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Toyota will learn from this …

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It seems unbelievable what is happening to Toyota, the world’s largest car maker.  I have lost count of the number of problems in its motor vehicles and the number of model recalls. 

The recalls go back to September 2007 in the US with 55,000 Camry and Lexus cars.  And then they accelerated with recalls in October and November 2009, and several this year.  More than 8 million cars have been recalled since November.

Toyota is not the only one.  Honda is now inflicted with similar quality problems, and is making recalls.  And in recent years Ford, GM and Chrysler have all had to make recalls.  But the extent of Toyota’s recalls seems unprecedented. 

This a serious problem, with a number of deaths already due to faulty brakes, accelerators and floor mats.  And while Toyota is rapidly making repairs, a US congressional committee has claimed that all the faults have not yet been identified.

Japan’s politics have long been a mess.  Its society is inward looking and xenophobic.  And its services sector is uncompetitive on the international stage.

But Japan was made for manufacturing – perfectionism and continuous improvement, and almost robotic precision in producing products.  And Toyota was the top of the crop of large Japanese enterprises with the “Toyota Way”.  This makes Toyota's current problems a problem for Japan Inc. 

What went wrong with the Toyota?

Many things.  For a start, the Japanese are good when there is a guide manual, they follow it to the letter.  But when reacting to the unpredictable, things become more problematic.  No-one wants to take responsibility, no-one wants to take a decision, and no-one wants to face up to reality.  Pride and face mean denial and defensiveness.  Challenging the boss is not acceptable. 

So there are delayed responses and cover ups.  Toyota has known of problems for many years now.  There have been accusations that the US government might be adding fuel to the fire in order to help the position of the greatly weakened US auto industry.  But this is just paranoia.  Toyota employs 34,000 people in the US, more than 10% of its workforce.  And recalls have even been necessary in Japan.

Japanese society is still governed by a neo-feudal elite.  This means a lack of respect for ordinary people, people like you and me who might buy a motor vehicle.  The customer is not king. 

It also means a resistance to following regulators’ instructions.  Toyota had to be pushed into making some recalls.  But it will cost them dearly in terms of legal expenses and damages, as well as the recall costs, with law suits for injuries, deaths and lost use and value of vehicles.    

And while Japan has had some of the world’s best multinational enterprises, none of them a truly globally integrated enterprises.  They remain Japanese, with big decisions still taken in Tokyo or Nagoya or elsewhere in Japan (even though 70 per cent of Toyota’s customers live outside Japan, and substantial numbers of cars are produced outside of Japan).  Toyota's board of directors is comprised of only Japanese men who are all Toyota insiders.  This means inbred "group-think", complacency and going soft on management, who are all old buddies.

Perhaps Toyota’s travails recall some of the excesses of Wall Street which led to the global financial crisis – excessive confidence, a company that expanded too rapidly and overstretched itself, cost-cutting below safety levels, and engineers who could not believe that their innovations were not perfect.  Growing competition from China and Korea has added pressure.  The fact that Canadian-made throttle peddles and some US components are partly blamed shows the importance of good management of complex supply chains.  

But Toyota's problems also highlight a major difference between American and Japanese culture especially for crisis management.  In the US, failure is accepted and forgiven, but openess and transparency are necessary.  In Japan, failure is shameful, and is covered up.  We must not lose face.  It will be interesting to see what Toyota's CEO says to the US Congress.

And with Internet, and especially social media, it is impossible to control the spread of bad news.  In short, this is the age of transparency, and companies like Toyota have to get on the blogs and explain honestly the full facts of the situation.  Otherwise, negative consumer reactions will kill the brand.  

Saatchi & Saatchi’s Bob Seelert argues that the most important thing to do when leading in tough times is “get the truth out on the table, don’t pretend things will get better”.  But most regrettably, denial is the first reaction we all have.   

But Toyota’s former excellence did not come from nowhere.  Indeed, it was encapsulated in the 14 principles of “The Toyota Way”:

• Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals.

• Create a continuous process flow to bring problems to the surface.

• Use "pull" systems to avoid overproduction.

• Level out the workload.

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

• Standardized tasks and processes are the foundation for continuous improvement and employee empowerment.

• Use visual control so no problems are hidden.

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

• Grow leaders who thoroughly understand the work, live the philosophy, and teach it to others.

• Develop exceptional people and teams who follow your company's philosophy.

• Respect your extended network of partners and suppliers by challenging them and helping them improve.

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

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

• Become a learning organization through relentless reflection (hansei) and continuous improvement (kaizen).

Any company can go through a bad patch.  And Toyota as a “learning organization” will no doubt bounce back more strongly than ever, even if it takes some years.

But perhaps the most important lesson it needs to learn is that when you are in a hole, you should stop digging.  In particular, when you are in a global market, you have to respond to global market expectations.    



Start with the Answer by Bob Seelert, Chairman, Saatchi & Saatchi