TOYOTA The Accelerator Crisis Vinay Devaki Elfego Cruz Mehernosh H. Amroli

Intro Toyota’s History 3 Priorities The Toyota Way & Toyota Production System Issues Drivers Violation of Principles Recommendations Lessons learned Q&A

Toyota’s History 1933 Toyota Motor Corporation established as division of Toyoda Automatic Loom Works. 1937 Toyota Motor Corporation became an independent company. 1957 Established first sales, marketing and distribution subsidiary in US called Toyota Motor Sales, (TMS) 1984 NUMMI (Joint Venture with GM) opened doors 1995 Losing market share and posting it’s first loss since 1950 due to weak Japanese economy and trade friction with the US. 2008 #1 in Global Sales Volume 2009 employed 8,900, supervised 14 regional offices throughout 50 US states Produced 10 million cars and added 17 production sites. (added the capacity of a Chrysler-sized company)

Toyota’s 3 Priorities Safety Quality Volume

The Toyota Way Mandates planning for the long term Highlighting problems instead of hiding them Encouraging team work with colleagues and suppliers Instill self-critical culture that fosters continuous and unrelenting improvement Source : HBR Case TB0243 Toyota: The Accelerator Crisis

Toyota Production System (TPS) Precursor of “lean manufacturing” principles originally called “Just-In-Time”(JIT) production. Designed to remove unnecessary waste from the production (muda) and manufacturing process. (ji-doka) Significantly reduce lead time and production costs Source : HBR Case TB0243 Toyota: The Accelerator Crisis

Issues 1999 Oil Sludge 2009 – Accelerator 2002- 3,400 warranty claims 2007 7.5 million customers to be reimbursed for repairs and incidental expenses going back as far as 1999. 2009 – Accelerator Recalled 3.8 million U.S. Vehicles claiming that floor-mat problems could cause the accelerator to be stuck 2010 recall continued, 2.3 million more Suspended sales and production of popular models , another 1.1 million. Total of 8.8 million. Source : HBR Case TB0243 Toyota: The Accelerator Crisis NOTE: Toyota was unable to identify the true cause of the issues and shifted blame to others

Strategic Drivers Deviated focus from Safety and Quality to Volume, Cost Reduction and Growth Non-family leadership: Concerned on cutting costs and parts to manipulate short term gains Rapid establishment of plants and operations around the world; unable to instill company culture Poor management of public relations

Strategic Drivers Loss of focus on Safety & Quality due to numerous changes in leadership between 1996-2008 with reprioritization of goals (Family vs. Non-family) `33-`95 Toyoda Family `96-`98 Hiroshi Okuda Toyota 2005 Vision – Harmonious growth through global master plan and global profit management `99-`04 Fujio Cho Construction of Cost Competitiveness for the 21st Century (CCC21) Cut components in car by 50% In 2002, the 2005 Vision changed to Global Vision 2010 : Take 15% of Global Market Share `05-`08 Katsuabi Watanabe Value Innovation (VI) strategy: Create savings by making the entire process cheaper and faster, further trimming parts, production costs, and time to market. Implemented a high-level of so-called “Customer First” management committee that had the task to coordinate engineering, production, sales, and service issues related to quality. The initiative was never really pushed and scrapped in early 2009. `09 to current Akio Toyoda (Back to Family) “Root cause of problems was that the company was hijacked, some years ago, by anti-family, financially oriented pirate.” – Former CEO of TMS, Jim Press (April 2010 in WSJ article) Source : HBR Case TB0243 Toyota: The Accelerator Crisis

Strategic Drivers Rapid Growth Toyota produced 5.2 million cars in 58 production sites in 2000. But by 2009 increased capacity to produce 10 million cars Added 17 production sites TMM employed more than 8,900 people and supervised 14 regional offices throughout the 50 states Basically added the capacity of a Chrysler-sized company.

Strategic Drivers Media/Press Received unprecedented negative attention from mass media (news, consumer reports and individual blogs) Source : www.econed-il.org/icee/docs/2011/zhao.pptx

Structural Drivers Lack of Communication Denial Localized consumer data gathered in US and sent to Japan, not communicated back to US org. US plants concentrated on advertising and service, financial and technical matters controlled in Japan “…every Toyota has a president, and one can’t tell another what to do.” by John Jula (p.8) Denial Blamed suppliers and consumers Unable to discover root cause

Structural Drivers Centralized design; putting all decision making in Japan Lack of communication between US and Japan; also between the Sales and Dealership organizations and the engineering group

Cultural Drivers Japanese culture (p.10)- “based on harmony, consensus decision-making, and blame avoidance…” – avoid public conflict negotiations Managers who disagreed kept silent so not to upset the relationship Aggressive global growth strategy stretched it’s supply chain erroneously. The company began to depend on suppliers outside Japan and outside the Keiretsu structure, non-Japanese suppliers with which Toyota did not have prior working experience

Violated Principles Analysis 1. Base mgmt. decisions on a LT philosophy, even at the expense of ST financial goals Curbing production Construction of Cost Competitiveness for the 21st Century 1. designers scrutinized grip-handles mounted above doors 2. reduced no. of parts required by 85% from 34 to 5 3. cut procurement cost by 40% and installation time by 75% Value Innovation Strategy-aggressive version of CCC21 1. further trimming parts and production costs 11. Respect your extended network of partners and supplier by challenging them and helping them improve Toyota told the gov. the pedals were the problem Toyota’s pedal supplier, CTS Corp., had to defend itself Toyota made no attempt to collaborate with supplier in order to address its suspicion 9. Grow leaders who thoroughly understand the work, live the philosophy and teach it to others. Katsuabi Watanabe emphasized CCC21’s $2.2b cost reductions, which he led Watanabe further set out to achieve more cost savings thru Value Innovation strategy Hiroshi Okuda’s Toyota 2005 Vision: global manufacturing network from Argentina to Thailand to U.S. Global Vision 2010 targeted 15% global mrkt share by early 2010Leadership Aim 13. Make decisions slowly by consensus, thoroughly considering all options; implement decisions rapidly Nonfamily management was determined to accelerate Toyota’s growth with an aggressive globalization strategy

Violated Principles Analysis 14. Become a learning organization through relentless reflection and continuous improvement. Denied warranty coverage Blamed pedal supplier Blamed owners Continued cost cutting strategies 1. Construction of Cost Competitiveness for 21St Cent. 2. Value Innovation Strategy Continued Rapid Expansion 1. Toyota 2005 Vision 2. Global Vision 2010 2. Create a continuous process flow to bring problems to the surface 2005 Watanable promoted a Customer First mgmt. committee but was never implemented 5. Build a culture of stopping to fix problems, to get quality right the first time Continuous Recalls 1. nearly doubled from 03-04 (975,902 – 1,887, 471) 2. 9/9/09-3.8m claiming floor mat problems 3. 1/21/10-2.3m claiming stuck accelerator pedals 7. Use visual control so no problems are hidden I believe that by examining the problems on site can one make decisions from the customer perspective 12. Go and see for yourself to thoroughly understand the situation The root-quality problem was never really identified, thus could not be addressed 6. Standardized tasks and processes are the foundation for continuous improvement and employee empowerment US plants concentrated on Advertising & Services Financial & Technical matters controlled in Japan

What should Mr. Akio Toyoda do? Regain Customer Confidence Partner with Government and Safety regulators i.e. NHSTA Marketing Strategies: Loyalty programs, Extended Warrantee, Customer feedback in Designs Manufacturing Strategy: Obtain Certifications; APICS & ASQ; ISO9000 & TQM Re-instill company culture & Brand Reputation: 3 Priorities, The Toyota Way, and Toyota Production System Focus on quality; sales will follow Enable regional offices to make decisions based on shared feedback from other regions using Global Knowledge Center (GKC, Torrance, Ca.) Improve PR practices Focus on Quality Making more safety features as standards Obtain Global/Industry recognized certifications for manufacturing and Quality Assurance , i.e. ISO 9001:2010 and TQM. Select Vendors who hold quality and manufacturing certifications Management and Employees should hold certifications in process manufacturing, i.e. Six Sigma , APICS and ASQ Regain Customer Confidence Maintain Customer Relationships Compensate owners affected Future purchase discount Develop a Loyalty program Extend Warranties on all cars (10y/100 K mile coverage) Re-instate “Customer First” program from Watanabe Customer Feedback into design PR Establish stronger relationships with Media Provide Full-Disclosure and Honesty Policy

What can other companies learn? Focus on core competency: Brand Strength Quality; Luxury; Affordability; Sport Reflect brand implications of Strategies Structural; Strategic; Cultural Acknowledge problems timely Take accountability and responsibility BOD & CEO Selection; Family vs Non-family Measure Expansion Goals: LT sustainability Acknowledge : Communicate Quickly and Accurately, Criticized for not responding

Thank You Thank You Q & A