T205B – SYSTEMS’ THINKING THEORY & PRACTICE
Question 01 (100 % marks)
(a) Read through the attached article “Organizational Structure: The Case of Toyota”. As you read through the article create one spray diagram to summarize the case content respecting the conventions, and techniques. It is advised that students submit hand drawn diagrams as opposed to computer generated ones. Photocopies of diagrams should not be accepted. Reflect on your diagram in no more than 200 words. (15% marks).
(b) Based on what you learned in T205B concept file 04 section II “Control”, and based on the content of the article, and taking “Fixing a failing structure” as your goal draw one closed loop control model diagram to show the various inputs, and the transformation process, that can lead to reaching this goal. You need to show all the components of the control model diagram, the inputs’, processes, control (actuator, comparator, sensor), that can lead to goal achievement . Reflect on your diagram (15% marks)
(c) Using an essay format of no more than 2500 words, and based on what you learned in T205B concept file 04 section I “Organizations are They Rational”, readings 01 and 07, section III “Structure”, section IV development, section V culture and climate, and section VI “Decision Making” and based on the ideas put forth by Taggart in the attached article:
1- Discuss the concept of organizational structure and assess which type of task related structure is required to meet Toyota’s communication needs. (Word Count 500; 15 Marks)
2- Discuss the concepts of organizational culture and climate and assess Toyota’s culture and climate. (Word count 400; 15 Marks)
3- Assess the extent to which Toyotas structure, culture and climate played a role in its failure to react to the defect problem, (Word count 400; 15 Marks).
4- Discuss the different perspectives on decision making and assess how the decision making process at Toyota has affected its ability to respond to the defect problem (Word count 400; 15 Marks).
5- Discuss the concept of organizational learning and assess whether Toyota is a learning organization; justify your answers with evidence from the case (300 words; 10 Marks).
Organizational Structure: The Case of Toyota
Source: Photograph courtesy of Toyota Motor Sales, USA, Inc.
On the 28th of August 2009 the emergency services in San Diego received a terrifying phone call from the back seat of a Toyota Lexus. The car was accelerating out of control. As the emergency services tried to get an understanding of the situation, the caller was heard to cry, “We’re nowapproaching the intersection! Oh, pray. Hold on and pray!” Then silence.
Everyone in the car was killed. Toyota, lauded for its impeccable reputation for quality and reliability, suddenly faced a huge crisis of trust. But they didn’t react as such. Toyota’s belated recalls, belated communications and disclosure, and belated public apologies did far more damage to its reputation than the original tragic accident, losing them sales, market share, and investor and consumer confidence (its pre-eminent reputation for quality plunged from 30% to 19% of respondents to a Consumer Reports survey).
“Central to Toyota’s problem is its perceived delay in identifying and addressing the situation in the first place… There is a sense that it ignored the problem untilit was forced to take action”.
Recalls happen every year, and affect every car manufacturer. They are usually considered a bare minimum ‘distrust regulation’ effort. However, a series of recalls from the same company, for different problems, mounts up to a series of trust violations. Toyota had several (in 2004, 2005, 2007, and 2009-10) fordifferent problems, including with accelerators, engines and braking, totaling more than 8.5 million vehicles. This too, has damaged their trustworthiness.
Immediate response
Two days after the San Diego crash, Toyota issued a statement, acknowledgingthe accident, expressing concern and showing regret for the loss of life. Toyotapromised a full investigation, working with the regulator (the National HighwayTraffic Safety Administration – NHTSA), but declined to comment on possiblecauses, to “avoid speculation and allow any investigation to run its course”.
On the face of it, this is a good example of an immediate response statement.However, our model also calls for swift and decisive actions against known orlikely causes. Toyota appears to have overlooked this latter intervention,disastrously. In the days after the San Diego crash, the company did not issue acustomer warning about its all-weather floor mats, despite these beingimplicated in fatal accidents two years earlier. Even when the regulator’spreliminary investigation into the San Diego crash cited the floor mats as thelikely cause, Toyota did not implement a precautionary rectification until five dayslater when the NHTSA confirmed their analysis, 19 days after the San Diegofatalities. Fortunately no new fatal accidents happened in that time. Yet evenwith this tardy intervention Toyota dealers were instructed merely to inspect anyreturned floor mats, rather than issue a direct customer safety warning. NHTSAissued an alert about the floor mats on the 29th September 2009 and that day Toyota issued explicit warnings and advice to customers, and finally announced a recall of 3.8 million affected vehicles – a month after the San Diego crash (Theactual recall began a month later still.)
Diagnosis
All car manufacturers must cooperate with authorities’ investigations into fatalcrashes, and so the ‘diagnosis’ phase began immediately. When the NHTSAreported on the San Diego crash (10th September 2009), Toyota USA uploadeda statement, asserting that the findings were consistent with the company’s floormat warning, and that their vehicle was “among the safest” on the road. NHTSAcountered this apparent denial of culpability, and took the unusual step ofcondemning the statements as “inaccurate and misleading”, embarrassingToyota further. The American division issued a clarification stating that they hadnot intended “to mislead or provide inaccurate information”, and outlined thecompany’s “vehicle-based remedy” to the sticky floor mat problem.For manystakeholders, the obfuscation undermined Toyota’s original best intentions, andfurther dented the fragile trust with its many stakeholders.In November 2009, Toyota admitted to a defect with the accelerator pedal insome vehicles, promised this was the root cause, and issued a recall of affectedvehicles. However, the installation of a ‘brake override system’, intended toreassert the company’s trustworthiness, seemed to highlight a different designdefect. Public skepticism meant that Toyota voluntarily commissioned anindependent investigation to defend its electronic control systems. These effortsfailed, it seems, because of stakeholders’ pre-existing mistrust.
Although design faults seemed at the time to be likely causes of the crashes,many argued that the problems in the company went deeper. Commentatorspointed to Toyota’s aggressive growth strategy, epitomized by a declaredambition to be the world’s top automobile company within a decade, involvingrapid global expansion of its manufacturing capacity beyond its native Japan.Even the company President, Mr. Akio Toyoda, admitted as much:
“Growth overspeed” had impaired the company’s culture of ‘kaizen’ (continuousimprovement) and ‘genchigenbutsu’ (inspecting problems at the source).
Its own internal report noted Toyota’s tendency to dismiss customer complaints;poor accountability for safety (as the adage goes, “when everyone is responsible,nobody is accountable”); poor safety-response procedures, and an “adversarial”relationship with regulators. Commentators also cited the company’s previouslyrobust and widely admired corporate culture; efficient, systematic and dedicated,but also conservative, rigidly centralized, and mono-national. At the time, theexecutive board had 29 Japanese male nationals and no foreigners. Japanesereluctance to concede to shame, and Toyota’s prized reputation for excellence,may account for the firm’s hesitancy in acknowledging the legitimacy of theemerging crisis. The company’s hierarchical and centralized structure matchedthis culture, limiting the speed and accuracy of information flow, stifling theagility of the corporation’s response. Even its vaunted lean productiontechniques came in for criticism, with junior employees reportedly fearful ofraising concerns.
Performing interventions
The diagnosis stage didn’t finish fully until March 2010, but Toyota’s reforminginterventions began during September 2009 with the floor mat safety warningand the belated recall of 3.8 million vehicles. Their recall problems persistedthroughout 2010, with a further 1.66million vehicles recalled over other, newproblems. Many recalls were voluntary, and timely to prevent future accidents,and Toyota was doubtless trying to demonstrate its ability in tackling latent risks,its integrity in disclosing the possible lapses, and its benevolence in prioritizing customer safety. However, the confusion from so many recalls seemed to alarmexisting and prospective customers. The firm’s poor immediate response haddone huge damage to its credibility, and set the tone for the story (seized uponby the American media).
The first apology came in early October 2009, when Akio Toyoda expressed hissincere grief regarding the San Diego crash:
“Four precious lives have been lost. I offer my deepest condolences…Customers bought our cars because they thought they were the safest. But nowwe have given them cause for grave concern. I regret and apologize for thisdevelopment. I cannot begin to express my remorse”.
Interestingly, a Professor of Japanese Studies, Ulrike Schaede, argued thatthese difficult public apologies “were meant to send a message to companyemployees and car buyers” that the company was planning a new direction (ouremphasis added to indicate the trust repair targets in the statement).
Akio Toyoda’s op-ed piece in the Wall Street Journal wrote of his commitment tocustomer safety – his name is on the cars after all – and acknowledged thecompany’s failings (mainly a preoccupation with technical responses totragedies), and pointed to its recall response and internal and external audits oftheir vehicles’ safety features. A torrent of similar apologies followed,expressing “sincere regrets” and commitments to make “fundamental changesin the way the company operates in order to ensure that Toyota sets an evenhigher standard for vehicle safety and reliability, responsiveness to customersand transparency with regulators” to “restore the trust” of its customers. Theapologies were well received in the media, for the most part. That month, AkioToyoda travelled to Washington to face Congress, and apologized again inperson – although he insisted he had not been aware of the problems until late2009, several months after the high-profile San Diego fatalities.In terms of trying to reform Toyota, we found reference to the following keymoves:
• A declared reversion to the “basics” of the ‘Toyota way’.
• A new safety system, combining five accident-avoidance technologies –although other automakers have offered these safety features for years.
• A major restructuring, including a reduction in Directors from 27 to 11, and there-organization of the departments charged with Corporate Planning andCorporate Social Responsibility to quicken crisis responses.
A new 50-strong global quality taskforce, based regionally, and led by thecompany President, to improve quality, increase communication, improveregional response and autonomy, and seek support from outside experts.
• Two quality advisory panels consisting of outside experts to evaluate Toyota’ssafety and quality control processes, in 20 dedicated facilities worldwide(although one was criticized for being a paid consultant for the company), andthe appointment of a global Chief Safety Officer.
• In September 2010, the company settled out of court with the family of the San Diego victims (corporate ‘penance’).
• Top management’s pay was docked 10% to help “atone” for the recallproblems, and several Executives forfeited their bonuses for two years(individual leaders’ ‘penance’).
• Commitment to working with U.S. regulators “toward a common goal ofcreating a safe automobile society”.
Evaluation
Toyota Motor Corporation (TYO: 7203) has often been referred to as the gold standard of the automotive industry. In the first quarter of 2007, Toyota (NYSE: TM) overtook General Motors Corporation in sales for the first time as the top automotive manufacturer in the world. Toyota reached success in part because of its exceptional reputation for quality and customer care. Despite the global recession and the tough economic times that American auto companies such as General Motors and Chrysler faced in 2009, Toyota enjoyed profits of $16.7 billion and sales growth of 6% that year. However, late 2009 and early 2010 witnessed Toyota’s recall of 8 million vehicles due to unintended acceleration. How this could happen to a company known for quality and structured to solve problems as soon as they arise? To examine this further, one has to understand about the Toyota Production System (TPS).
TPS is built on the principles of “just-in-time” production. In other words, raw materials and supplies are delivered to the assembly line exactly at the time they are to be used. This system has little room for slack resources, emphasizes the importance of efficiency on the part of employees, and minimizes wasted resources. TPS gives power to the employees on the front lines. Assembly line workers are empowered to pull a cord and stop the manufacturing line when they see a problem.
However, during the 1990s, Toyota began to experience rapid growth and expansion. With this success, the organization became more defensive and protective of information. Expansion strained resources across the organization and slowed response time. Toyota’s CEO, Akio Toyoda, the grandson of its founder, has conceded, “Quite frankly, I fear the pace at which we have grown may have been too quick.”
Vehicle recalls are not new to Toyota; after defects were found in the company’s Lexus model in 1989, Toyota created teams to solve the issues quickly, and in some cases the company went to customers’ homes to collect the cars. The question on many people’s minds is, how could a company whose success was built on its reputation for quality have had such failures? What is all the more puzzling is that brake problems in vehicles became apparent in 2009, but only after being confronted by United States transportation secretary Ray LaHood did Toyota begin issuing recalls in the United States. And during the early months of the crisis, Toyota’s top leaders were all but missing from public sight.
The organizational structure of Toyota may give us some insight into the handling of this crisis and ideas for the most effective way for Toyota to move forward. A conflict such as this has the ability to paralyze productivity but if dealt with constructively and effectively, can present opportunities for learning and improvement. Companies such as Toyota that have a rigid corporate culture and a hierarchy of seniority are at risk of reacting to external threats slowly. It is not uncommon that individuals feel reluctant to pass bad news up the chain within a family company such as Toyota. Toyota’s board of directors is composed of 29 Japanese men, all of whom are Toyota insiders. As a result of its centralized power structure, authority is not generally delegated within the company; all U.S. executives are assigned a Japanese boss to mentor them, and no Toyota executive in the United States is authorized to issue a recall. Most information flow is one-way, back to Japan where decisions are made.
On the 20th May 2010, the President of Toyota USA reviewed progress with thecompany’s reforms to a Congressional committee. In July 2010, Toyotapublished a report covering its evaluation of measures for improving qualityassurance and preventing the recurrence of quality lapses, as well as improvinginternal and external communications with regard to product quality. The externalreview panel is scheduled to continue monitoring progress until 2012. Toyota has taken serious actions to put things right. However, their sluggishand contradictory reaction handling of the crisis incurred retribution in April 2010,when the NHTSA fined Toyota a record $16.4m for “failing to react” in a timelymanner, despite apparently knowing of the potential risk to consumers. Thoughthey denied the allegation, Toyota accepted this ‘penance’, to avoid a lengthydispute. IHS Global Insight, an automotive consultancy, said the company was“paying the price for not taking the claims seriously at first”, and attractingunusually negative publicity as a result. Multi-million dollar law suits are still intrain.
A bitter irony is that regulatory investigations in August 2010 found “driver error”to be the most likely cause of all but one of 58 examined incidents. That Toyotawas unable to recover much reputational credit from this revelation emphasizes how much trust and goodwill had been damaged, and how the companysurrendered control of the narrative with its tardy initial response. Even recently, skeptics (and lawyers) remain unconvinced of the firm’s ethical stance. Theypoint to evidence that the company has known about several design faults foryears, and have even boasted of $100m in savings from a limited recall in2007.One commentator put it:
“Nothing erodes confidence in a company’s reputation so much as internaldocuments subordinating safety concerns to the bottom line”.
It remains to be seen how well Toyota recovers.