Toyota's Recall of Its Cars between 2009 and 2010 - Case Study Example

Comprehensive Case Study: An Analysis of Toyota’s Recall of Its Car Between 2009 and 2010 Table of Contents Table of Contents i 1.0 Introduction 3 2.0 Industry Background 3 2.1 Historical Timelines of Toyota 3 2.2 Broad Operational Issues & Driving Forces for Toyota 4 2.2.1 Research & Development 4 2.2.2 Marketing 5 2.2.3 CSR, Legal and Other Regulatory Issues 6 3.0 Company Description 6 3.1 Brief SWOT Analysis of Toyota 6 3.2 Uniqueness about Toyota 7 3.2.1 Continuous Improvement 7 3.2.1 Marketing Strategy of Toyota 8 3.2.3 Success of Toyota’s Marketing Strategy 8 4.0 Competition 9 4.1 Toyota’s Major Competitors 9 4.2 Porter’s Model 9 5.0 Business Dilemma 10 5.1 Quality and Reputation issues 10 5.2 Aggressive Expansion and Reputation Issues 11 5.3 Centralised Decision Making and Reputation Issues 12 5.4 Inadequate internal risk Management and Supply Chain Network Monitoring 12 5.5 Inadequate Media Campaign 13 6.0 Role of Strategic Marketing in Restoring Lost Reputation 13 6.1 Internal Actions 14 6.1.1 Restore Quality 14 6.1.2 Planned sustainable Growth 14 6.1.3 Decentralise Decision Making 14 6.1. 4 Enhanced Internal Risk Management and Supply Chain Monitoring 15 6.2 External Actions 15 6.2.1 Community Social Responsibility and Media Campaigns 15 7.0 Conclusion 15 References 17 1.0 Introduction One of the all time greatest invention that will go into the annals of history as a reflection intellect capacity of human beings is the invention of automobile. After General Motors, Toyota is ranked as the second largest vehicle manufacture globally (Latimes.com). Toyota is motor vehicle manufacturing company based in Japan with branches and affiliations all over the world with a unique production system known as Toyota Production System (Beckford, 2009, p.130). Apart from manufacturing automobiles, the company has diversified its portfolio and engages in production of textile machineries, materials handling equipments, electronics, and logistics solutions (Toyota, 2012c). In recent years, Toyota has experienced numerous interruptions tied to natural catastrophes like earth quakes in Japan which disrupted it supply chain resulting into loses. In addition, in 2009-2010 the company suffered reputation issues and dent in corporate image as result of massive recalls associated with engineering failure of gas pedals and window switches. As new strategic marketing practices, Toyota has introduced new measures so as to redeem their corporate image as envisioned in ‘Kaizen’. The report will cover industry background of Toyota, company description & business analysis, competition & challenges Toyota faces and remedy actions to be taken so as to reverse the negative trends experienced. 2.0 Industry Background 2.1 Historical Timelines of Toyota The growth and development of Toyota is marked with interesting happenings. Toyota Company was founded in 1937. The next milestone was the launching of Toyopet Crown, Toyopet Master and Crown Deluxe in 1955. As a result of embracing quality control in all their operations, in 1965 Toyota won the Deming Application Prize. In 1974, the company established Toyota foundation which acts as corporate social responsibility wing. As part of restructuring and consolidation, in 1982 Toyota Motor Co. Ltd. and Toyota Motor Sales Co. Ltd. are merged into Toyota Motor Corporation. Apart from restructuring and consolidation, the company engaged in segmentation by launching it luxury brand with the name Lexus in 1989 in USA. As a hallmark to their research and development, in 1997 Toyota launched mass production of hybrid car named Prius. Moreover, in 1999, the company ground breaking record continued when cumulative domestic production reached 100 million vehicles. As means of enhancing their brand image, Toyota entered Formula One World Championship. At the same year through Tianjin Toyota starts production in China. Onwards the company has experienced phenomenal growth and expansion launching Robot in 2004 and Prius sales reached 2 million (Toyota, 2012d). 2.2 Broad Operational Issues & Driving Forces for Toyota 2.2.1 Research & Development One important driving force is the research and development that Toyota has undertaken. Current trends in the business environment require business companies such as Toyota to establish knowledge management systems which are business strategy-oriented. Knowledge management systems provide business companies; organizations and firms with a competitive advantage to enable them perform better than others especially their competitors (Muzzucato, 2006, p.305). Toyota is known for cutting aged in technological developments. The first is ability to produce vehicles that are fuel efficient. The second is the ability to produce competitively priced vehicle for mass market and luxury brands. Apart from the two, the company is known for lean management in the form of Just in Time Production and Kaizen, which stands for Total Quality Management (Funaru, 2010, p.10). The lean manufacturing system, aka Lean philosophy, was derived from the Toyota Production System (TPS) in the early 1990s. The root of the Toyota Management system dates back to the early 1890s, when Sakichi Toyoda designed and patented the original idea of improved worker productivity and quality through a manual that he designed (Emiliani, 2006). The company is the first to produce in mass hybrid car called Prius. 2.2.2 Marketing Firms develop products/services in order to meet customer needs while at the same time ensuring maximum returns for the company (Onkvisit & Shaw, 2008, p. 7). Toyota has developed a marketing mix that ensures that all segments of the market are catered for. Toyota recognises the fact that globally there different cadres of income earners who are need to own vehicle. In this respect, the company prices their products differently. The next is product. The company has highly differentiated products globally. These range from extreme luxury cars trading by the name Lexus to common brands like Toyota corolla. For instance, Toyota markets its luxury cars under brand name Lexus, mid-range cars under Toyota brand and Scion brand for small cars meant for the youths. According to Raulerson, Malraison and Leboyer (2009, p.31), these three brands share facilities, parts and management, but are perceived different from each other by customers. Toyota Australia has adopted hybrid mode of distribution in Australia. This means that the company is in virtual environment and also physical location. In terms of place, the company operates in all regions of the continent by having production plants, assembly points or through franchise and distribution agreements thus, ensuring their vehicles and associated spare parts reach all corners of the earth (Toyota Motor Corporation Australia Limited, 2012b). The last bit is the promotion that Toyota conducts. Promotion is a communication of strategy of building brand and corporate image so that a product can have good reputation and salience. Toyota advertises its cars with the theme ‘the car in front is always Toyota’. This is done in traditional media, bill boards and on online platforms. Toyota is known to engage in Corporate Social Responsibility such as sustainability reporting and helping victims affected by calamities & Sponsor events like World Club Championship. 2.2.3 CSR, Legal and Other Regulatory Issues Toyota Australia equally recognises the need for environmental management in the area of energy and climate change. In their sustainability plan of 2011 they note that the significant source for their energy is electricity and natural gas. To combat climate change as a result of their energy use, Toyota Australia aims at reducing carbon emissions in all their aspects of operation. This is in anticipation of carbon-constrained economy. Moreover, they aim at manufacturing vehicles that are fuel efficient so as to attain low carbon country and reduce their carbon footprints (Toyota Australia, 2011). To account for their carbon emissions and manage it, the firm engages in sustainability reporting. In 2011, they produced their first online report in the GRI format. 3.0 Company Description 3.1 Brief SWOT Analysis of Toyota The company has numerous strengths that have pushed it to greater heights. They include marketing mix that the company has employed such as competitive pricing. In addition, the company has quality through continuous improvement concept engraved in their operations. Apart from these, the company has a production system that has revolutionised their operations. TPS is a demand driven that ensures production is done when only needed. On the other hand, the company has depicted certain weaknesses. The weaknesses that appear in the company operations include inadequate decentralised decision making. The second is inability to respond to risks in a faster way. This means that they don’t have adequate measures for risk management. The other weakness that can be seen is the week monitoring system of supply chain associated with recall of defective gas pedals. The opportunity that exists for the company is the expanding market especially in developing economies where disposable incomes are improving. The threats that are afflicting the company are poor reputation as a result of massive recall and the increasing competition from existing and emerging brands. 3.2 Uniqueness about Toyota 3.2.1 Continuous Improvement The next important and unique aspect of Toyota’s corporate culture is Kaizen. Kaizen falls under the framework of the Continuous Improvement concept (Toyota, 2012e). The goal is the attainment of top quality with the belief that even the best can still be improved on (Funaru, 2010, p.10). At Toyota, a simple approach to quality is exercised, and it is integrated in the way people think and work. Toyota leads the market in terms of quality by dividing product development into two stages. The first stage involves coming up with a wide range of options in designing a product (Amasaka, 2004, p.13). Toyota focuses more on developing knowledge about a product rather than dwelling on developing products. The idea is that once a concept in design is gotten right, quality products will naturally follow. In its front-end design work, Toyota uses concurrent engineering concepts to explore all possible design alternatives. Toyota engineers develop multiple structural design ideas and continue analysing them for manufacturability (Herstatt, 2006, p.195). 3.2.1 Marketing Strategy of Toyota The best way to examine the marketing strategy of Toyota is through the 4P concept (price, product, place & promotion). One of the key success factors of Toyota vehicles is derived from the mix in their production of vehicles. Through product differentiation the company is able to produce high-end and high quality vehicles which are priced competitively. Secondly, they are able to produce vehicles for mass markets. Moreover, Toyota is known for producing fuel-efficient vehicles as compared to European and American manufactured cars (McDonald, 2007, p.373). Another aspect of its marketing mix is its effective segmentation and branding. As a business marketing strategy, branding enables a business organization to attain its performance targets. Research indicates that brands are increasingly becoming significant components of culture, as well as the economy (Datta 1996, p.799). Branding enables automobiles to define product lines for various customer groups or market segments. For instance, Toyota markets its cars under different brand names. Lastly is the promotion through various avenues like advertising, sponsorship and CSR. 3.2.3 Success of Toyota’s Marketing Strategy The growth of Toyota towards conquering large market share has been a consistent and persistent process. This endeavor has seen the company move from paltry 5 % market share in 1986 to a dominant position. For instance, it had acquired more than 15 percent market share in the US in 2006. According to Toyota Motor Corporation Australia Limited (2012a), in 2011 they commanded 18% of Australian auto market. Moreover, the company has potential to expand based on the fact that Its competitors’ market share is declining each year. While these companies have same approach to segmentation and targeting, Toyota has come top as result of its approaches to operations which makes their vehicles preferred to other competitors. This is supported by the research and development wing of the company (Bhandari,2007). 4.0 Competition 4.1 Toyota’s Major Competitors Rediff Business (2012) provides a list of Toyota’s major competitors. In their initial observation, they note that Toyota is the largest automobile maker in terms of production. In 2010 the company produced 77,743,862 vehicles. Toyota’s market is based on their ability to produce vehicles which are affordable, fuel efficient and easy to maintain (The New Times Rwanda, 2012). The closest competitor to Toyota in 2010 was General Motors, which produced 8,476,192 units. The company produces vehicles like Chevrolet, Cadillac and Opel. Volkswagen holds third position, with 7,341,045 units. The company manufactures vehicles like Bugatti, Lamborghini, Scania and Audi. In fourth position is the Hyundai Kia Automotive Group, with 5, 764, 918 units. These companies employ numerous strategies to gain market leadership (Rediff Business, 2012). 4.2 Porter’s Model To understand how the company competes in the industry, the best analytical model would be the porter’s model. Barrier to enter automotive industry is as result of the fact that it requires massive capital investment and time to build reputation. The technological advancement and financial capabilities possessed by Toyota prohibits prospective competitors to enter the market. Customers have high bargaining power due to low switching costs since there are numerous competitors with the same services. However, the ability of Toyota to differentiate and carter for different segments through competitive pricing allows them to lock in customers by creating low switching cost in their favour. The threat of substitution is low. This is based on the fact that other means of transit are unique in their ways. The belief that they have capacity almost ruined them. This is based on the fact that the company overemphasised on quantity instead of quality as means of gaining dominance The fourth is the bargaining power of the suppliers which is low. This is based on the fact that Toyota develops a robust supplier partnership program and supplier assessments to collaborate and maintain good rapport with suppliers so that the suppliers are highly dependent on them as their main purchasers. However, this approach showed weakness as was evident during the recall period. Competition from existing players is high. Toyota’s ability in combating competitors lies in three factors: pricing, quality and differentiation. The company offers high quality at affordable price. In addition, they have diverse products to meet the needs of business travellers. 5.0 Business Dilemma 5.1 Quality and Reputation issues There is no important factor as the brand or corporate image. Edelman (2010) observes that the way to attaining good reputation is to ensure that products or services offered are of standard, observe transparency and create trust with its customers. From 2009 to 2010 Toyota suffered a major drawback as a result of massive faults in their vehicles. This has been the largest car recall since 1996, when Ford had to recall 8 million vehicles. It is estimated that as result of functionality issues, Toyota recalled 5.3 million cars. The reason for the recall is that the accelerator pedals were sticking to the floor and causing unintended acceleration. This makes occupants more vulnerable to accidents (Valdes-Depena, 2010). In the same period, the company recalled 7.4 million vehicles with faulty window switches. These defects were noted in various models such as the RAV4, Camry and Tundra, among others (Kollewe, 2012). The other claim for recall was the failure to meet US Federal Vehicle Safety Standard No. 110, which requires the provision of load carrying capacity modification levels (autoevolution, 2012). Kellogg (2010) argues “Toyota have conceptualized the whole problem as an engineering one”. Resolving the problem is not the solution only, they should engage in aggressive communication to assure public of their efforts. According to Connor (2010), reputation is a critical factor in organisation’s success. An organisation with bad name is likely to be shunned by customers. From the recall, the reputation issue pertaining to quality arises. This is critical as safe engineering and risk management requires companies to produce vehicles that are engineered to precision since a small mishap can lead to loss of lives. 5.2 Aggressive Expansion and Reputation Issues The aggressive expansion of Toyota with the ultimate aim of surpassing General Motors as the number one auto maker in terms of production and sale can be seen to be having a hand in the decline of quality presented to customers by Toyota. The argument here is that they focused on churning out volumes so as to surpass another competitor without proper controls. Ingrassa is quoted as saying that Toyota recalled many as compared to those that they sold in 2005. This is an alarming statement that if a company of huge reputation like Toyota can recall massively their finished product in large numbers at a go then there is problem. This concern is further highlighted by Consumer Report Magazine which in 2007 deliberately decided not to advice customers on purchasing Toyota. The same concern of aggressive growth as a source of woes to Toyota is summarised by Akio Toyota who observed that as result of rapid expansion, the company couldn’t match the same with human resources. 5.3 Centralised Decision Making and Reputation Issues One concern emerges out of the arrangement between the Toyota parent company and subsidiaries located all over the world. The question that lingers in one’s mind is that was the arrangement simply for expansion while the decision making were left to the parent company in Japan. This postulation is true since of the decisions are made by the company’s president. This means the process of making decision is bureaucratic. Kellog (2010) contextualises this observation by stating that the current company’s governance structure doesn’t allow for decision making on global scale. The repercussion is slow decision making process making the company vulnerable in responding to emergency situations that requires faster decision making. This is why the company could have not realised the defects until they were in the market. 5.4 Inadequate internal risk Management and Supply Chain Network Monitoring Critically, one question emerges out of this saga of recall and quality issues. The question is this how was it not possible for the company that has quality as its motor not to realise that the vehicles they were releasing to the market had certain engineering faults. This is worsened by the fact that there were not localised nor in thousands, but in millions. The answer lies in two factors. The first is that they don’t have adequate internal risk management plan that allows them to identify and respond to such outcomes. Connor (2010) posits that the company has no adequate risk management system that allows them to mop up issues before they spill into public domain. Secondly, since this is an economy of outsourcing and assembling, they don’t have enough mechanism to monitor the quality of products supplied. 5.5 Inadequate Media Campaign Effective communication and marketing strategies are essential in building brand name (London Business School, 2010, p.47). This cannot be achieved if a company like Toyota is producing cars with questionable quality. While the source of these problems can be attributed to engineering issues, rectifying the situation calls for the use of a marketing strategy that communicates to consumers in a way that will restore the brand image Toyota had built. The reason behind this argument is that while the company can work internally to rectify the quality problem that arose as result of engineering failures, this is not enough as the failures are still in the memories of consumers. Therefore, deliberate actions should be taken to regain public confidence and trust. The dilemma is that while the company recalled the vehicles and is improving on quality control, they are not aggressive engaging the public to know what they are doing. 6.0 Role of Strategic Marketing in Restoring Lost Reputation Marketing is not just doing sales. From systems point of view, it is an holistic process that starts from extraction to after sales service. Marketing mix requires companies to engage in all possible tactics at their disposal to attract and retain customers. This calls for a concerted effort in terms of quality, customer contact points, pricing, reputation & corporate image, communication, advertisement and customer relationship management among others. 6.1 Internal Actions 6.1.1 Restore Quality Marketing should be seen from a holistic or systems perspective. This implies starting the process from input to the final output. The argument behind this is that what is done at initial stages will impact on marketers and that marketing is bigger than doing sales. The first approach would be an in-house engineering solution of restoring quality through approaches like sigma six. The key to all this is research and development. The probable outcome would be value creation for the customers as they will be sure that is being presented to the market is of high quality and safe thus, making the work of marketers easy. 6.1.2 Planned sustainable Growth One dilemma that was recognised was the aggressive expansion in production that is not matched with other critical factors of production and success like human resource. The need to expand by churning out numbers without instilling quality is a concern. This if well addressed, the company will not partially experience what they went through. 6.1.3 Decentralise Decision Making One dilemma observed was based on the fact that the company has a centralised chain of decision making. This makes it difficult to respond to crisis. The best would be to decentralise decision making so that solutions can be reached quicker during the crisis. The role of the international headquarter at Japan would be an oversight function. The basis then is to empower the local subsidiaries to be proactive in decision making process. 6.1. 4 Enhanced Internal Risk Management and Supply Chain Monitoring Large organisations like Toyota should have enhanced internal risk management so that when unanticipated occur they have quick recovery. The company should have addressed quality issues before the vehicles were transferred to the market and the concern spilt to public. Closely connected to this is to monitor strictly what the contracted suppliers are delivering to them before assembly. This would mean that sticking gas pedals and faulty window switches would have not been delivered. 6.2 External Actions To regain lost reputation the company can engage the public through various public relation approaches that are genuine and transparent and communicating to them so as to enhance brand value and communicate with them on what is being done. This will improve their reputation, attract customers and convince doubters. Communication as means of interacting with public can be achieved through corporate social responsibility and aggressive media campaigns and advertising. 6.2.1 Community Social Responsibility and Media Campaigns While rectifying the problems is the first step to regaining the reduced reputation, the next is to engage the public through campaigns so that they can be convinced of changes that are being conducted. Closely connected to this is engaging in CSR by sending personal letters containing apologies, sponsoring safe driving campaigns and participating in motor sports so as to show the reliability that their cars still have. 7.0 Conclusion The aim of this comprehensive study was to look at dilemmas facing Toyota. The emerging dilemma that shook the company was quality issues that necessitated the recall of millions of vehicles. This tarnished the company’s corporate image, thus contributing to a decline of brand value. 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