Wednesday, July 1, 2015
In August 2009, a Toyota Lexus accelerated out of control and crashed, killing the driver and all its passengers. Toyota acknowledged the accident in a statement that showed both concern and regret, but would not comment on possible cause. In doing so, the company ignored any likely causes and didn’t issue warnings to customers.
When Toyota’s floor mats were implicated as cause, the company still issued no warnings, instead telling dealers to merely inspect any returns. It wasn’t until America’s National Highways Traffic Safety Administration (NHTSA) issued its own warning – a whole month later – that Toyota came clean. What happened next is a lesson in corporate culture for all.
Corporate culture and communication
When the NHTSA issued its initial report, Toyota quickly communicated to customers that there was little difference to its then-current floor mat warnings. It restated that its cars were among the safest on the road. NHTSA retorted by declaring that Toyota’s statements were “inaccurate and misleading”.
Eventually, Toyota conducted an internal investigation, and declared a problem with the accelerator pedal in some vehicles. This simply pointed to a new, as yet undeclared issue. The company recalled 3.8 million cars (the biggest recall in automotive history), then followed up with a new recall for 1.66 million vehicles in 2010, and fitted a brake override system. But that simply sounded like a third safety issue.
By now the company’s reputation was in tatters, a perception accelerated by poor communication. Clearly there was more to its problems than faulty parts and a sub-standard manufacturing process.
In a statement in October 2009, Akio Toyoda said:
“Four precious lives have been lost… Customers bought our cars because they thought they were the safest. But now we have given them cause for grave concern. I regret and apologise for this development. I cannot begin to express my remorse.”
Some market observers understood this as a message not only to customers, but also to employees. Toyota’s response had, to date, been slow, slurred, and indecisive. Now that was about to change.
Assessing the damage of a diseased corporate culture
Toyota’s internal report discovered what many market analysts had suspected. At the heart of the organisation’s problems laid a corporate culture out of sync with its previous success. Central to these cultural issues was the declared company strategy: to be the world’s top automobile company within ten years. Its strength had been built on two underlying principles:
- Kaizen (continuous measured improvement)
- Genchi Genbutsu (inspecting problems at their source)
Toyota’s strategy of rapid global growth undermined these principles and encouraged executives and employees to:
- Dismiss customer complaints
- React poorly to suspected safety issues
- Have a combative relationship with regulators
- Become adverse to accountability
The board was an all-male, all-Japanese ruling body, and the inherent Japanese reluctance to admit to shame undermined its need to admit responsibility. It was structured on a centralised hierarchy, with this organisational structure disabling the ability to be agile and react with speed.
Now, the market no longer trusted Toyota, its management, or its cars. Sales fell through the floor.
How to make fundamental changes to corporate culture, the Toyota way
Today, Toyota is beginning to recover its former glories. But it has not been without effort, and much of it.
- The company response has been to go back to basics. It now does things the “Toyota way,” with kaizen and genchi genbutsu dictating its development and manufacturing processes, and its sales targets.
- It has streamlined its governing board, reducing numbers from 27 to 11.
- It employs external experts to evaluate safety and control processes.
- It is now committed to working with regulators rather than seeing them as ‘the enemy’.
Avoid Toyota’s mistakes with these five steps to a consistent corporate culture
Toyota lost its way because it failed in several key aspects of corporate governance. Central to its shortcomings was the failure to maintain the corporate culture that had been the source of its previous success.
To avoid crash because of culture, follow these five steps:
- Ensure that ethical practices remain central to your core values and business strategy.
- Don’t place too much emphasis on growth (more speed; less haste).
- Be positive when a crisis hits, and take swift and positive action. Engage with investigators, and work proactively.
- Remain consistent in your approach and communication of approach.
- Employ the right organisational structure, balancing between centralisation and decentralisation.