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 could this 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.
Will Toyota turn its recall into an opportunity for increased
participation for its international manufacturers? Will
decentralization and increased transparency occur? Only time will
tell.
Based on information from Accelerating into trouble. (2010,
February 11). Economist. Retrieved March
8, 2010, from http://www.economist.com/opinion/displaystory.cfm?story_id=15498249;
Dickson, D. (2010, February 10). Toyota’s bumps began with race for
growth. Washington Times, p. 1; Maynard,
M., Tabuchi, H., Bradsher, K., & Parris, M. (2010, February 7).
Toyota has a pattern of slow response on safety issues. New York Times, p. 1; Simon, B. (2010, February
24). LaHood voices concerns over Toyota culture. Financial Times. Retrieved March 10, 2010, from
http://www.ft.com/cms/s/0/11708d7c-20d7-11df-b920-00144feab49a.html;
Werhane, P., & Moriarty, B. (2009). Moral imagination and
management decision making. Business
Roundtable Institute for Corporate Ethics. Retrieved April 30,
2010, from www.corporate-ethics.org/pdf/...magination.pdf; Atlman,
A. (2010, February 24). Congress puts Toyota (and Toyoda) in the
hot seat. Time. Retrieved March 11, 2010,
from www.time.com/time/nation/arti...967654,00.html.
Discussion Questions
Do you think Toyota’s organizational structure and norms are
explicitly formalized in rules, or do the norms seem to be more
inherent in the culture of the organization?
What are the pros and cons of Toyota’s structure?
What elements of business would you suggest remain the same and
what elements might need revising?
What are the most important elements of Toyota’s organizational
structure?