Toyota Under Fire

Lessons for Turning Crisis Into Opportunity

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Building Resilient Organizations

Toyota has proven to be an incredibly resilient organization as it has managed its way through the global recession, the recall crisis and the Japan earthquake and tsunami. In each case, the company recovered far quicker than many imagined possible. 

How had Toyota done it? By having a corporate culture that responds to adversity with positive action. That’s why we spend so much time talking about culture being the key factor in turning crisis into opportunity. 

In this recent post, George Everly, a professor of psychiatry at Johns Hopkins, makes the case for building resilient corporate cultures. 

Toyota is proof that doing so is possible and the best possible investment a company can make. 

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Investing in People

One of the underlying themes of all examinations of Toyota’s practices is the extraordinary investment the company makes in training people. That investment is one the company knows will pay off: you can’t engage in continuous improvement if you haven’t been deeply trained in your job and in the problem solving process. 

But investing in people is a discipline that has fallen by the wayside for many companies. While few companies ever have invested at the level that Toyota does, mentoring was once expected of bosses, but no longer. 

Thomas DeLong examines the fall of investing in people in today’s corporate cultures in this post for HBR. 

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Dr. Les Jackson, who oversaw Edmunds.com’s $1 million prize for anyone who could demonstrate a vehicle-based cause for sudden unintended acceleration, discusses the submissions. No one was able to meet the prize’s criteria. 

Here’s the summary quote from Jackson’s presentation: “If nothing else, they[the submissions] proved, the engineering of these [electronic throttle control] systems, not just Toyota, but everybody, is so good, that you have to go to great lengths to defeat it. I’m not saying it’s foolproof, because nothing is foolproof. Mark Twain said, ‘Nothing is foolproof because fools are so damn smart.’”

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Jeff on the Entrepreneurial Moments radio show

A few weeks ago Jeff appeared on the Entrepreneurial Moments radio show. He discusses how important it is for entrepreneurs to build a long-term philosophy and a culture of repeatable and consistent problem solving. 

As we wrote in Toyota Under Fire, success in a crisis is dependent on culture more than anything an executive can do. That’s a great lesson for start-ups because lets face it, start-ups are in a constant state of crisis. If they’re not in a cash flow crisis they’re in a managing rapid growth crisis. 

You can hear Jeff’s interview by going here, and then scrolling down to the link to Jeff’s session on June 14. 

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Cutting Costs, Managing Risks

Lay-offs are such a part of the modern business management toolbox that no one blinks an eye when a large company lays off thousands of workers. It’s not only expected, but it has taken on the air of inevitability. Whenever revenue or profit declines, laying off staff is the first step.

In a post at the Harvard Business Review blog, Maurice Ewing notes that operational risks—costs associated with errors, accidents, IT outages, etc.—account for more costs for most businesses than personnel costs. He claims that cutting costs from operational risks by 50% would save the same amount of money as the total layoffs from large firms during the last 2 years.

Ewing makes the excellent point that there are no downsides to reducing operation risks while laying off large numbers of employees always destroys value—people with important knowledge walk out the door, never to return. 

There’s an important link here to Toyota’s approach to the recession and the recent supply chain crisis caused by the earthquake. Unlike its competitors, and the vast majority of other companies, Toyota managed these crises without involuntary layoffs of any team members. In both cases, production lines were shut down, but the team members weren’t sent home or cut. They were put to work. 

Doing what? Managing operational risks, to use Ewing’s term. In Toyota’s terminology it’s continuous improvement and kaizen. 

Ewing’s perspective on the costs of operational risks versus personnel gives another lens on how Toyota has managed to be world class in terms of profitability without resorting to layoffs: it’s the world leader in reducing the cost of operational risks. 

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Toyota and Ford switch places in quality rankings

Part of the narrative surrounding the recall crisis was that Toyota’s quality had slipped and other companies, particularly Ford had caught up. It appears now that this was largely an issue of perception and not reality. 

Last week J.D. Power released the results of their latest initial quality survey. Ford and Lincoln owners reported quality problems at a higher rate than the industry average—meaning not that the quality slipped a bit, but that the quality plummeted to below the average for all vehicle makers. In the rankings Ford fell from No. 5 overall to No. 23. 

Meanwhile, Lexus regained the spot at the top of the rankings, a spot which it has held almost continuously since Toyota introduced the brand. On average Lexus owners reported about 25 percent fewer problems than the industry average and one vehicle, the Lexus LS, had 50 percent fewer problems than the industry average.

The Toyota brand meanwhile, placed 7th, behind only Honda and essentially tied with Mazda among mainstream brands, and well-below the industry average. 

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My presentation from the Edmunds.com auto safety conference. In short: what have we learned from the Toyota crisis in terms of improving auto safety? Not much.

Since the video doesn’t capture this, let me note that aside from the plaintiff’s lawyer’s consultants, no one at the conference believed that there was a vehicle-based defect that caused uncontrollable sudden acceleration, and no one (including the plaintiff’s lawyer’s consultants) believed that the crisis had materially improved auto safety.

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Toyota Camry creates the most US jobs per vehicle

During the recall crisis many thought Toyota was being made a scapegoat because it was foreign brand. Ironically enough, Toyota’s are among the most “American” cars sold in the US today—more of the vehicles components are made in US plants and more of the vehicles assembled in the US than most of the models offered by “American” car companies. The Camry specifically has long been ranked as the most “American” car available.

ABC News—which participated fully in the Toyota witchhunt by providing a platform for David Gilbert’s spurious claims based on rewiring vehicles—has now concluded that buying a Camry creates 20 American jobs, the most of any car sold in the US. Its closest domestic competitor is the Ford Escape which creates only 13, or just 65% of the American jobs created by a Camry purchase. 

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No winner of Edmunds.com SUA contest

Back in the heat of the Toyota SUA hysteria, Edmunds.com launched a $1 million contest looking for a plausible explanation of how vehicle electronics could cause SUA. Contest submissions were December 31st, 2010. At the Edmunds.com safety conference last week, the group announced that there were no winners. In other words, even with $1 million on the line, no one could come up with a plausible, testable explanation that would back up allegations of electronics defects that lead to SUA. 

Edmunds.com CEO Jeremy Anwyl not only suggested that attention should now be turned to drivers, driver error and pedal placement, but stated that claims of electronic defects causing SUA are “beginning to sound like the auto equivalent of the grassy knoll.”

You can read the full statement from Edmunds.com here