Yeirang Lee_Week 10 Organizational Culture

Yeirang Lee

Application Assignment 10

Organizational Culture

How Organizational Culture can help Crisis Management

                  As a catch-all category, organizational culture has been a topic in which many refer to as “the way things are done in a firm” (Sorenson, 2009). Extensive research has shown that organizational culture plays a significant role in the performance and productivity of a firm, impacting not only the organization routine procedures, but also the behaviors and capabilities of the employees.  This essay will focus on how organizational culture has been an integral part in the recovery of Toyota’s recall crisis in 2010. In order to do this, I will give background information and literature review on organizational culture. Then, I will lay out Toyota’s organizational culture and explain how it was critical in recovering Toyota’s quality and image. Finally, I will conclude with implications and lessons learned from the Toyota recall crisis.

                  Before discussing organizational culture, the first step must be to define it. Organization can be referred to concrete terms such as the operations, hierarchy, and formal groups within an organization. However, organizational culture literature provides various views on organizational culture that go beyond just concrete organization structures.  O’Reilly and Chatman (1996) define organizational culture as social control mechanisms, very similar to reporting procedures and incentive systems. Sorensen (2009) states that organizational culture is the basic value and cognitive beliefs that shape employees’ understanding of organizational processes. According to Schlein (1992), organizational culture is a set of operational principles developed by the organization to adapt to internal and external environments.[1] He argues that organizational culture form “guidelines and rules for how to behave, and most importantly, reduce and contain the anxiety of dealing with an unpredictable and uncertain environment.” Despite the various definitions of organizational culture, all definitions agree that organizational culture helps resolve two fundamental issues of firms: principle-agent problem and performance consistency. Companies must delegate autonomy and responsibilities to its managers and managers must be able to fulfill the expectations of the company, as well as perform at consistent levels (Denison & Mishra, 1995).

                  Toyota’s organizational culture, referred to as the Toyota Way, has many components, largely divided into four levels: processes (eliminate waste), people (kaizen – continuous improvement), and problem solving (hansei - find the root cause, reflect, and learn), philosophy (base management decisions on long-term). First, in the processes, the Toyota’s goal is to produce the best quality, lowest cost, and shokrtest lead time through the elimination of wastes. Second, in the people sector, Toyota constantly emphasizes Kaizen, meaning continuous improvement. It is Toyota’s core value to always improve its quality and innovation in every sector, whether its engineering, human resources, sales, and marketing. Every year, Toyota produces and processes approximately one million ideas, implementing nearly 90 percent of the ideas. This type of culture is continually encouraged and rewarded in Toyota (McBride, 2004). Third, Hansei, meaning learning through reflection, focuses problem solving on understanding the situation deeply and making decisions slowly through consensus (Dolcemascolo, 2010).  Fourth, Toyota’s philosophy is to always make decisions based on long-term benefits and success even at the expense of short-term financial losses (McBride, 2004).

Through these three principles of Toyota’s organizational culture, Toyota has attained international recognition as the world’s number one automaker in 2009; however, during Toyota’s 2010 recall crisis, Toyota’s crisis management was delayed and mismanaged due to its organizational culture. Between 2009 and 2010, Toyota had recalled more than 8 million vehicles of more than 8 different models to what Toyota claimed there were problems with the ill-fitting floor mats and sticky pedals (Feng, 2010). The crisis was initially triggered by August 2009 fatal crash of a Lexus that involved the death of four people. Between Sept and April, Toyota received litigations of more than 19 deaths and numerous injury crashes (Quelch, Knoop & Johnson, 2011). Toyota continues to recall intermittently in five different stages, suggesting Toyota was responding to the crisis rather than managing it. Because of the crisis, Toyota’s market share lost 11.6 percent and its sales decreased 16 percent in January and 8 percent in February, compared to the same months in 2009 (Feng, 2010).

On reflection of Toyota’s organizational culture, I believe Toyota’s mismanaged crisis came about through hansei. As I stated earlier, the root of hansei is deep problem solving by personally understanding confirmed facts. When the crisis broke out in August 2009 and the media pressed for an explanation, Toyota’s response was slow, the upper management including the CEO Akiyo Toyoda was not present in the early stages of the recall crisis, and they sent Public Relations teams to do the work instead to block media backlash (Liker, 2010). After the first crash and recall, Toyota stated the problem as an ill-fitting floor mat and issued a public safety advisory on Sep 29th 2009 (Bensinger & Vartabedian, 2009).  Because of Toyota’s slow response there were serious media backfire with headlines including “Toyota’s Tylenol Moment in Newsweek”,  Businesweek’s “Oh, What a Hideous Feeling,” and Wall Street Journal’s “Toyota’s Troubles Deepen” (Quelch, Knoop & Johnson, 2011). Moreover, the National Highway Traffic Safety Administration (NHTSA) started an investigation into Toyota, stating the problem could be more significant and that the problem could be attributed to floor-pan and an electric-throttle control system (Stewart, 2010). Furthermore, there were backlash from the people, with Youtube videos caricaturing Toyota’s incompetence. Such pressure from the people, government, and media created a severe blow for Toyota (Quelch, Knoop & Johnson, 2011). On February 5^th 2010, CEO Toyoda appeared in public for the first time since the start of the crisis, gave a public apology, and set up a global task force to fix the quality issue (Feng, 2010). Despite such efforts, Toyota’s ability to bounce back seemed futile with Toyota’s crisis-mismanagement – a combination of the lack of immediate response and denying the issue during the early stages.

Despite its late response, Toyota stuck to its philosophy and kaizen and implemented important policies to rebuild its quality and reputation that allowed Toyota to bounce back. As I mentioned earlier, Toyota’s philosophy is to think long term and to continuously improve. Toyota faced a cumulative financial loss of 5 billion dollars; however, Toyota maintained its workforce (Taylor, 2010). Because of the decrease in demand, Toyota was only utilizing 60 percent of its full capacity and used the 40 percent in other training courses on kaizen (Liker, 2010). Toyota continued to enforce kaizen training sessions, where employees, managers, and senior leadership would discuss to continually improve its quality and innovation. Moreover, it was the culture of hansei to go understand deeply to fix the accelerator pedal issue. For example, Toyota America started to work closely with its outside suppliers such as CTS Corporation to develop a new accelerator design (Liker, 2010).[2] Through their recall, Jim Lentz, President of Toyota USA, stated that Toyota had fixed the accelerator issue in the cars and “we have done exhaustive testing, and we have found no evidence of problems with the electronics" (Toyota USA Newsroom). As to prove the maintenance of Toyota’s quality and reliability, Toyota received ten of J.D. Power Initial Quality Awards and automobile magazines stated three of Toyota’s brands – Toyota, Scion, and Lexus – as among the top five most reliable brands (Hemus, 2010). Most importantly, the NHTSA released a report in 2011 stating that after a 10-month investigation with leading NASA engineers and scientists, they found no evidence of electronic-based causes for unintended acceleration.  In their announcement, U.S. Transportation Secretary Ray LaHood even stated that he recommended a Toyota minivan to his daughter (Feng, 2010). In the first quarter of 2011, Toyota increased its sales by 12.5 percent compared to the first quarter in 2010 and regained its market share to 92 dollars in February 2011 compared to the average of 72 dollars between Jan and December 2010 (New York Times).

The hard fought battle by Toyota showed significant implications for future crisis management. Although it failed in responding to the crisis quickly, Toyota was able to revamp its image of quality and reliability by implementing operations based on its philosophy and kaizen.

(1)                   The philosophy of long-term focus kept Toyota’s workforce to relearn and participate in training courses on kaizen, so that quality and consistency can be maintained. These training courses allowed employees and managers to discuss what the issues were and how they can be fixed and improved.

(2)                   Policies of hansei allowed Toyota to go and deeply understand the issue by recalling the cars and test the cars to find and fix the issue. While many organizations accused Toyota of an electric-based caused acceleration issue, the problem was only the sticky pedal and anti-braking lock system failure. These two issues were fixed and NHTSA proved that Toyota had any electric failures.

(3)                   Because of Toyota’s early crisis response, we saw that Toyota’s market share and sales had dropped significantly, and the costs (not including the recall costs) to Toyota were even more devastating. Thus, it is very important to respond to the crisis at a very early stage.

(4)                   Quality and reliability are the most important factors in rebuilding a company’s reputation. Toyota’s media response to reassure its customers were not enough, and the Toyota’s response to reassure its maintenance of quality were significant to recover its market shares.

References

Denison, D.R. & Mishra, A.K. (1995) Toward a theory of organizational culture and effectiveness.Organization Science, 6, 204-223.

Feng, Y.Y. (2010). Toyota crisis: Management ignorance? – a Swedish case of consumers perceptions. (Master dissertation). Retrieved November 16, 2012 from

http://www.diva-portal.org/smash/get/diva2:349746/FULLTEXT02

Greyser, S.A. (2009). Corporate brand reputation and brand crisis management. Management Decision 47(4), 590-602.

Hemus. J. (2010). Accelerating towards crisis: a PR view of Toyota’s call. Retrieved November 16, 2012 from

http://www.guardian.co.uk/business/2010/feb/09/pr-view-toyota-reputation-management

Liker, J. (2010). Can Toyota Hansei its Way out of the Crisis?. Harvard Business Review. Retrieved November 16, 2012, from http://blogs.hbr.org/cs/2010/02/can_toyota_hansei_its_way_out.html

Bensinger, K. & Vartabedian, R. (2009).  “New details in crash that prompted Toyota recall”, Los Angeles Times. Retrieved November 16, 2012, from http://articles.latimes.com/2009/oct/25/nation/na-Toyota-crash25 2010-03-09

McBride, D. (2004). Lean Culture at Toyota. EMS Consulting Group. Retrieved November 16, 2012, from http://www.emsstrategies.com/dm070104article2.html

Quelch, J.A., Knoop, C.I. and Johnson, R. (2011). Toyota recalls (A): Hitting the skids. Harvard Business School. 

Sorenson, J. (2009) Note on Organizational Culture, Harvard Business School, pp. 1-6 (full article)

Taylor, A. (2010). How Toyota lost its way - Full version. CNNMoney. Retrieved November 16, 2012, from http://money.cnn.com/2010/07/12/news/international/toyota_recall_crisis_full_version.fortune/index.htm

Toyota USA Newsroom: http://pressroom.Toyota.com/pr/tms/ 2010-03-09

---

[1] His definition suggests that organizational culture can develop from senior leadership, lower levels of management, or become influenced by external situations.

[2] Other initiatives to regain its buyers, Toyota also reduced the price of cars, giving 0% APR financing, low leasing rate, and complimentary two-year premium maintenance offers (Toyota USA Newsroom).