From Recalls to Redemption: Toyota Did NOT Lose its "Way"

Even in the midst of the Toyota recalls last February, a survey found that Toyota owners overwhelmingly trusted the company, says Jeffrey K Liker, Professor of Industrial and Operations Engineering at the University of Michigan. Indeed, he writes, the loyalty scores were the highest of any auto maker. Dr. Liker, argues that the "Toyota Way" is still a model of operational excellence and he’s got the data from NASA to prove it.

Organizations throughout the world have engaged in lean, six-sigma, continuous improvement and other programs to strive for operational excellence, and an occupational group of process improvement specialists has evolved.

It is a noble cause, hard to argue against.

Yet, it has been very comforting to have an actual company to hold up as an icon, even spiritual leader, that is living proof that operational excellence leads to exceptional business results. That company has been Toyota. So if the recall crisis suggests that Toyota is made up of mere mortals, and not the perfect company some fantasized about, what does that do to the movement?

Let us first consider the movement itself, which is based on principles of scientific thinking. Get the data, analyze it, make informed decisions to get to the root cause of the problem, then move on to the next problem in a continuous cycle of learning. Be logical. Be rationale. Is it rational to base your company’s commitment to improvement on a mythical image of Toyota? Certainly Toyota leaders have always said each company must find its own path, its own course, to improvement.

Of course people are fortunately and unfortunately human, and do not think like computers. So fantasizing has some value, hopefully tempered with some facts. On Toyota the American government released reports on February 8, 2011 after a 10 month investigation by NASA and decades of investigation by the agency responsible for highway safety (NHTSA) and it gives us some useful facts:

1. There is no evidence, and there has never been any evidence, of electronic problems in Toyota vehicles (or any other brand) that cause sudden unintended acceleration (SUA).
2. When they studied cases of crashes where drivers claimed SUA in almost all cases they found it was driver error or "pedal misapplication" as they put it.
3. There were a small number of cases of pedal entrapment by unsecured, rubber, all weather floor mats that are stacked on top of other floor mats so reach a dangerous height and can slide into the pedal sometimes entrapping it. (That also has been reported for other automakers like for the 2010 Ford Fusion).
4. There were some sticky pedals that are slow to return, but they do not seem to affect braking distance, and up to this point there are no known accidents.
5. The case is closed as far as NHTSA is concerned and essentially NASA simply proved what NHTSA already knew one year earlier.

It now sounds a lot like the Audi false accusations of SUA in the 1980s. But Audi was a small, specialized brand and all but driven out of the U.S. market for a decade and Toyota is still number one in retail sales in the U.S. market once again the leading company in America in every quality award possible (J.D. Power, Consumer Reports, Polk, Kiplinger’s, Motorist Choice).

The beginning in Toyota’s turnaround in sales actually was March, 2010 (market share dropped to 12.8 percent in February and rebounded to 17.6 percent in March), one month after stopping sales for a week for the sticky pedals, hundreds of negative articles written about Toyota, and the congress of the United States berating Toyota for lacking honesty, integrity, and a safety culture. Even in the midst of that bleak month of February, a survey by Rice University of vehicle owners found that Toyota owners overwhelmingly trusted the company, thought they were handling the recalls properly, and would buy another and their loyalty scores were the highest of any auto maker.

Organizations that wish to view Toyota as a role model and find that useful can take solace in both the strength of the brand through the crisis, demonstrating the value of the investment in customers and quality, and in Toyota’s productive and effective long-term response.

In Toyota Under Fire, with Tim Ogden, we chronicle the twin crises of the recession and the recalls. Toyota was heroic in its handling of the recession, and not so heroic in the early stages of the recall crisis—taking too long to respond to allegations, too long to make decisions on recalls, and communicating poorly between Europe, headquarters in Japan, and staff in the United States. This is a problem Toyota is going to great pains to solve over the coming decade by turning upside down key processes and organization globally. We take a scientific approach to documenting the problems, separating myth from reality, examining where Toyota responded poorly and effectively, and what they are doing to come out of all this stronger in the long term.

The good news for those who value Toyota as a model of operational excellence is that their strong culture, the Toyota Way, is what got them to the point where customers trusted them, regardless of a negative media firestorm, and what allowed them in the short term to respond to customer needs such as getting the problem diagnosed and vehicles fixed in record time.

More important, the Toyota Way is guiding their long-term response based on deeply reflecting (hansei), taking responsibility, developing appropriate counter-measures with real punch, and relentlessly implementing the countermeasures. We believe we will see an even stronger and better Toyota that we can be proud of for decades to come.

Dr. Liker’s new book Toyota Under Fire (2011) is co-authored with Timothy N. Ogden.