Trust between Severn Trent and Toyota - Case Study Example

Severn Trent and Toyota: Trust Case studies Institution Name Table of Contents Table of Contents 2 Introduction 3 Presentation of topic: Trust 3 Company background: Toyota and Severn Trent 4 Root causes leading to loss of trust Severn Trent and Toyota 5 Reviewing effectiveness of the mitigation actions 6 Likely implications due to failure to publicly address issues 8 Rebuilding the companies’ reputations 10 Analysis: how the company did/what could have been done better 10 Conclusion 12 References 12 Introduction In the modern-day economies, trust is given profound priority to ensure significant gains in transactions associated with risky returns and delayed returns. Still, problems linked to development and restoration of trust also exist (Schniter et al, 2012). In the event that where a company suffers reputational damage, systematic understanding of the procedures and activities that facilitate trust are critical (Saunders et al, 2010). While a large number of literature on how loss of trust cause damage to corporate reputation have been published, a paucity of research literature have explored how trust can be encouraged and rebuild (Harris et al 2014). Based on this backdrop, this report provides an analysis of Severn Trent and Toyota case studies. The areas explored in this paper include the roots causes leading to the loss of trust in the companies, effectiveness of the mitigation actions taken, what would have happened if both companies had failed to publicly address the issues and make changes, and lastly a review of how the companies’ reputation can be re-build to avoid suffering similar consequences in future. Presentation of topic: Trust Harrison (2014) defines corporate reputation as the overall estimation through which an organisation is perceived by its external and internal stakeholders in regards to its past actions and estimations of its future conduct. Therefore, as Saunders et al (2010), claims, the organisation is likely to have different reputation with the stakeholders depending on the level of trust from the stakeholders. Overall, good reputation has several key benefits, such as greater value in the financial market (Dietz & Gillespe, 2011). Hence, trust is an important means to gaining and sustaining competitive advantage. Trust refers to a belief, state, or positive expectation based on the confidence that individuals represent in relationships without concerns regarding exploiting vulnerabilities (Paliszkiewicz & Koohang, A2013). Hence, trust is linked to individual's confidence and positive expectation. Companies face the challenge of winning the stakeholders' trusts, including customers (Dietz & Gillespe, 2011). As established by Dietz and Hartog (2006), such forms of trust are aggregated, subjective, and confident. Generally, three attributes of trust, including integrity, benevolence, and ability. Benevolence depicts the motives and the levels of kindness at a personal level toward the company. Therefore, companies that fail to show genuine interest for employees are likely to cause distrust. Ability refers to the capability of the other party to undertake obligation. Lastly, integrity comprises adherence to a set of principles that stakeholders view as acceptable. In which case, the concept of trust is multi-faceted rather than uni-dimensional (Dietz & Hartog, 2006). Company background: Toyota and Severn Trent Toyota Motor is among the largest automotive manufacturer by automobile sale, designs and production of a diverse line of product range. The Japan-based company deals in automobile and financial business. Its automobile segment engages in the design and manufacturing and sale of automotive products. The company has encountered trust issues. In August 2009 in San Diego, the company's Lexus model of car developed complications with the accelerator mechanism and started accelerating out of control leading to an accident and subsequent death of the driver. Toyota, which had until then enjoyed an impeccable reputation for quality and reliability, faced a huge crisis of trust. Severn Trent Services is a UK-based water company that specialises in supply of water and sale of water treatment products to commercial customers, municipalities, and utilities. Like other water UK-based water companies, OFWAT, UK’s water services authority, regulates. In 2008, OFWAT fined Severn Trent £35.8 million for deliberately presenting false information and delivery of poor services to customers. In the same year, it was fined £2 million for poor reporting of information and hiding misleading data on leakage. Root causes leading to loss of trust Severn Trent and Toyota At Severn Trent, the causes of the losses of trust included the company’s involvement in presenting false information to Ofwat regarding its operational performance data and deceitful reporting practices at its Customer Service department. While these may be the immediate causes, the root causes of loss of trust included poor handling of whistleblower’s concerns, and ill-treatment of the situation as a litigation concern to avoid disclosure with the view of protecting the company’s reputation. Corrupt cultural values had also led a number of managers to views the tactics of deliberate deceit as acceptable (Saunders et al, 2010). Next, the company’s forceful defensive stand had backfired. Appalled by the response, and enraged at the disciplinary assault on his character, the whistleblower had taken evidence to the press, which later amplified the issues, by structuring “humiliating” articles in the newspapers and on television to condemn the company for fraud and cheating customers. In the case of Toyota, the immediate cause of loss of trust included the design faults in the Lexus model of Toyota’s luxury cars. Concerning the root causes of loss of trust, it is reasoned that by concentrating on the company’s aggressive growth strategy and profit making, the company had misplaced its priorities in satisfying customer demands. Toyota also frequently ignored customer complaints. As evident in Toyota’s internal report, the company had developed a tendency to neglect customer complaints regarding safety of the cars that Toyota manufactured. Additionally, Toyota had poor accountability for safety. Poor communication strategies also characterised the production process. For instance, Toyota’s centralised and hierarchical structure caused trust problems by limiting the speed and the validity of information flow. It also slowed the response from the top managed. Despite numerous car recalls, Toyota had also failed to acknowledge that its cars had mechanical problems. In the case study, Toyota acknowledged that the accelerator pedals of its Luxus brand of cars had mechanical faults in a number of it’s the car. Indeed, this was regarded as the root cause of the accident. The company also refused to own up and instead installed brake override system to restore its trustworthiness. This however triggered further public condemnation, hence prompting the company to carry out independent investigation into the issue. Reviewing effectiveness of the mitigation actions Severn Trent sought to address the scandal efficiently in a decisive and timely manner. This is since while uncertainties prevailed, the share price remained depressed, which down-rated the company’s value. The company’s management led by Tony Wray sought to get on with restoration of its reputation immediately with the view of taking a fast and painful hit instead of enduring the a long term damage. In this regards, the company instituted speedy internal investigations in February 2006 when OFWAT made inquiries regarding the SFO and concerns regarding its Customer Relations department. An independent internal investigation was critical in fortifying trust from the stakeholders and the regulator. To make the investigation more credible and authentic, independent external assessors were included in the investigations. The response was also effective in a way that the real causes of the scandal were established. Indeed, Ofwat’s interim findings emphasised the primary cause of the scandals to be “poor internal processes and controls.” Severn Trent also responded by presenting apologies to the public. The strategy was also effective in restoring the public’s trust. Indeed, the company made public pronouncements, which were unequivocal, and which expressed regret and apologies “unconditionally.” The internal investigation was effective as it provided the public with the basis to restore their confidence on the Severn Trent, by highlighting the possible deficiencies that the public viewed as beyond internal management. The investigations were also effective as they offered the company recommendations to re-establish reputation, such as a need to put an end to the corrupt cultural values had also led a number of managers to views the tactics of deliberate deceit as acceptable (Dietz and Gillespe, 2011). On the other hand, Toyota’s strategies for mitigation were relatively inefficient -- compared to Severn Trent. The three principal actions the Toyota made use of included communications, public disclosure, and recalls. As shown from the Toyota case study, the delayed communications, numerous car recall, and public outcry due to safety concerns for the company damaged its reputation. Two days following the accident, the company released a statement acknowledging the accident. However, the quick response strategy was effective in stopping rumours from arising. Rumours resulted in loss of reputation and greater public outcry. The organization’s poor mitigation strategies were viewed in the manner in which it delayed to address and identify the situation. Indeed, as demonstrated in the case study, there exists a belief that Toyota failed to acknowledge the problem with its accelerator pedals until it was forced into taking action. Even though Toyota admitted the mistake, it declined to comment on the probable accident causes. This was inefficient as it built grounds for speculations that could not have permitted effective investigations run its entire course. The company admitted that the accelerator pedals of some vehicles had problems, which was the main cause of the problem. However, the company’s plan to restore its trustworthiness by setting up brake overrides system rather highlighted a different problem that resulted in great public criticism. This inspired Toyota to place an independent probe into the matter. Additionally, the recall strategy continued to exist into 2010, which implied that the company was doing little to prevent future accidents. Confusion emanating from endless recalls seemed to also have caused distrusts. Likely implications due to failure to publicly address issues In the event that Severn Trent and Toyota had failed to publicly attend to the problems that violated public trust, the state of affairs could have developed into reputation crisis. This could have led to negative or positive financial and reputation implications, hence weakening the companies’ basis for survival. Among the most immediate concerns would have included financial failure. Indeed, due to reputational crisis, the companies would have lost customer confidence and eventually their customer bases. It is reasoned that Toyota could have lost its customers to major industry competitors. In turn, it would have led to lower revenues and lower profit margins. Under such circumstances, Toyota would have lost its position as the leading car manufacturer. For both organisations however, failure to address the issues publicly would have led to legal implications, such as litigations or class actions, corporate lawsuits and product liabilities. Lawsuits are generally undesirable for most companies as they contribute further to loss of reputation and significant commitment of finances, which could have been channelled into other more productive ventures. Additionally, the implications could have been internal. For instance, the corrupt cultures of hoarding information could have aggravated at both companies, leading to loss of faith on the companies by their own employees. Hence, crisis related to the human resources such as poor corporate cultures could have resulted, hence complicating human resource management. Indeed, it is indicated in the case study that Severn Trent’s employees had started to feel ashamed, which indicated that the management had to address both emotions. To ensure this, the company organised ‘roadshows’ to explain to employees what had actually transpired and what would occur. Another immediate implication would been on the stockholders who would end up losing faith in the company’s management. This is in addition to suffering unexpected financial losses. Indeed, in both Severn Trent and Toyota, the stakeholders who are likely to develop distrust include the stockholders, customers and the surrounding community that form the company’s catchment areas. This means that failure to address the trust issues could have also led to increased financial debt and bankruptcy. In the case of Toyota, distrust could have made the customers to turn down the company’s vehicles on ground of lack of safety. The Lexus car could have been withdrawn wholly from the market due to its deficiencies. Rebuilding the companies’ reputations As established from the two case studies, Severn Trent appears to have a higher prospect of re-building its reputation to avoid suffering similar consequences in future. This is based on the above analysis, where it is indicated that it had instituted better mitigation strategies in place. It is however, reasoned that Toyota can also stand to rebuild its reputation, despite the failures of its mitigation strategies. For this to be successful, the company needs to engage in effective cultural management. Secondly, having effective communication and report-making and feedback procedures in place can be effective (Bachmann & Zaheer, 2013). Analysis: how the company did/what could have been done better Both Severn Trent and Toyota were in the verge of suffering reputational crisis due to loss of trust. The companies faced different causes of distrust. At Severn trust, the root causes of loss of trust included poor handling of the whistleblower’s concerns, corrupt cultural values and backfiring of the company’s forceful defensive stand. In the case of Toyota, the root causes of loss of trust concentrating on the company’s aggressive growth strategy and profit making, the company had misplaced its priorities in satisfying customer demands. Toyota also frequently ignored customer complaints, had poor accountability for safety and poor communication strategies. Effective communication structures and organisational cultures, as suggested by Dietz and Gillespe (2011) have the potential to rebuild business reputation. For Severn Trent and Toyota to re-establish their reputations, engaging employees in training and employee development to promote productive cultures is essential. Training the employees on how to uphold ethical values is also critical, particularly for Severn Trent. An ethical company has a better potential to inspire trust from the public, as it is viewed as more capable and willing to meet stakeholder demands more willingly and without strings attached (Harris et al 2014). As established by Hurley et al (2013), organisational cultures that uphold ethical values are likely to keep an employee base, which is morally and ethically upright. Instituting sweeping reforms across the companies can help rebuild the companys’ reputations. Severn Trent had already started instituting companywide reforms to challenge the prevalent cultural norms and values. It is established from the case study that the reforms were in actual fact comprehensive and aimed all six organisational elements that company had identified in its model of trustworthiness: These included ethics training, where employees were presented with an opportunity to talk freely about situations that out them in ethical dilemma, leadership development programs with emphasis on ethics and honesty, reviewed whistle-blowing policy and code of conduct, stricter financial controls, and lastly more transparent corporate governance structure. The companies should also use promises and messages to build new trusts, where it did not initially exist. By instituting and upholding cultures and communication strategies that promote trust, it is unlikely that Severn Trent and Toyota will suffer similar consequences in the future. Once both companies build their reputations appropriately, they would get to generate attract more customers and more revenues (Saunders et al, 2010). Conclusion To concluded, while Severn Trent and Toyota faced trust crisis, the former had better mitigation strategies. Severn Trent addressed the scandal efficiently in a decisive and timely manner, unlike Toyota, which only responded after two days of being pressured by the public. As established from the two case studies, Severn Trent appears to have a higher prospect of re-building its reputation to avoid suffering similar consequences in future. This is based on the above analysis, where it is indicated that it had instituted better mitigation strategies in place. It is however, reasoned that Toyota can also stand to rebuild its reputation, despite the failures of its mitigation strategies. References Bachmann, R. & Zaheer, A. (2013). Handbook of Advances in Trust Research. New York: Edward Elgar Publishing Dietz, G. & Hartog, D. (2006).Measuring trust inside organisations.Personnel Review 35(5), 557-58 Dietz, G. & Gillespe, N. (2011). Building and Restoring Organisational Trust. London: Institute of Business Ethics Harris, J., Moriarty, B. & Wicks, A. (2014). Public Trust in Business. Cambridge: Cambridge University Press Harrison, K. (2014). Why a good corporate reputation is important to your organization. Retrieved: Hurley, R., Gillespe, N., Ferrin, D. & Dietz, G. (2013). Designing Trustworthy Organizations. Massachusetts Institute of Technology: Sloan Review, viewed 8 Dec 2014, Paliszkiewicz, J. & Koohang, A. (2013). Organizational trust as a foundation for knowledge sharing and its influence on organizational performance. Online Journal of Applied Knowledge Management 1(2), 116-127 Saunders, M, Skinner, D., Dietz, G., Gillespe, N. & Lewicki, R. (2010). Organizational Trust: A Cultural Perspective. Cambridge: Cambridge University Press Schniter, E., Sheremeta, R. & Sznycer, D. (2012). Building and Rebuilding Trust with Promises and Apologies. Munich Personal RePEc Archive 2013 Read More