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Mary Teagarden and Andreas Schotter, with the help of Michel Greto, for the sole purpose of aiding instructors in the classroom
use of the case “Toyota: The Accelerator Crisis.” It should not be used in any way that would prejudice future use of this case.
Mary B. Teagarden
Andreas Schotter
Michael Greto
Toyota: The Accelerator Crisis
Teaching Note
Case Synopsis
Historic information tracks the evolution of the company’s early focus on lean manufacturing, quality, and the
customer, to the contemporary focus on aggressive cost control and rapid globalization; it also traces the factors
that shaped the context in which the product failures occurred, and documents the failure of Toyota to respond
appropriately, and with sufficient speed.
customer focus at the expense of extreme cost reductions? Were nonfamily managers truly to blame for “hijack-
ing” Toyota? What role did Toyota’s supply chain and keiretsu structure play in the recalls? Or, as some claimed,
was Toyota simply subject to the latest media witch hunt in the wake of the global economic crisis?
Case Use and Teaching Objectives
or crisis management.
Among the key teaching objectives are:
• Toallowstudentstoexaminechallengesofrapidglobalexpansionandrelatedimpactonfunctional
operations in a strong culture, highly centralized company.
• Toexaminethepotentialsourcesforqualityfailureasacompanypursuesacostleadershipstrategy.
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• Toexaminetheevolutionofanorganizationalcrisis,andexploreresponseoptionsinmanagingahigh-
visibility product recall process.
• Toexaminetheimplicationsofmisalignmentbetweenmarketingandoperationalstrategies.
Related Course Materials and Readings
• NormanR.Augustine(1995).“ManagingtheCrisisYouTriedtoPrevent.”Harvard Business Review,November-
December,pp.147-158.
467-491.
Video Links
• Priusdriver’s911call:http://www.youtube.com/watch?v=5IdJqG07orA&feature=fvw
• StandardandPoor’sAnalysisofToyota’sdamagecontrol:http://www.clipsyndicate.com/video/playlist/1308
Assignment Questions
1. What were the drivers of Toyota’s accelerator crisis? Why was Toyota facing a recall crisis?
where is there room for improvement?
4. In pursuing its aggressive global expansion, what tradeoffs did Toyota make? How effectively did they man-
activities effectively?
brand?
petitive advantage?
8. WhatlessonscanothercompaniestakefromToyota’scrisis?
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Discussion
1. What were the drivers of Toyota’s accelerator recall? Why was Toyota facing a recall crisis?
The drivers of Toyota’s accelerator recall included strategic, structural, and cultural issues that, in combina-
tion, undermined the company’s ability to respond in a timely, coordinated, and effective manner to reports
ofacceleratorproblems(seeExhibitTN-1).
Strategic Issues.Toyota’snonfamilymanagementteamthattookoverin1995afterMr.TatsuroToyoda’sstroke
was determined to accelerate Toyota’s growth through an aggressive globalization strategy. While this could
ThecostleadershipfocusputpressureonToyotatobuildscaleandreducecosts—anditbecametheprimary
focus of the nonfamily executive team. They doubled their number of overseas manufacturing facilities in less
Toyota’s response to this overly ambitious expansion was penny-pinching and crisis mode in their opera-
tions. As a result, they partnered with unfamiliar suppliers, accelerated their product development process,
In1996,CEOOkudalaunchedthe“Toyota2005Vision,”whichencompassedastrongglobalmarketing
network that targeted local markets with harmonious growth through a global master plan and global profit
management.The2005Visionresultedinaseriesofrevolutionarymanagementandproductioninnova–
Toyota had earned a stellar reputation for high quality. However, in 1999, they experienced a major setback
thatthreatenedtotarnishthisreputationwhenasmanyas3.3millionvehicleswereaffectedbya“sludg–
ing,” an engine oil gelling problem that caused clogging of internal oil passages that could cause engines to
seize. Toyota refused to cover the repairs and denied warranty claims, arguing that the sludge was the result
whatBartlettandGhoshal(1988)call“administrativeheritage,orthecompany’sexistingcongurationof
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Table TN-1. Toyota’s Implementation of the “Toyota Way” Principles
Toyota Way Principles
financial goals.
term philosophy.
Principle 2. Create a continuous process
flow to bring problems to the surface.
TherewasastructuralrewallbetweenforeignandJapanesecommunications,
especially surrounding problems. This undermined the continuous process flow
to bring problems to the surface.
Principle 3. Use “pull” systems to avoid
overproduction.
N/A
empowerment.
Principle 7. Use visual control so no
problems are hidden.
N/A
tested technology that serves your people
and processes.
thoroughly tested technology.
Principle 9. Grow leaders who
philosophy, and teach it to others.
Toyota’s growth undermined the company’s ability to grow leaders who were
Principle 10. Develop exceptional people
and teams who follow your company’s
Their ambitious growth undermined Toyota’s traditional approach to
managerial talent development that used job rotation through a wide variety
Principle 11. Respect your extended
improve.
It appears that several years into the problem, Toyota and its supplier in the
statement.
Principle 12. Go and see for yourself
to thoroughly understand the situation
(genchi genbutsu).
Mr. Toyoda identified failure to execute on this principle.
customer.
UniversityofMichigan,p.37.
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assets, its traditional distribution of responsibility, and its historical norms, values, and management style.”
The McKinsey 7-S Framework identifies the specific dimensions that create a company’s administrative
manufacturing system and the Toyota Way. This aggressive expansion strained the company’s resources, led
them to misread the global market, to produce faulty products, and to build underutilized plants. Their
traditionalpriorities—safetyrst,qualitysecond,andvolumethird—hadbecomeconfused.Toyota’sdrive
for volume had displaced their traditional focus on safety and quality first. Their change from centralized
ing the problems and engineering fixes, and reporting to U.S. regulators were handled by different Toyota
subsidiaries.EachofthesesubsidiarieswasmanagedseparatelyfromJapan.DocumentsreleasedbytheU.S.
House of Representatives’ investigation show that some of the disjointed Toyota subsidiaries had an explicit
strategy to minimize safety recalls, saving the company hundreds of millions of dollars. All key engineering
decisionscamefromJapan.
factthattheacceleratorcrisisoccurredoutsideofJapanprobablycontributedtotheimportanceoftheissue
beingdownplayed.ExpectationsintheUnitedStateswouldemphasizecontrol—solvetheproblem—while
inJapan,theemphasiswouldbeharmony—problemavoidance(seeExhibitTN-5).
2. Michael Porter claims that operational effectiveness is not a strategy. Why was operational effectiveness
such a focus at Toyota? What are the downsides of lean manufacturing?
Inhisclassicarticle,Porterstates:
Operational effectiveness (OE) means performing similar activities better than rivals perform them.
M. E. Porter, “What Is Strategy?” 1996.
In the 1970s, Toyota pioneered the “Total Quality Management” movement in the automotive industry.
Theyintroduced“JustinTime”inventorycontrol;“DesignforManufacturability”inproductdesign;“Con–
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As Toyota embarked on aggressive globalization, they found that the control demands associated with the
Leanmanufacturingcertainlyleadstoefciency.However,italsodecreasesthedegreesoffreedomthata
company has to act, slows its responsiveness, and amplifies risk from quality problems.
Table TN-2: Toyota’s Performance against Crisis Management Best Practices
Avoiding the Crisis—Preventionandrisk
minimization
An examination of Toyota’s recall history highlights that there was a
history of accelerator-related customer complaints, and prior to this,
there was a history of engine oil gelling or sludging. In both cases, the
accelerators.
Historically, the Toyota Way approach to manufacturing and sourcing
withanemphasisoncontinuousimprovement,especiallyPrinciple
5—stoppingtoxproblemsandgettingqualityrightthersttime—
andPrinciple8—useonlyreliable,thoroughlytestedtechnologythat
Preparing to Manage the Crisis—Making
a plan to deal with a variety of undesirable
Toyota did not appear to have a crisis management plan when the
accelerator crisis occurred. In fact, they were only three years past
Recognizing the Crisis—Issuesof
Toyota’s failure to recognize the accelerator problem earlier was one
Containing the Crisis—Stopthe
hemorrhage
The recalls were Toyota’s effort to contain the crisis. However, the
wafingaboutthecause—mats,acceleratormechanics,orelectronics—
Profiting from the Crisis—Companiesthat
The accelerator crisis has given Mr. Toyoda the opportunity to go back
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3. Has Toyota successfully enacted the principles espoused in the Toyota Way? What did they do well, and
where is there room for improvement?
Toyota’sprinciplespushemployeestostriveforperfection.TableTN-1examinesToyota’sperformanceon
decisions.
4. In pursuing its aggressive global expansion, what tradeoffs did Toyota make? How effectively did they
manage the tension between global standardization and local responsiveness? Did they manage their value
chain activities effectively?
ofthistransnationalorganizationalcapabilitythatiskeytolong-termsuccess”(seeExhibitTN-6).
In Toyota’s aggressive global expansion, they achieved speed and scale, but traded away global coordination.
lack of local responsiveness. More recently, Toyota’s response to the sludging and surging problems indicated
considerably less local responsiveness.
5. HowwellareToyota’smanagement,employees,andexternalstakeholdersalignedtosupporttheircorporate
brand?
intheirinteraction—thecorporatebrandingtoolkitcanhelpcompaniesreapthebenetsofacorporate
branding strategy. The tool eliminates much of the ambiguity involved in creating and maintaining a cor-
ExhibitTN-7).
Corporate Vision. There is significant dissonance between the corporate vision of the founder and grandson
Mr.Toyoda,thenewCEO—acustomerfocusbuiltonsafety,quality,andvolume—andthenonfamily