The leadership challenge faced by Toyota

My decision to work on Toyota is related to a moving scene I saw on television few months ago .Under the media spotlight, Akio Toyoda (Toyota CEO) was standing tearful under a giant display bearing the name of the company. This emotional reaction is the story of a senior leader who commits their life to the business, such a vulnerability is atypical enough to study the case. How Toyota, recognized as model in terms of management, can meet such tragic situation?

The consequences of poor crisis management could severely damage the reputation of a company that’s why every company must be prepared for crisis. This is the case with Toyota, one of world’s leading auto makers. I have decided to work on Toyota case to show how a company known for its reliable and innovative products , an exemplar of production efficiency with a perfect storm of rapid growth , can become a company with a series of product defects that has caused deaths and put many consumers at risk. Is it a technological matter or a leadership crisis?,

What has been Toyota’s solutions for crisis response? Toyoda went into hiding and sent American CEO Jim Lentz to make apologies. The issues of product quality became out of control. This left the media, politicians, and consumers to dictate the conversation, while Toyota was looking for the responses. This situation without a proper solution and explanation let people talk and imagine the worst things. Artful apologies and confused plans for resolution have been made to face this crisis. If you have a leader who isn’t capable to deal with global issues of this significance level, should he be in the leadership position? What makes a true leader?

In this work, I will try to understand how the “Prince” became the “no show Akio Toyoda”. For that I will first focus on the external analysis to identify the market place of the company, then I will emphasize on the internal analysis that is to say more specifically the cultural aspects of this company moral , management, attitude at work, with a special focus on the leadership concept.

Finally, I will make recommendations that will help Toyota to handle the crisis well.

2)The external analysis

The impact of the crisis on the company is huge. When customers lose trust with companies the impact is high. Toyota’s customers are meeting a kind of identity crisis. There is a discrepancy between what they were expected from the company and the reality. They expected Toyota to have the highest quality, best reliability and great safety.

Because of the crisis, people who used to buy Toyotas think that the value of their car has decline since the problem of confidence began.

Twenty seven percent of customers surveyed that said they were considering a Toyota prior to the recall now say they no longer are considering the brand for their next vehicle purchase.

Now nearly half of the car buyers who have defected from Toyota say they are not sure if they will consider the brand again, even once Toyota’s problems are resolved.

This is showing how the impact is huge and how a long term work need to be made to restore customer’s confidence. It is the main difficulty that Toyota will have to confront.

Which is as well a tough nut to crack is that Toyota build all his philosophy on the concept of quality.

This shows in quantifiable terms the impact of this crisis of confidence on future purchases. To me it seems that Toyota has losing its focus on customers and has payed more attention to market share and profits, millions upon millions of Americans were buying their automobiles believing Toyota’s promises. Moreover Competition will be even more stronger. Rivals will take advantage of Toyota’s crisis particularly Ford. It’s a competitive market .

I think it is important to realize the impact of a break down in trust with customers. In the case of Toyota, the company will see falling profits and possibly losses that may extend well into the future. By some estimates their US dealers are losing over $2B per month. The manufacturing line has been shut down at two US plants with more closings possible. None of this takes into consideration parts suppliers and the economic impact on all those who either do business with Toyota or provide goods and services to Toyota’s dealers and their employees.

Why is all this happening? We don’t have a lots of information on the specific problems, we can guess from the Toyota executives’ appearances before congress that it was because Toyota lost its essence of what they valued. The old values of quality and customers first were replaced with growth and profitability. Competition is increasing almost daily with new entrants coming into the market from China , South Korea ,Toyota faces tremendous competitive rivalry in the car market, Toyota should not forget what make its fame: reliability

How could this happen? We can imagine that leaders like Toyoda did not want to hear from anyone something that is going to slow down the growth train. Even one of the best corporate systems, such as the Toyota Production System, can be subverted by fear and greed.

We can say that Toyota has done many things right in responding to the crisis: Talk to the media , using all canals( facebook, twitter, diverse websites) to reassure customers.

But it seem that whatever Toyota says now, and however well it acts, there is a sense that it ignored the problem until it was forced to take action. “If it stinks, put a lid on it.” Toyota follow this japanese proverb to sort out the problem. Toyoda didn’t accept to face the reality it is a management crisis and develop a lack of trust from the customers.

To react properly, this requires an organisational culture that is vigilant for potential crises, has open lines of communication from staff to management, and a willingness to address unpleasant truths.

. The challenge is created by two elements of culture: firstly, an obsession with quality, which means that anything less than perfection is seen embarrassing. As a consequence, problems with quality are literally inconceivable.

The second interlinked element of culture is a hierarchical approach to management and a lack of open communication. People who are at the best placed to spot early signs of crisis feel unable to point out flaws. As a result, problems unresolved until they explode into a major crisis.

Another reason why Toyota has such a major challenge on its hands is that this crisis touch at the essence of its reputation. Toyota has built its reputation on quality and reliability, and anything that calls this into question is especially threatening.

This is a lesson for all organisations: understand what lies at the heart .It is essential that the company remains true to these values in its approach to crisis management .

Toyota company has failed to get ahead of events and take control. It looks like the crisis is managing Toyota rather than vice versa.

Toyoda, the chief executive, should have been the face of the organisation during this major crisis. No chief executive can be absent from the public eye when the business is in the middle of a crisis…

It is not necessarily the reality of how a business manages a crisis that will determine its success. It’s how the organisation is perceived to have managed the crisis: We know the importance of public relation and the organization of a proper communication. Get it right and the organisation’s reputation and value can be protected; get it wrong and serious damage can result.

In this context, the role of the media spokesperson is pivotal, even in this age of social media. Observers draw conclusions based not just on what the spokesperson says, but also their body language, and tone of voice. executives like Toyoda are unlikely to represent their organisation well in a crisis when they disapear in front of serious crisis…

Toyota should have create the right culture to avoid crisis , developing workable crisis management plans and processes, and training managers likely to be part of a crisis response team this would have play a large part in determining the success of the organisation in the event of a crisis. Full recovery requires continued communication and actions to regain the trust of customers affected by the crisis.

If Toyota’s recent troubles encourage more businesses to recognise the impact that crises can have on a business’s long-term reputation and take steps to protect themselves as a consequence, then at least some goodwill has come from recent events.

But I am sure that Toyota could regain most if not all of its lost market share with a vigorous marketing campaign and reassurances on quality but for that one step more need to be overcome: a deep and radical changes in terms of culture, moral and management approach. This is what we are going to study in the second part.

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the internal analysis

We have seen that the impact of the crisis on the external market share is mainly financial now we will focus on the cultural , philosophical, organizational matters. I will try first to sum up what make the specificity of Toyota.

A) Philosophy: ” Before we build a car , we build people”

“why do I exist?” That ‘s the question we try to answer through the philosophy. In Toyota company it is fundamental. The company built a long term thinking asking “what is the meaning of our organization? where do we want to go?”Toyota based its management decisions on a long term philosophy, even at the expense of short-term financial goals to build a sustainable success.

They also generate value for the customer , the society and the economy.They align the organization toward a common goal that is bigger than making money. Toyota has turned operational excellence into a strategic weapon not because of the tools and quality improvement methods but a deeper business philosophy rooted in understanding of people and what motivates them. Its success is ultimately based on its ability to develop leaders, build teams, and nurture a supportive culture, to devise strategy, to build deep supplier relationships, and to maintain a learning organization.

B) Toyota leadership model:

Toyota leaders are builder of learning organization. The aim is to grow leaders who understand the work, leave the philosophy and teach it to others.The leader’s real challenge is to develop people so they are strong contributor to the organization but also having the long term vision of knowing what to do, the knowledge of how to do it and the ability to develop people.

Leaders at Toyota, like anywhere want to see measurable results. But they know that the financial result is a result of a process. They also realize that the financial reflect the past performance of that process. Good Toyota leaders don’t jump to conclusions they try to first size up the situation and then ask “why”.All action at Toyota revolve around planning and problem solving, for the system to work problems must be exposed. Toyota’s way provides extraordinary focus, direction, control, while at the same time they provide maximum flexibility. Three keys to toyota’s leadership: Go see, ask why and show respect: getting people to think and take initiative is key!

The leader’s job at Toyota is to act as a teacher, get each person to take the iniative to solve problems and improve his job, ensure that each person’s job is aligned to provide value for customer and prosperity for the company.Leaders must be the role of models, he understand the daily work.So coaching , promote from within the team is key to success. Toyota emphasize on the fact that their role is to develop exceptional people and teams who follow the company’s philosophy.They usually use a cross functional teams that is to say a group of people with different functional expertise working toward a common goal. It may include people from finance, marketing, operations, and human resources departments. Typically, it includes employees from all levels of an organization. Members may also come from outside an organization (in particular, from suppliers, key customers, or consultants).

Cross-functional teams often function as self-directed teams responding to broad, but no specific directives. Decision-making within a team may depend on consensus, but often is led by a team leader.

They also continuously teach people how to work together, because team work must be learned, they want to reinforce the culture continually.

The way they solve problem is also interesting :

“go and see for yourself to thoroughtly understand the situation” : It’ s a really pragmatic approach of problem solving , they go to the source to observe and verify data.

“Don’ t theorize on the basis of what people and computers tell you” They want to have a true relation with the reality and even high level managers should do this.

In Toyota’s culture we talk about “consensus decision” all decision are made slowly by consensus, considering all options.

They also implement decision rapidly discussing problem and potential solutions with all involved.

B) motivation theory:

Maslow’s need hierarchy looks at motivating people as equivalent to satisfying their internal needs. When you work for Toyota , your lower level needs are covered. You’re well paid, you have job security and you’re working in a safe, controlled environment. Toyota’s culture emphasizes the use of challenging work situation to build self confidence. It’s a culture of continuous improvement.

Herzberg’s theories are similar to Maslow but they are focus on characteristics of work that are motivators.Their absence will cause a dissatisfaction, but providing a person more and more of them will not positively motivate. Toyota has done a good job. Indeed , for example people are responsible only for a tiny piece of an overall product and work repeatedly , to make the task more motivating they worked on designing assembly line to improve job enrichment. Toyota organizes teams around complete project from start to finish. Having the responsibility of participating in the project from the beginning to the end empowers the employee. They also provide job rotations, they allow people to be proactive in solving problems and they develop autonomy other the tasks.

About the external environnement theory, we can notice from Taylor’s scientific management based on reward with money performance relative to standards that all scientific management principles are followed but at the group level rather than individual level and based on employee involvement.

About the goal setting that is to say : set specific, measurable , achievable challenging goals and measure progress, Toyota sets goals that meet these criteria through the policy deployment and the continuous measurements is relative to targets.

B)Managing people

Toyota has taken various steps to build high performance teams:

Step 1: Orientation. This is about the visionary leadership.A leader need to be guide and the vision must be different, unexpected.It must be memorable , stick in the mind.The leader also have to exemply the vision to give concrete dimesion to the vision.This step is vital because if a vision is not shared the success of a project may be risky. The group needs strong direction from the leader and must understand the basic mission, rules of engagement, and tools the members will use. This step is fundamental, a leader have to share purpose and vision to have the support of all the team. It’s a condition to build a sustainable success. A leader and his team need to wonder , what kind of organization are they going to build?To build a challenging but achievable goals, the goals that everyone wants and shares

Step 2: Dissatisfaction. To avoid discouragement the leader need to build blocks of sustainable success , it could be for example about values.How do we do things round here?Are our values real or window dressing? These reflexions need to involve the inclusive company to be efficient. After going to work, the members discover it is harder than they thought to work as a team. In this stage, they continue to need strong direction (structure) from the leader but also need a lot of social support to get through the tough social dynamics they do not understand.

Step 3: Integration. At this stage people become more independent, they understand the meaning of the work.The difficulty is to balance flexibility and control. The group starts to develop a clearer picture of the roles of various team members and begins to exert control over team processes. The leader does not have to provide much task direction, but the team still needs a lot of social support.

Step 4: Production. The group becomes a high-performing team, no longer dependent on the leader. In Toyota people do the same mindless task repeatedly and are responsible only for a tiny piece of an overall product. Toyota has tryed to enrich jobs in various ways, to give a meaning to this repetitive work they organized job rotation, various kinds of feedback on how workers are doing at their jobs, it let a significant work group autonomy over the tasks. They redesigned its assembly lines so that the parts that make up a subsystem of the vehicle are installed in one specific area on the assembly line. Rather than a work group assembling electrical systems and then putting in floor mats and then door handles, a work group might focus almost exclusively on the electrical system under the hood., Toyota also organized teams around complete projects from start to finish. For example, the design of the interior of the vehicle is the responsibility of one team from the design phase through production. Participation in the project from beginning to end enriches and empowers the employee. Empowerment of the employee is as well key to success. Empowerment is the process of enabling or authorizing an individual to think, behaves, take action, and control work and decision making in autonomous ways. It is the state of feeling self-empowered to take control of one’s own destiny.

The organization has the responsibility to create a work environment which helps and give to people the ability and desire to act in empowered ways.

Toyota’s trouble : crisis or opportunity?

As we studied, Toyota company is knowing as reliable and strong organization , on the other hand during the recent recall crisis the company showed weaknesses that we could not imagine. Let’s have a critical analysis about what happened..

It seems that the crisis that Toyota met is mainly a problem of communication.Both internal and external communications must be timely and effective. Ongoing daily phone conferences need to be conducted to obtain the latest status and to share information. In addition, status reports must be e-mailed to all interested parties on a daily basis. External communication has to be managed to avoid misinformation being leaked to the media.

Moreover leaders need to be visible during crisis but it is also a lake of humility. They didn’t take seriously the risk of quality, they were not enough prepare to this risk, they saw themselves as untouchable but we know that even a good company can be involved in crisis. Their strategy is a long term one, they were not prepared to face such an immediate crisis , may be because of their lake of realism. They didn’t keep the contact with reality through an efficient communication. We know how listening is an important attribute for a leader and it seems that Toyota company with its hierarchical structure is not prepared to collect information from all the employee.

It’s a possibility for them to reassert their value and to think their organisation more as living organism that need to adapt to this unpredictable context.

We can also be critical about the concept of “consensus team decision making”, for Japanese it is the essence of decision.It’s interesting to talk about the difference of culture that exist between European and Asiatic management. In our country we mainly emphasis on the answer to the question , for Japanese the important element is defining the question that is why they need a consensus to find out what the decision is really about , this can explain the difficulties they meet to find in a short time a good solution. Toyota could turn their crisis situation into an opportunity and build clear channels of communication with the public, improving their relationship and calming the fears of millions of car owners.

4) Recommendations and conclusion

“It’s not the strongest of the species that survives, nor the most intelligent but rather the one the most responsive to change” Charles Darwin

Toyota needs leader with credibility and with a clear plan. Toyoda need to see himself as change agent, representing, and protecting the group. He needs to learn how to deal with resistance but also take a risk and to confront the reality. He should, as well, know how to cope with complexity, ambiguity , uncertainty .A real leader is the one who view mistakes as a learning opportunity. There is real challenges of change. For the moment we can see Toyoda as a “hiders”, the one hoping the change will go away it is not the role of a leader, on the other hand he has to enable the group endure hard times. So let’s talk about few recommendations to change the way to lead:

1) Face the reality. Toyoda did not want to face the problem and did not take his responsibility in the crisis . We expect from a leader to be courageous instead of that Toyoda hide the reality.He should have said that he pushed too hard for growth and neglected quality. By admitting his errors, he gives every Toyota employee permission to acknowledge mistakes and to get on with correcting them, instead of denying reality.

2: Get the world off your shoulders. Toyoda cannot expect to solve problems of this magnitude himself. Instead, he needs a crisis team reporting directly to him, working to get problems fixed permanently. He also needs outside counsel, as he appears to be listening only to insiders who are defensive about criticism. He should add the world’s top quality experts to his fix-it team and listen carefully to their advice.

3: Understand the real causes of the crisis. When Toyota’s problems first surfaced, the company blamed a symptom loose floor mats and exonerated the accelerators. Instead, management should have required its best engineers to get to the root cause of this problem and every other quality problem being reported. This is basic engineering and quality discipline.

4: Crisis will have effects on a long term.It is going to be worst before getting better.So the organization need to be prepared to face a long term crisis. It will take years to resolve the trust crisis. Toyota must invest heavily in corrective actions while its sales shrink and profits implode, requiring major cash resources until its reputation can be restored.

5:We can change the crisis to an opportunity to restore Toyota quality. The crisis is melting away the denial and resistance that existed in recent years. For sure Employees are waitingfor new direction, and they want to make radical changes to renew the company. With Toyoda’s leadership, Toyota automobiles can be restored to the world’s highest quality.It is the moment to rebuild brand loyalty and to demonstrate the value and the promise in the answer to the problem.

6: Leaders personify the reputation of a company: In a crisis, people insist on hearing from the leader. Akio Toyoda can’t send out public relations specialists or his American executives to explain what happened. Toyoda must come out of hiding, take personal responsibility, Then he should make a personal commitment to every Toyota customer to repair the damage, including buying back defective cars.

6: Leaders need to move quickly to solve causal operational issues, erring on the side of overcompensating.

7: After this crisis Toyoda need to focus on future success. It’s important to focus also on the future , the long term benefits, trying to see the opportunity to win market share because afetr this crisis, the market will never look the same. GM and Ford are rapidly regaining market share, while the confidence of Toyota’s loyal customers is badly shaken. Toyota cannot wait until all its quality problems are resolved. The company need a reactivity. It must play defense and offense simultaneously. To win, Toyota need to offer advanced features and superior quality, better value for consumers, greater safety, and improved fuel efficiency.

I believe this is a great company that will resurrect its reputation and restore its leadership. But there is a lots of effort to make: first it is obviously most important to solve the problems with their cars.. But they also may be find new way to communicate with their customer using for example the social web. It seems that their responses have appeared a little slow and awkward. Giving consumers information about the recall in more pedagogic way, easily understandable. A leader should have a clear message .They should explain exactly what they’re doing, why things will be different in the future.

Toyoda did not manage this crisis as we expect a real leader will do.He did not go past the emotional when customers and also employee from the company were waiting for a solutions. It show to us the affective link that a leader can build with his company, but people were expected from him a rational approach. On the other hand I am convinced that even if it is a long term working, particularly trying to regain the customer’s trust, the company with its reputed story , their experienced “know how” will be back .It’s for them the opportunity to change practices , to work on crisis management ,and to change their organizational work beliefs.

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