, and menial trucks with a gross vehicle weight of up to five tons. more than its cars, Toyota is well known for its TOYOTA WAY a set of principles and behaviours that underlie the Toyota Motor Corporations managerial approach and production system. These principles hurt been taught in various business give instructions and adapted in various organisations. The principles are summarised in the figure on a lower taleFigure The Toyota way (Source Hispage TONOway)1.2 The Recall CrisisToyotas recall fiasc o took a contraband turn on the 28th of August 2009 in San Diego, California. check to countersign reports, Mark Saylor and his wife, daughter and brother-in-law (Chris Lastrella) were killed when their Lexus, on loan from a dealer, careened out of understand at more than 100mph, collided with another vehicle, and crashed into a ravine, setting the car ablaze.Figure Inset is a picture of the vehicle after the accident (Source PowayPatch)The familys fast tragedy was captured via a 911 call the fear in the caller Chris Lastrellas instance was apparent as he said there are no brakes we need to pray and finally, their high-pitched screams as the car crashed. everyplace the next six months following this hap, Toyota would issue three separate recalls related to vehicle speed control for over 8 million vehicles be the company hundreds of millions of dollars in sales and immeasurable reputational damage. As the crisis intensified, Toyota became the tar film of perverse media att ention with criticisms coming from various stakeholders for its actions during this period, and for its delay in identifying the fault and recalling the take up vehicles.1.3 TimelineThis section provides a chronological flow of the events leading up to and environ the recall crisis2000 A greet cutting exercise called Construction of apostrophize Competitiveness for the 21st Century is launched by Toyota with the aim of reducing the cost of 180 car parts by 30% and saving $10 billion by 2005.31-12-04 Toyotas vehicles accounted for about 20% of all unintended speedup complaints filed with National Highway Traffic Safety Administration (NHTSA), up from 4 percent in 2000.26-09-07 First floor mat recall in US of 55,000 vehicles to even up possible drivers floor mat causing heavy weapon foot pedal entrapment.28-08-09 Off-duty California Highway Patrol officer Mark Saylor is travel on Highway 125 in Santee, California (northeast of San Diego), with three family members, when the 2009 Lexus ES350 he is driving suddenly accelerates out of control, hits another car, tumbles down an embankment and catches fire. While the car is careening down the highway at speeds estimated to exceed 100 mph, his brother-in-law calls 911 and reports that the car has no brakes. All four are killed in the ensuing crash.14-09-09 Preliminary reports from Toyota and local authorities indicate that the Lexus, which had been on loan from Bob Baker Lexus of San Diego, where Saylors individual(prenominal) Lexus vehicle was being serviced, may have had the wrong floor mats installed, hinder with the atom smasher pedal.29-09-09 Toyota announces it is recalling the floor mats on 4.2 million Toyota and Lexus vehicles.2-10-09 Newly installed Toyota CEO Akio Toyoda publicly apologizes to the Saylor family members killed in the accident and to every customer affected by the recall.30-10-09 Toyota begins move letters to owners notifying them of an unspecified upcoming recall to fix the uni ntended acceleration issue. In the letters Toyota says no defect exists.2-11-09 NHTSA takes the highly unusual graduation of publicly rebuking Toyota, calling a company press release re-iterating the statements made in the 30 October letter to owners inaccurate and misleading, noting that the floor mat recall was an interim measure and that it does not correct the underlying defect. Toyota publicly apologizes.02-11-09 split second floor mat recall in US of 3.8 million Toyota and Lexus vehicles to correct possible drivers floor mat causing accelerator pedal entrapment.25-11-09 indorse recall of 3.8 million vehicles amended to additionally reconfigure accelerator pedal.26-12-09 A Toyota Avalon crashes into a lake in Texas after accelerating out of control. All four occupants die. Floor mats are ruled out as a cause because they are pay in the trunk of the car.21-01-10 Toyota recalls another 2.3 million Toyota-brand vehicles because of a problem with the gas pedal. Toyota says a r are set of conditions which may cause the accelerator pedal to become harder to depress, slower to return or, in the worst case, stuck in a partially depressed position. The company says the hot recall is unrelated to the floor mat recall, save also announces 1.7 million Toyota vehicles would be affected by two recalls.26-Jan-10 Toyota stops selling eight models in the US after being sanctioned by the NHTSA to halt selling vehicles with acknowledged defects. Toyota does not say wherefore it has waited five days to stop sales after announcing the recall.29-Jan-10 Recall extended to 1.8 million Toyotas in Europe and China.02-Feb-10 U.S. Transportation escritoire Ray LaHood sharply criticizes Toyotas response to the accelerator pedal concerns, telling the Associated press that Toyota may be a little safety deaf and that mend Toyota is taking responsible action now, it unfortunately took an enormous effort to get to this point.09-Feb-10 Recall of 437,000 Prius vehicles and other h ybrid vehicles worldwide to correct possible untimely hybrid anti-lock brake software23-Feb-10 Public hearings of various committees of the U.S. House of legate regarding the Toyota safety issue. At the hearing, Toyoda publicly apologizes before Congress and pledges renewed commitment to quality and safety from Toyota.24-Feb-10 Akio Toyoda, president and CEO of Toyota, issues the following statement at the congressional hearingToyota has, for the past few years, been expanding its business rapidly. Quite frankly, I fear the pace at which we have grown may have been too quick. I would like to point out here that Toyotas precession has traditionally been the following First Safety, Second Quality, and Third Volume. These introductoryities became confused, and we were not able to stop, cerebrate, and make improvements as much as we were able to before, and our basic stance to listen to customers voices to make improve products has weakened somewhat. We pursued growth over the spee d at which we were able to develop our flock and our organization, and we should sincerely be mindful of that. I regret that this has headed in the safety issues described in the recalls we face today, and I am deeply sorry for any accidents that Toyota drivers have experienced. Especially, I would like to extend my condolences to the members of the Saylor family, for the accident in San Diego. I would like to send my prayers again, and I will do everything in my power to fasten that such a tragedy never happens again.1.4 Aims and ObjectivesThe Toyota case study is an perceptive one as it involves the review of management response in a crisis situation that involved major loss of lives and regulatory action. By instruction on Toyotas management response, the aim of this study is to provide useful recommendations for preserving corporate reputation in a crisis situation. The body of work will focus on Toyotas response, its crisis management and the effect of the crisis on the c ompanys reputation. In so doing, the author aims to extract essential risk management lessons from the case.The objectives of this study are toTrace the underlying cause of the crisis using the risk factors identified in the Roads to Ruin Report by Cass Business School for AIRMIC.Evaluate the tinge of the incident on the ratings, profitability and reputation of the company.Evaluate the actions of the CEO, highlighting what he did well and what he did not do so well.Outline the main consequences of the crisis for handleholders and other stakeholdersOutline the key risk management lessons to be learnt.Every reputational crisis is different and there is no panacea for a reputational crisis but this research work seeks to provide a worthful tool for protecting and managing reputational risk when a crisis occurs.In order to fulfil the objectives listed above, the following research movements will be answeredWhat made Toyota particularly vulnerable during the recall crisis?How did the recall crisis and its ensuing consequences affect the financial position and reputation of the company?How was the recall handled?How could it have been better handled?What lessons can be learnt such that a future crisis is managed better?What was the impact of failing to meet its stakeholders expectations on Toyotas reputation?CHAPTER 2 Literature review articleO wad some Power the giftie gie usTo see oursels as ithers see usIt wad frae monie a blunder free us,An misguided notionRobert BurnsEvery individual, every company, every organisation be it a large multi-national or a small food booth by the corner- have one thing in common a reputation. Over time, every contact, every media mention, every rumour, every leak, every moment of gossip (whether true or not) will play its part in forming an overall impression of an organisations standing. This built up reputation not only has a signifi monger impact on share price but also influences the strength of the brand and determines its competitive advantage amongst its peers. As top Margaritis puts it a tender corporate reputation is a life life preserver in a crisis and a tailwind when you have an opportunity2.1 Corporate news report An OverviewIn recent years, the idea of reputation as a strong business asset has received increase recognition in management literature. Series of publications have appeared dealing with the wins of positive corporate reputations, risks to reputation, and reputational risk management. This increased interest grew out of a realization that an organizations reputation is a major determinant for its short run and long run success and first derivative advantage in any business environment. gain groundmore, the last decade has seen numerous of the worlds to the highest degree respect companies descend from their once lofty positions. In light of all these, it is not a surprise that corporate reputation has started to character prominently on Swiss Res and Aons study of the top ten risks identified by corporate executives. This emphasises the point that management and other stakeholders have started to see the importance of corporate reputation and the various factors that make up the reputation of their self-coloured.Fomburn (1996) defines reputation as the overall estimation in which a company is held by its constituents which can be formed based on the net perception of a companys ability to meet the expectation of all its stakeholders. This perception will usually be based on both the organisations actions and inactions such that everything an organisation does, and does not do, has a place impact on their reputation Dolphin (2004). Other authors, such as Bromley (2001) emphasize the differing constitution of reputation and describe reputation as the distribution of opinions about a person or organisationA more balanced view of corporate reputation according to (Warwick, 1992) is the view that corporate reputation is in itself an aggregate evalu ation made by stakeholders of how well a company is meeting stakeholders expectations based on its past behaviour. (Atkins, et al., 2006), also address corporate reputation and reputational risk from this perspective and define reputational risk as the threat to a companys reputation resulting from a failure to meet stakeholders reasonable expectations of an organisations accomplishment or behaviour. Corporate reputation should (also) be numbered in terms of its historical context, i.e. a corporations track record. A companys standing in the community and in the marketplace all help shape its reputation Fomburn (1996).A reputation is much more than brand image, and includes factors such as trust in the organisations integrity and how it will conduct itself in the future, both at the corporate level and through the actions of its management and staff. . (Atkins, et al., 2006). It is also an important form of corporate capital that determines to a large extent the companys worth, q uite simply, it is an index of a companys worth or value (Bromley, 2000). In determining corporate value, closely authors have come to agree that a reputation is an indicator of a companys future performance. A favourable reputation is powerful enough to allure the undecided to choose a certain product or service and dissuade existing customers from moving to a competitor whereas a damaged reputation can be irreparable and in extreme cases, lead to a companys down fall (ORourke, 2004). In order to build a favourable reputation, four attributes need to be developed credibility, trustworthiness, reliability and responsibility. written report is in itself intangible, untouchable and most clock immeasurable. disposition often cant be quantified, compared against hard benchmarks or analysed in the same way as financial or other numerical data. Its management requires softer skills such as fathom judgement, an ability to anticipate future trends and requirements, understand stakehold er concerns, listen carefully, consider dispassionately and respond constructively. (Rayner, 2003). A good corporate reputation can take many long years to build it can be destroyed in an instant through an ill-considered off-the-record remark, a sink in personal behaviour, an ethical blunder in the supply chemical chain or an inadequate response to a crisis. In the words of rabbit warren Buffet who is considered the most successful investor of the 20th century it takes twenty dollar bill years to build a reputation and five minutes to destroy it.An welkin where authors share different views is as regards ownership of reputational risk. The first inform of suasion argues that one person or a group of people be appointed with the sole responsibility of preserving the companys reputation. It is probably due to the inefficiencies of some CEOs over the years in safeguarding reputation that some authors argue that a reputation officer or a reputation department be charged with the responsibility of use and sustaining the corporate reputation. Others have criticised this view for various reasons, the main one been that, appointing a chief reputational office tends to remove the alertness of the importance of safeguarding corporate reputation from the Board of Directors and other top executives.Another school of thought is the one which states that every member of the organisation is responsible/ responsible for the corporate reputation. As good as this argument mightiness sound (it does make some sense for everyone in the organisation to be aware of binding the organisations good name), the loophole is in the danger that this leaves the accountability for corporate reputation as everyones task which in most times equals no ones task.The third school of thought argues that the responsibility for corporate reputation should rest on the CEO. According to this school, various studies have shown that CEOs understand the importance of a good reputation and hence should safeguard it. However, studies have also shown that few CEOs put any structure in place to safeguard the reputational asset of the organisation. It is disappointing to railway line that many CEOs who are supposed to be the custodians of the companys reputation have truly been the villains responsible for tarnishing the companys reputation. (This was certainly the case with AIGs Hank Greenberg).One important reason why CEOs should be responsible for reputational risk rests on the fact that when people think of a company, they are usually thinking of the CEO, with his actions/inactions invariably contributing to the reputation of the organisation. As Dr Leslie Gaines-Row pointed out in an interview, failure to maintain a good reputation should rest squarely on the shoulders of the CEO because in her own wordsCEOs increasingly find themselves in the spotlight during crises and are without question a strategic player in reputation recovery. Their success in managing reputation al difficulties is one of the determining factors in whether stakeholders retain confidence in the company and believe that reputation will eventually be restored. For this reason, failure to maintain a good reputation rests squarely on the CEOs shoulders. (Studies show) that nearly 60 percent of the blame is attributed to the CEO when crisis strikes. As the companys public face during times of crisis, and the companys chief reputation officer, the CEO should remain visible, and communicate honestly, transparently and proactively. CEOs moldiness also present themselves to stakeholders, whether it is customers, financial analysts or employees, consistently with the companys vision, code of conduct and values. By taking responsibility, acting quickly and compassionately, listening carefully, and establishing clear priorities, the CEO can set an example for reputation recovery for the entire organization.Reputation is the most important asset entrusted to a CEO (Schreiber, 2011). Not all CEOs recognize that, but a growing number do. In a 2009 global study, AON Insurance asked 551 CEOs to rank the relative importance of 31 risk factors. Reputation was ranked No. 6. In past AON studies before the latest financial crisis, reputation was the top-ranked CEO risk factor. But, what is troubling is that two-thirds of the respondents had no testis reputation risk plan in place, and that figure has not changed substantially.2.2 effect of a Favourable Corporate ReputationStrong reputations act as cushions in case of a crisis and have the ability to protect a company from harm caused by a crisis. A favourable prior reputation protects the organisations reputation during a crisis in two aspects it gives the organisation the benefit of doubt, which means that if a consumer holds a general favourable view of the company, the consumer might assign the company less crisis responsibility which in turn result in less reputational damage from the crisis secondly, it acts as a sh ield, which serves as a part of the larger psychological phenomenon of expectancy confirmation, emphasizing that stakeholders will focus on the positive aspects of the organisation and ignore the recent negative information created by the crisis (Coombs and Holladay). In these ways, a good prior reputation sensed by consumers has the potential to reduce attributed crisis responsibility and dismiss the impact of the crisis. Strong, fiducial reputations will usually always mean greater resilience in crisis situations. The occasional lapse of a reputationally strong company is likely to be regarded as a one-off aberration, because it has a solid track record and its values and business ethos are clearly understood the reaction will most probably be a shrug and a thats not like them rather than a there they go again (Rayner, 2003).A classifiable case is that of oil companies who were ranked rather low in public opinion. In cases where oil companies have faced major crisis, consumers have been less sympathetic with these corporate group. The BP case and the Exxon Vladez case are typical examples. A study in the late 1990s of the performance of US companies during the 1987 straining market crash found out that the shares of the ten most admired companies dropped less and recovered faster, while the shares of the ten least admired companies plunged three times as far a very strong indication that having a good corporate reputation can pay real dividends.Various authors have identified several benefits of a good corporate reputation(Atkins, et al., 2006) state that a good reputation is highly valuable and can benefit a company enormously. Potentially, it can result inBanks being willing to supply loans on more favourable rates and termsGood employees being attracted to work for the organisation, and their services being holdInvestors being more likely to place their capital in the firmImprovement in salesMaintenance and enhancement of market sharePublic percept ion of the organisation as an asset to the society in which it operates(John Croft, 2003), identify similar benefitsSecuring profits and future cash flowsAttracting new business partnersSecuring investmentAttracting new customers word-of-mouthInuencing political and legal personal mattersHuman capital retaining good staff and attracting the best employeesAllowing easier entry to new markets and brand extensionsEnabling successful mergers and acquisitionsHelping to reinforce relationships with suppliers and distributors and other command stakeholdersEnhancing relationships with NGOs or corporate activists that potentially could be aligned against you2.3 Area of Further ResearchOne area of interest for future research work identified while carrying out this research work is on handling reputation risks from social networking sites and other online media sources the so called blade 2.0. Web 2.0 allows users to move and collaborate with each other in a social media communion and the mediums include social media sites like Facebook, blogs, twitter and other mediums which allow people to freely air their opinions. This area is important because in recent times, a lot of companies have had their reputation damaged through web 2.0 mediums. What makes web 2.0 dangerous is that response time is very limited the most time an organisation has to squelch rumours or avoid a reputational disaster is 24 hours. It would be immensely helpful if further research is done into aid companies and various organisations cope with the risks from these mediums.CHAPTER 3 Data Collection and Research methodology3.1 Data CollectionData has been collected from a wide blow of secondary sources newspaper articles, academic journals and online resources. This study was also based on documents from five categories of media (i) print newspapers, (ii) online editions of print newspapers, (iii) the Associated Press newswire, (iv) Blogs, and (v) Internet forums.3.2 MethodologyThe researc h is tailored as a case study. This method gives a multi-perspective approach, incorporating the views of direct stakeholders, indirect stakeholders and the interactions between these two groups.This case study will be based mainly on secondary data. The paper will comprise the collection of secondary data from a broad variety of sources such as business academic journals, books, reports, newspapers and internet articles on the Toyota vehicle recall crisis. All information will be taken from the public battleground and the author has put into consideration the possibility of errors in press reports and other sources.The research will use various underlying risk classifications identified in the Roads to Ruin report by Cass Business School for AIRMIC to trace the underlying cause of the crisis. The Roads to Ruin report is a highly valuable guide for this research as it investigates the origins and impacts of over twenty major corporate crises of the last decade. The report was chose n because it provides a rich source of lessons about risk, risk analysis and risk management detailing over one hundred specific lessons about risk. This will be particularly helpful as I develop my recommendations on this subject. A crisis communication framework developed by (Lukaszewski, January/February 1999) would also be used to analyse Toyotas crisis response.CHAPTER 4 Review of the Recall CrisisIn this chapter, the author shall in line with the research objectives, test the effectiveness of Toyotas reputational risk response to seven key risk areas identified in the Roads to Ruin report and in so doing trace the deeper cause of the crisis.According to the report, these key risks areas includeBoard skill and Non-Executive Directors (NED) control risks -risks ar