Toyota’s announcement of a technical problem with its sticky gas pedals – which lead to sudden acceleration problems – resulted in a nightmare situation for the company. It led to halting of sales and production of eight of its top-selling cars in the U.S. - and recall of more than 9 million cars worldwide, in two separate recalls .This resulted in operating losses amounting to billions of dollars. The Toyota brand, synonymous with top quality, took a heavy hit. It’s clear that Toyota’s crisis didn’t emerge full-blown overnight. Fixing the problem and ensuring that something like it doesn’t happen again will require an all-out effort, from assembly line to the boardroom. Even then, there are no guarantees. Maintaining a good corporate reputation in the 21st century is tricky business indeed.
Toyota’s case offers a number of valuable lessons for other business people and companies to consider.
Get the facts quickly and manage your risks aggressively. One of the more troubling aspects of Toyota’s recalls has been the company’s differing accounts of the source of the problem. The current recall, covering 4.1 million cars, involves potentially sticky gas pedals. Late in 2009, Toyota also recalled 5.4 million cars whose gas pedals could get stuck on floor mats. Plus, Toyota says there are some cars affected by both problems. Uncertainty is not an asset, especially when lives could be at stake.
In cases such as this, investigators almost always start with two time-worn questions. What did you know? And when did you know it? Answers to those questions provide the groundwork for analysis of a company’s response and handling of a problem. Were employees encouraged to flag safety issues to senior management? Were sufficient resources devoted to investigating the problems? When did the board become aware of the situation and what did it do about it?
Companies generally can’t predict when crises might occur. However, good internal risk assessment programs can help identify those areas of the business where management should be on the alert. Robust risk management programs help a company address problems as they pop up on the internal corporate radar screen – and before they explode in public.
The supply chain is only as strong as your weakest link. Auto companies make hardly any of their parts. They assemble cars from parts made by others. In this case, the offending gas pedal assembly was made for Toyota by a company called CTS of Elkhardt, Indiana. It’s far from certain how much blame the parts supplier deserves. In fact, CTS says Toyota’s acceleration problems date back to 1999, years before CTS began supplying parts to Toyota. The replacement gas pedal parts Toyota announced as a fix for the problem were made by CTS, suggesting a degree of confidence in the supplier. The overall message is that quality control means daily vigilance. No company can coast on its reputation. Supply chain monitoring is a critical factor for companies that rely on third-party suppliers. That’s increasingly true for a broad variety of industries, not just automobiles, as business grows ever more global. Smart companies will know their suppliers and their respective strengths and weaknesses.
Accept Responsibility. This is one area where Toyota did a good job, albeit maybe a year or more too late. Two decades ago, when Audi encountered a safety issue similar to Toyota’s, Audi took the position that “it was the driver’s fault”. That reaction ultimately hurt Audi’s reputation. Toyota avoided the appearance of passing the buck. When pressed by the New York Times about problems that might have been caused by supplier CTS, for example, Toyota spokesman Mike Michels said: “I don’t want to get into any kind of a disagreement with CTS. Our position on suppliers has always been that Toyota is responsible for the cars.”
Accountability matters enormously. Johnson & Johnson’s 1982 recall of its painkiller Tylenol, following the deaths of seven people in the Chicago area, has earned it a permanent place in the annals of crisis management. But that recall stemmed from the deadly act of an outsider (who has never been caught), not any problem with the product itself, as is the case with Toyota.
Take the Long View. The three leading factors burnishing corporate reputation these days are quality products and services, a trustworthy company and transparency of business practices.
Reputation can be easily lost – and Toyota’s reputation is indeed threatened – but it’s highly unlikely the company will collapse completely. And that may be one of the one of the biggest lessons for other companies as they study how Toyota emerges from this recall crisis. The reality is that Toyota is positioned for recovery about as well as it could be – owing, in large measure, to the reputation for quality products and corporate responsibility it has developed over the last two decades. That reputation is a valuable asset, and one that Toyota will undoubtedly be citing and calling upon, in the weeks and months ahead.
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