Toyota Prius Recall: Theoretical Framework and Recommendations

11 Pages   |   3,200 Words
Contents
Business Topic. 3
Background Information. 3
Excellence of Production System.. 3
Toyota Prius Recall 4
Situation Analysis. 4
Evaluation of Potential Strategies or Actions. 8
Trust Theory. 8
International Business Strategy. 9
Recommendations. 10
Bibliography.. 11
 

Business Topic

Toyota Corporation is the largest automotive company in the world in terms of market presence. The paper discusses the Prius quality control problems which occurred during 2007 and 2008. Toyota Motor Sales decided to recall Prius automobiles after a key component was found defective. But even before the company could act and correct the faulty component, the defect sadly claimed several human lives and became matter of public resistance. The financial burden of this failure was also huge as the company had to recall at least fifty thousand vehicles and this was one of the largest such incidence of failure by an automotive company. The loss if properly accounted on a global level produced shocking results. The total number of Prius recall exceeds one hundred and six thousand vehicles. On analysing the technical details of this painful incident, the weak link was determined to be the value chain system in Toyota. The paper takes into account theoretical framework to evaluate the response of Toyota.

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Background Information

Toyota Motor Corporation is a Japanese origin automobile manufacturer. Toyota has the status of being the largest automotive company in the world (Toyota Corporation). The leadership of Toyota is in terms of both annual sales and production figures. Toyota was incorporated in 1937 (Stewart, 2007). When we talk about some of the largest conglomerates across the globe then Toyota certainly features there high up in the list. Toyota’s management perspective provides the proof that it has been working under the influence of Japanese Culture (Stewart, 2007). Toyota’s quality control system and the production excellence methods set such high standards that they are referenced as principles for text books. The company uses innovation as its most effective tool and possesses a mass market in hybrid vehicles and placed as the leader of the market in this segment (Andersen Consulting, 1994).

Excellence of Production System – Toyota thrives on the principles of excellence of the quality of the product with zero defects which is totally used in  ‘Toyota Production System’  which makes it a unique entity in existence. Therefore, the quality of the products by Toyota has a track record of being perfect in all aspects. They seldom give a chance for any faulty production with frequent quality checks at all levels (Dyer, 2000). There is a high level of competition in the automotive industry. Automobile industry has many giant manufacturers controlling the industry (Toyota Corporation). General Motors and Ford Motors are striving hard to get back their market share from the Japanese competitor Toyota (Institute of Transportation Studies, Research Report, 2010). The current environmental situation also calls for hybrid vehicles and small vehicles by the consumer in Japan and USA, and the trend is shifting towards them as result of growing awareness regarding conservation of limited resources and the ugly impact of global warming from fossil-fuel burning.

Toyota Prius Recall – Toyota Motor recalled the faulty Prius automobiles after a key component was found defective (Amasaka, 2002). But even before the company take the corrective action , the defect had proved costly for several human lives and became matter of public resistance (Amasaka, 2002). The financial cost associated with this failure was also huge as the company had to recall at least fifty thousand vehicles and this was one of the largest such incidence of failure by an automotive company (Stewart, 2007) The loss if properly accounted on a global level produced shocking results. The total number of Prius recall exceeds one hundred and six thousand vehicles (Toyota Corporation). Another problem which could be cited was that due to the usage for a very short period of time the effort for steering left increased to a very high level.

Resolution Steps Taken by Toyota – The Company started to use its wide dealership network and started a one-on-one training process on how to install each of the vehicle improved nuts which served to secure the pinion shaft of the vehicles (Dyer, 2000). The cost for this effort was again very high and worth mentioning here. The training process of the individual dealers and the cost of implementing the change in the interior of the vehicles raised the company expenses bills to a huge level (Jayaram, 2010). The loss of brand equity and customer trust had a big impact on the company’s operations.

Situation Analysis

Diagnosis of the Causes of the Problem - The inquiry into the causes of the problem showed that there was a natural design flaw in the steering wheel of Prius model from Toyota. The quality control problem about the steering wheel could not be found during use of a new automobile. During the usage of the vehicle the steering wheel is turned to the full-lock position a number of times. For Prius vehicle, over time the nuts which protected the shaft in the steering gear box tended to become loose. Once the nut became loose, drivers could suddenly find difficulty in turning the steering wheel (Jayaram, 2010). The sudden difficulty in turning the steering wheel is a serious problem when automobile is at a very high speed. This lead to the reported high frequency of accidents reported for Prius vehicle.

Investigation by independent researchers and Toyota Corporation itself also revealed that the above incident of nearly-jammed steering wheel did not occur in all Prius vehicles. The chance of occurrence of steering problem was dependent on the particular batch of production (certain batches were found to be particularly high prone to jamming incident). It is also worth a mention that the incidence of jammed steering did not only occur in Prius model of Toyota, rather the incidence was also found in Venza AWD and Sienna AWD vehicles (Jayaram, 2010). Prius created headlines in newspapers and other media only because it was a more popular model. In fact, the problem was more severe in Venza AWD and Sienna AWD vehicles for their front right-hand driveshaft used to break entirely. The other vehicles which created havoc did not make big news as they were not such big brands and the customers’ expectations were also not so high. Those vehicles did not make such big news because their market share is a very modest one in the consumer markets. 

Examination of Prius vehicles for the quality control defects brought to light other manufacturing defaults with the product. Apart from the flaw in steering wheel, the reported accidents of Prius were found to have occurred due to another manufacturing default, as well. The brakes of Prius vehicles of Toyota did not always work (Toyota Corporation). This was a grave manufacturing default.  The brakes of the vehicle did not always engage immediately after the brake pedal is pressed (Stewart, 2007). Similar to the steering wheel problem of Prius, the inconsistent-brake problem took place only after the vehicle has been used for some time by the consumer. During usage, the brakes of Prius vehicle used to develop an inconsistent feel. Over time, the net outcome was a brief lag or brief surge when the brakes are applied by the vehicle user (Stewart, 2007). The brief delay in application of brakes can spell the difference between life and death when automobile is travelling at very high speeds.

Set of Problem Resolution Steps taken by Toyota – Toyota Corporation was late in recognition of the problem before taking steps for its resolution. The first reporting for high incidences of accidents was reported towards the start of the year 2007. Toyota did not take notice of the reports. The recognition of a potential quality control problem in manufacturing was recognized by Toyota only after National Highway Traffic Safety Administration took notice and assessed the scope of the problem. Once National Highway Authorities’ investigation pointed out flaws in Toyota vehicles, Toyota took first steps towards resolution of the problem by initiating its own investigation (Institute of Transportation Studies, Research Report, 2010). The ignorance towards reports of media was a key feature of the attitude of Toyota towards problem resolution.

Very soon investigation by Toyota into its production system revealed that the gas pedals of its vehicles tended to get stuck. The problem created big liabilities and had potential amount of fixed costs for the company. Toyota was quite fortunate that a solution was found which a low-cost one modification in the vehicle’s braking system.  A mass recall of vehicles was announced by Toyota in Japan (Dyer, 2000). The dealers of the company were trained to place a small piece of steel in the braking system. The piece served to remove excess friction in the pedal mechanism. This measure resolved the problem effectively through this response mechanism of the company. Yet, Toyota’s customers had some faith on their company so waited patiently for company’s response before criticising for not responding on the complaints. The number of Prius vehicles recalled in 2010 surpassed all records. In Japan and US, a total of two hundred and seventy thousand vehicles were recalled but the majority of the recalls were made in Japan. 

The resolution efforts and response of Toyota also comprises of the communication program of Toyota. The company started to use its wide dealership network and started a one-on-one training process on how to install each of the vehicle improved nuts which served to secure the pinion shaft of the vehicles (Andersen Consulting, 1994). The missing part in communication initiative during problem resolution steps of Toyota was communication with customers. A very weak form of mass communication was taken by Toyota during resolution of its quality control problems. The company only announced a recall without any sincere apology or explanation. It is needless to mention that the cost associated with this decision was very high. This one-on-one training that was used for individual dealers and the cost of application of the change in the vehicle was significant. Even after incurring such huge costs, Toyota was not able to make up for its loss in brand equity and consumers’ trust. If the cost of losing out on brand equity and customer expectation is very high as well.

Evaluation of Potential Strategies or Actions

Trust Theory – Trust theory is an essential business concept for consumer durable products for it explains the relationship between the firm and the consumer. It states that an organization must foster both commitment and trust with its target market in order to effectively retain it (Amasaka, 2002). Gaining customers’ trust is important because it discourages organizations from giving preference to short-term clients above long-term clients. Moreover, it liberates organization to take risks by being aware of the fact that the customer is committed and trusts the company.

According to the theoretical framework, the key to success for a business in contemporary business environment is to develop and maintain successful relational exchanges with the client. According to (Levitt, 1983) success of a company is based around a model in which commitment and trust as key reconciling variables which surrounds a relationship. In the context of Toyota case study, the success of the organization is contingent on the consistent functionality delivered by the company to the consumers. The study (Cua, 2001) comprised of an investigation into the profitability of the automobile tire manufacturers and the trust expressed by the consumers on the company. Those manufacturers which commanded a higher level of confidence had a higher level of profitability than those which scored low on consumer trust. The theoretical framework also rests on relational exchanges. A relational exchange comprises of a sale of product, of the servicing interaction between the vendor and the customer, etc. There are multilevel opportunities for an organization to manage different kinds of partnerships and transactions. Foremost amongst them is the frontline staffs of the organization along with the quality of the product which is delivered to the customers (Aaker, 1998). These two factors comprise the core of the relational exchange between the customer and the organization. Shortcoming in either the behaviour of the frontline staff or the consistency in the quality of the product will erode the trust of the customer. There are two components of product quality in terms of customer’s confidence: (i) features associated with the core utility of the product must be present, (ii) features marketed and committed by the vendor must be present, and no matter they are essential for the product to function well or not. In other words, commitment and customer’s reliance can be created only after the company is able to keep its promises to them. Even if, only a single employee falls short of meeting customer expectations, it would completely destroy customer's faith of the company as a whole.
Application of the above condition of relational exchange to Toyota implies that, firstly, the necessary features related to an automobile must be present in the vehicles. Vehicles must contain safety elements for the customer, for instance (Usunier, 1993). Secondly, if Toyota markets its vehicles to contain advanced navigational systems, then such system must be present and work according to the promise committed by the company.

The element of assurance to clients also contain communication medium of a company with its markets. This includes Public Relations, Advertising, E-Media and Social Media. Those companies fare well which implement uniformity across their communication media and are also quick to respond to happenings in the external environment. The degree of dependability of such an organization will remain high among the consumers, even if there is a temporary lapse in the quality of goods and services (Aaker, 1998). The lesson is that in case of an unfortunate break down of the product, then the organization must be quick to use the above mentioned communication media to put their point of view across to customers and there should be consistency in the messages which are put out to the public. In case of a product malfunction, Toyota can sustain the level of trust it commands with its customers by promptly utilizing public relations, advertising and social media to communicate to its customers in a consistent manner (Van Rijnsoever, 2009). A key feature which must be mentioned at this point is that it is important to formulate an official company policy pertaining to customer service. Such a measure will ensure that all employees are on the same page.

International Business Strategy – The theory of international business strategy explains the ideal approach for managers of multinational organizations in the light of globalized business environment of today. It states that competition is global (Andersen Consulting, 1994). Businesses today compete with their competitors around the globe, due to break down in the barriers of communication and transport. The concept of global strategic management, therefore, instructs contemporary businesses to operate as if they compete in the global market even if they operate locally. Adoption of tools of strategic management is essential in order to survive, because even if the business only sells in the local market, there is a threat from imports from foreign countries or multinational organizations setting up their operations in the foreign country. Theory of international business strategy also states that every business must find a unique competitive advantage, so as to differentiate itself from hosts of suppliers and manufacturers all over the world.

The lesson from the theory for Toyota Corporation is that Japanese automobile market does not operate as a national market independent of other national markets. Even though, Toyota is a Japanese origin company, it faces global competition within Japanese market as well. The competition for Toyota in Japan is not limited to Suzuki, Daihatsu, Datsun etc. rather it extends to General Motors and Ford, as well (Institute of Transportation Studies, Research Report, 2010). The outcome is an increased pressure on Toyota Corporation to excel in almost every element of business, ranging from customer service to the quality of the final product. Some theorists also suggest the international business strategy involve decentralization of controls within the organization and employee empowerment. This is because a global business cannot be expected to function well when authority is strictly centralized to headquarters. The suggestion for Toyota Corporation is that the assembly line workers should be given the authority to voice their concerns about the quality of the product which is rolled out from the production system. The authority to raise a question on the quality of the product should not rest solely with the managerial personnel, for they are not directly involved in the production system of automobiles.

The application of cross-cultural management tools can help Toyota to bring their processes and production system at par with international standards. The company will no longer view its competitors as being Japanese manufacturers of automobiles only. Secondly, the empowerment of factory personnel will enable staff to point out flaws in automobile production within the assembly (Lotus, 1974). The advantage for the company will be that the shortcoming in the automobile manufacture will be identified by the staff within the company, instead of consumers in the market place. The reputation of the company will be saved from being stained and potentially fatal accidents can be prevented.
 

Recommendations

Toyota Corporation should have implemented the concept of International Business Strategy in its operations to tighten controls on a production system of automobiles. This would have helped the organization to point out potential errors in the production system before they caused accidents during consumer use. The implementation of trust theory would have enabled the organization to adequately respond to the publicity by utilizing communication media to retain trust of consumers. Implementation of empowerment of assembly line workers would have created an environment where information about likely defects would have been voiced. Quality control issues could be solved within the organization rather than the marketplace.

Bibliography

Aaker, D. (1998). Strategic market management (5th ed. ed.). New York: Wiley & Sons.
Amasaka, K. (2002). ‘‘NewJIT’’:a new management technology principle at Toyota. International JournalofProductionEconomics , 80 (2), 135-144.
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Cua, K. M. (2001). Relationships between implementation of TQM, JIT, and TPM and manufacturing performance. Journal of Operations Management , 19 (6), 675–694.
Dyer, J. H. (2000). Creating and managing a high-performance knowledge sharing network: The Toyota case. Strategic Management Journal , 2(1), 345−367.
Institute of Transportation Studies, Research Report. (2010). Interpersonal Influence within Car Buyers’ Social Networks: Observing Consumer Assessment of Plug-in Hybrid Electric Vehicles and the Spread of Pro-Societal Values. University of California, Davis.
Jayaram, J. D. (2010). Looking beyondtheobvious:UnravelingtheToyotaproductionsystem. Int. J.ProductionEconomics , 12 (8), 280–291.
Levitt, T. (1983, May-June,). The globalization of markets. Harvard Business Review , 92-102.
Stewart, T. R. (2007). Lessons from Toyota’s longdrive. Harvard Business Review , 85 (7), 74–83.
Toyota Corporation. (n.d.). Toyota Official Website. Retrieved Aug 15, 2011, from www.toyota.com
Usunier, J.-C. (1993). International Marketing: A Cultural Approach. UK: Prentice Hall.
Van Rijnsoever, F. F. (2009). Consumer car preferences and information search channels. Transportation Research , Part D, 334–342.

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