Toyota Fights to Preserve its Global Brand

February 4, 2010

Toyota faces its biggest crisis over a serious weakening of its reputation for quality control. How might creative leadership preserve its global brand?

Toyota has been hailed as the company of the future. This site has made no secret of its admiration for the company’s success. But events are now suggesting that the company has a lot of work to do in preserving its global brand. A year ago we wrote [Jan 2009] that Toyota’s business model was on trial:

Toyota is hurting, and Company chief Katsuaki Watanabe recently announced a projection for a first annual trading loss in its seventy year history. But Toyota’s pain still seems likely to be more sustainable than that being suffered by its rivals, whose fate is one of the urgent problems facing incoming President Obama, and who are pressing (begging?) for state bale-outs. For Chrysler, and GM, job losses are inevitable, while even survival in their present state seems increasingly unlikely. Its reaction to over-supply is to announced a temporary suspension of production for 11 days [Feb-March 2009] in all its 12 Japanese production units.

Now, [Jan 2010] Toyota is experiencing one of those crises which can rock a company to its core. Shares plummeted, as the company prepared to recall eight million vehicles globally because of problems with accelerator pedals on seven models.

At a Congressional hearing on Wednesday, [Feb 3rd 2010] US Transportation Secretary Ray LaHood alarmed both investors and consumers with the advice, which he later retracted, that owners of a recalled Toyota should “stop driving it”.

The carmaker said it was not aware of any accidents resulting from the issue and that only 26 incidents involving accelerator pedals had been reported in Europe. Last year, Toyota was forced to recall about 5 million cars worldwide over problems with floor mats trapping pedals. END
Toyota’s UK spokesman Scott Brownlee denied that the firm had delayed the accelerator pedal recall in the UK, stating it was a quality rather than a safety issue.

The Perrier Story

The developing story, although potentially far more significant has echoes of the Perrier case.

This relates to the crisis faced by the Perrier brand in the late 1980s. John Mowen & Michael Minor in their text book on Consumer Behaviour explain what happened

Perrier Group of America announced a highly embarrassing product recall [February 9, 1990]. The recall came in response to a report stating that Perrier’s high-priced bottled water was contaminated with benzene. Even though the U.S. Food and Drug Administration (FDA) said that the benzene levels did not pose “a significant short-term health risk,” Perrier’s management requested the removal of the brand from supermarkets and restaurants in the United States and Canada.

The incident turned into a public relations disaster, in large part because the company’s explanation for the recall kept changing. After traces of benzene were found in Perrier bottles in other parts of the world, company officials altered their original explanation. Benzene, they now said, is naturally present in carbon dioxide (the gas that makes Perrier bubbly) and is normally filtered out before the water is bottled. For unknown reasons workers had inexplicably failed to change the filters. Meanwhile, Perrier still insisted that its famous spring in Vergeze, France was unpolluted. By 1995, Perrier sales had fallen to one-half their 1989 peak. The company had to mount a comeback strategy. While attempting to regain share for the Perrier brand through new distribution channels, the company began to invest in other brands that did not have the Perrier name attached to them. The question remains, however, will the memory of the benzene incident forever tarnish Perrier brand name?

Lessons for Toyota

In times of corporate crisis, Denial is still a likely response. What might Toyota do to avoid the dangers of permanent damage to its future as a brand? Can lessons be learned from the fate of Perrier? What steps might a creative leadership take?

Acknowledgement

With grateful thanks to Susan Moger for her insightful comments on this story.


Toyota’s Business Model on Trial

January 7, 2009

toyota-i-unit
Toyota’s business model comes under increasing scrutiny as auto sales plummet around the world. Its reaction to a forecast billion-dollar loss suggests it has a promising long-term survival plan that contrasts with its American and European rivals

Update

This gloomy report [Jan 2009] was followed by a more upbeat one six months later.

Original Report follows

Leaders we deserve has made no secret of its respect for the creative management shown by Toyota over the years. We even helped coin the term Toyotaoism (with Professor Xu) for its unique management philosophy.

The sternest test of a business model is when it has to deal with external threats to its core products. That is the situation facing all auto-manufacturers. Toyota is hurting, and Company chief Katsuaki Watanabe recently announced a projection for a first annual trading loss in its seventy year history.

And what a loss: 150bn yen (£1.1bn) in yearly operating profits from its core operations, attributed to an unprecedented global financial downturn coupled with a rising yen. Its December 2008 US sales fell faster that than those of GM or Ford

But Toyota’s pain still seems likely to be more sustainable than that being suffered by its rivals, whose fate is one of the urgent problems facing incoming President Obama, and who are pressing (begging?) for state bale-outs. For Chrysler, and GM, job losses are inevitable, while even survival in their present state seems increasingly unlikely.

In contrast, Toyota appears to be confronting its short-term problems in light of a longer-term strategy. Its reaction to over-supply is to announced a temporary suspension of production for 11 days [in Feb-March 2009] in all its 12 Japanese production units.

The old and the new

In some ways the response is one consistent with the Japanese cultural tradition which regards employment as a life-long two-way contract. Toyota’s business model preserves that deeply-held cultural value. On the other hand its success is strongly linked to its capacity to innovate. Innovation has been incremental and remorseless, and at time radical. Professor Xu’s analysis of creative organisations in China and Japan identifies Toyota as an example of a one such organisation.

The creativity is manifest in a culture within which ideas are expected from all employees, and reinforced through leadership support providing both intrinsic and extrinsic rewards. A worker in an automotive plant is still expected to pay vigilant attention to repetitive regimes and demanding quality targets. However, the creativity (that word again) which establishes teams with a degree of involvement and control over their activities (for example through the cell system, and its quality circles) comprise a genuine innovation which contrasts with the celebrated Fordist production line, with its direct connection to Adam Smith’s principle of division of labor.

Built to last

To use the terminology of American business theorist, Toyota is a built to last company. Its leaders may or may not be charismatic, but the results speak for themselves. Toyota has to be studied in the context of its cultural setting, and care must be taken in making comparisons with firms such as GM. It is even more difficult to make a simple comparison with Marks & Spencer, which according to Sir Stuart Rose [7th Jan 2009] faces its financial crisis by closing 27 stores, 25 of which were the Simply Food group opened recently, and quickly recognised as ill-matched to the company’s strategy needs (too small, poor and locational access).

What is no longer in doubt, is that the longer-term perspective offered by the Toyotaoism model provides a compelling case for creative leadership of creative organisations. Curiously, the current financial crisis may also bring (force) opportunities for new organisational structures in the future. That is the implication of the notion of innovation arising from what Schumpeter called creative destruction