The Oil Crisis That Occurred

Published Date: 02 Nov 2017

INTRODUCTION:

When the WWII was ended, world economic power distribution was shifted and rearranged. Europe and USA and the Western companies ruled the world market, based on scientific management principles of F.W. Taylor (1856-1915) and M. Weber (1864-1920) that had started the industrialization, mass production and great increase in production levels. However, in the period after the war new players were arriving to the market that based their work on philosophy, unknown methods to the Westerners. Old players has the short-term thinking with aim of satisfying the shareholders and do innovation and endless restructuring, while new ones had long-time vision with continuous improvement in the organization (not only production but also education of employees). It is known that the history of Japanese manufacturing industry started as the American initiative to help Japanese restoration after WWII. The occupation forces have brought American experts (Homer Sarasohn and Charles Protzman) to help rebuilding of the Japanese industry in late 40s and early 50s together with introduction of the Training Within Industry (TWI) programs that introduced the Kaizen, as part of the Japanese cultural heritage (‘’Kai’’ meaning change and ‘’Zen’’ meaning better; change for better/improvement) into Japanese industry. Toyota, as a company was one of the market new comers, and despite great competition caused by production capacity excess that existed in the automobile industry, and the 25% of market share was held by Western companies.

During the oil crisis that occurred in 1970s Japanese economy did not suffer any serious damage, most probably because of high productivity levels in the country at that time. Together with the introduction of the Quality Control (QC) and Toyota Production System (TPS) concepts, the whole industry has been in a way revitalized and Japan at that time was placed in the center of the global attention. After the oil crisis and the period of Toyota Motors `entrance to the global market in 1974, in Japan the slow economic growth could be noticed. For this reason Toyota Motors` achievement in becoming the most profitable Japanese company had gained attention and admiration from many other companies in the industry inside of the country and also abroad. There are various reasons for this success, starting from the Toyota Production System developed by Taiichi Ohno, one of the founders of Toyota Motors, to just-in-time and kanban methods, that were developed to support the realization of the TPS. In this paper my aim is to explain the philosophy behind the Toyota Production System, as one of the reasons of company`s success, highlighting the important aspects of this system and the revolutionary solutions that it has brought to the industry. Furthermore, Japanese culture that has a strong cultural ethics and corporate culture is highly used in the system, and the philosophy is supported by the human action that consists of will to work and working method as well. What is more important, the employees are loyal to the company they work for and there is the understanding of life-time employment (good labor-management relations) what additionally explains the corporate success. Mostly, Japanese productivity is high due to efficient production systems and highly qualified workforce (Shingo, 1989).

In the early 80s, Japanese Production Management (JPM) was dominant in the operations management, and the knowledge about this system (quick set up, cells, small lots, kanban etc.) started to be known beyond Japan, so it became a competitive force globally. This paper will try to deliver the reasons behind this success, proving that even though Toyota Motors faced a serious crisis with car recalls, its strategies and the Toyota Way management system proved to be right and strong to overcome the crisis.

Toyota passed Ford in 2004, becoming world’s second largest automaker, and few years later it became world’s number one passing 70 years market leader General Motors and taking 15% of world market share. Toyota will be the future brand because it works constantly on developing automobiles to satisfy customer needs, and it considers environment, safety, comfort, reliability and drivability as well. This paper will try to explain the roots behind Toyota’s global success, despite the great crises it has faced, trying to explain and understand the phenomena of Toyota Motors Corporation as a company that had 50 overseas manufacturing companies in 27 countries and cars sold in more than 160 countries and regions in the world (March 2012, Toyota Global web site). In the next period Toyota will continue focusing on realization of its sales expansion plans through development of remarkably efficient new models. Since as the company they have the strong corporate culture with understanding that nothing is perfect enough and that there is always room for improvement, this company will hit one target and immediately move to another, believing that the survival is not compulsory.

The Birth of the Japanese car manufacturing competitiveness:

The birth of Japanese automotive industry, both domestic and global, was seen in the period from 70s to 90s. It has started in early 1904 when Torao Yamaha made the first domestic bus that was powered by steam engine. Afterwards in 1907 the first Japanese car using gasoline engine was produced by K. Uchiyama. Kwaishinsha Motorcar Works that later became Nissan Motors started manufacturing a car called the DAT in the early 1911. It can be said that the cars that have been produced before the WWII were based on American and European car models. For example, Mitsubishi’s Model A was designed on the Fiat’s A3-3 model in 1917, and this was the first Japanese mass produced car. Nissan models produced in 1930s took Graham-Paige and Austin 7 designs, Toyota AA model had the base in the Chrysler airflow and Ford models were the basis for Ohta built cars. In this period the first car manufacturing plants were established. After the WWII and until 1960s car production was very limited, and mostly the trucks have been produced. In the early 70s passenger cars started entering the market, and the models were still based on the European and American car models. With the increase in the domestic demand in 70s, Japanese car manufacturers started their expansion to the foreign markets. For example, in 1965 exports of passenger cars were only 100,000 and 10 years later in 1975 they were 1,827,000. When Mitsubishi and Honda car manufacturers started their sales on the US market, the industry in Japan started growing rapidly. So, in 70s and 80s, manufacturers from Japan started gaining foothold in the world markets, and of course in the biggest car market, the US. The reasons behind this success were reliability, affordability and popularity of the produced cars, so this trend continued until today. Even though Japan exported more than one million cars to different countries (mostly US) in the beginning of 70s, the country had poor reputation, but with low value of Japanese yen against US dollars, number of buyers of these cars in US raised up. Together with the 1973 oil price shocks, Japanese cars gained further popularity because they had good fuel economy.

The market share of Japanese manufacturers (Toyota, Honda, Daihatsu, Nissan, Suzuki, Mazda, Mitsubishi, Subaru, Kawasaki, Yamaha and Mitsuoka) has decreased with emergence of competitors from India, China and South Korea, however together with the successful sales of Toyota Motors, the company that managed to surpass the American General Motors company who had good sales in the first quarter of 2008, this share raised again. Japan is always among first three automobile markets (US and China are the other two) in the world (8-10 million automobiles yearly) and automobile exports bring largest profits to the country. Furthermore, the investments that Japanese automotive makers in auto industry in many other countries, helped those countries develop their car industries and enabled employment of many people and their cars have won different awards such as European Car of the Year, World Car of the Year, International Car of the Year many times.

Major elements behind the Japanese success:

Major Japanese corporations have the so called ‘’Three Pillars’’ that are considered to be reasons behind the success. Those are; seniority-based payment and promotion, lifetime employment and company trade unions. Because these can provide secure employment relationships and create good commitment between employees and the employer, this is considered to be cooperative work and productivity where workers and management contribute together, share ideas for continuous improvement (on the basis of kaizen philosophy) of the system and performance in the company. With economic stagnation of Japan in early 90s, even though domestic corporations were performing well, interest in the country, employment systems and management practices were at very low level. The challenges that emerged as time has passed are mostly reflected on the automotive industry, i.e. Japanese leading manufacturer Toyota. In their book called ‘’The Machine that Changed the World’’ Womack Jones & Roos in 1990 introduced the ‘’lean production’’ term as Toyota’s greatest achievement in being world’s best car seller, since it brought the revolution into manufacturing operations management. This book also introduced the term ‘Toyotaism’ as system of management practices that is superior that would make a revolution in business understanding. Furthermore, Toyotaism introduced systems such as quality circles, just-in-time, continuous improvement (Kaizen) and kanban (Japanese words that are today used in various companies in different parts of the world). Today, automotive industry has yearly production of 60 million cars and trucks, employing millions of people worldwide, using half of the world’s oil consumption and accounting for 10% of GDP in developed countries (Glauser E.C, 2006)

KAIZEN as a philosophy:

Today, Kaizen as a concept is internationally well known, and it comes from the Japanese word ‘’kaizen’’ that means ‘’improvement’’ (has also meanings such as continuous or philosophy) of any kind (continuous, one-time, large or small). Being used in Toyota management system, kaizen started to imply on the measures for ‘’continuous improvement’’. This process will not only increase the productivity in certain workplace, humanizing it through elimination of overly hard work (so called ‘’muri’’) and including the managers and workers together into the whole improvement process. Even though format of the Kaizen can be individual, small group or large group of people at Toyota this format is usually a local area or workstation (small group is involved to improve its own working environment). This process is usually controlled by the supervisor of that area. When being applied to the whole organization, kaizen can generate Total Quality Management that can decrease human efforts and improve productivity through usage of machines and computing power. Toyota’s understanding of kaizen will generate small improvements, believing that continuity of these small improvements and standardization as time passes will create better results and improvement in all fields. So, kaizen as philosophy brought the revolution in to production process and it is much different that mid 20th century ‘’command and control’’ improvement program.

As it can be seen in the figure below, Kaizen is an umbrella concept that comprises of many dıfferent parts.

In kaizen way of organizing work staff must bring new creative ideas/thinking and get into work to strengthen the culture. To have better improvement mistakes are tolerated and employees can experiment with ways of improvement. Also, kaizen organizations invest into development of human resources capabilities and organizational values are adaptive and may change in order to reflect the newly emerged reality.

To create the Kaizen culture in certain organization there are certain tools that can be used and that focus on current situation improvement. These tools are 5S; Seri (sort), Seiton (set in order), Seiso (shine), Seiketsu (standardize), Shitsuke (sustain). Major aim of 5S is to decrease or reduce waste, increase productivity and streamline the operations. Through good organization and making distinction between used and useless the workplace is kept organized and clean.

The Toyota Way:

The Toyota Way is known for its two pillars that it is supported by: continuous improvement (kaizen) that actually defines its approach to doing business (establishment of the long term vision, creation of continuous learning environment, challenge everything/innovation and going to the source of the problem) and respect for people (ways of building respect and teamwork, securing employment security, active engagement of team members in the improvement of the work environment). Actually Toyota Way is the product of Toyota leaders that created company’s history what has made Toyota one of the greatest brands in automotive industry in the world. In his book ‘’The Toyota Way’’ J. Liker (2004) explained in details Toyota’s system, arguing that it is based on the following 14 principles, that are organized in 4 sections (Long term philosophy, belief that the right process will create right results, adding value to the organization through employee development and through continuous solving of the root problems lifelong learning is supported).

Regarding its long term philosophy Toyota is very serious and company focuses on adding value to society and customers. This is why it works constantly on building the learning organization that can easily adapt to new challenges and will not be effected easily by problems. In the part where Liker mentions that the right process will bring right results, he shows that this company is process oriented and with great experience it has, flow is the main element, the key that brings company the best quality at low cost. So through building this type of complete process, managers can achieve best results. As the third part where he mentions adding value to the organization through development of people and partners Toyota has few tools that it uses for continuous development of its people (kanban, genchi genbastu) and its management has an aim not just to make cars but also to build its people. Toyota emphasizes the continuous solving of the root problems that drive the organizational learning, and through identification of root reasons to certain problems and prevention of it from occurring again, continuous learning is established that leads to standardization of the best-known practices.

These principles are the base of Toyotas best management system in the world. And all the companies that would like to have similar system must firstly become the learning enterprises that support employee development and humanization and continuous improvement of the workplace environment and conditions.

"TOYOTA PRODUCTION SYSTEM" – important principles

Toyota Spinning and Weaving Company was founded in 1918 by Sakichi Toyoda who developed a system (steam-powered loom) that could detect a broken thread or anormality and automatically stop itself. This system was predecessor to jidoka concept (automation done by human touch) that later became one of the two principles of Toyota Production System. His son, Kiichiro Toyoda was founder of Toyota Motor Corporation in 1937 taking the concept of jidoka to develop just-in-time concept, the other pillar of Toyota Production System. When the WWII ended there was an enormous need for efficient vehicle production. In this period young engineer working for Toyota Motors Corporation, Taiichi Ohno got the task to increase the productivity, and he managed to attach jidoka and just-in-time concepts and together with study of Ford production methods and American supermarkets, he got an idea for today’s Toyota Production System. The main idea was to fill the shelves with products and to refill them only when each product is used. He saw the warehouses as supermarkets and this helped him to develop kanban concept. Ohno was also learning a lot of things from American quality control pioneer Dr. W. Edwards Deming, who introduced the concept of improving quality at each stage of a business. This idea fitted well to the just-in-time concept and kaizen principle. Ohno is considered as creator of TPS, because he developed the practical method.

Definition of the Toyota Production System:

Toyota’s current system was developed over decades of hard work, and it has shown to be successful not only in automotive industry but also in other 21st century industries. Through this system Toyota managed to secure quality and reliability in its products and services establishing the global reputation and becoming best business philosophy that brings manufacturing efficiency and quality. The reason for Toyota’s today (leader in automotive manufacturing industry) success is this system and by reducing the inventory through introduction of Toyota Production System, the outcomes were amazing. This system is sometimes compared to squeezing water out of dry towel, meaning that this system aims to eliminate all waste (anything that does not advance through the process or does not increase added value) out of the process.

Table 1: Toyota Production System pillars

Just-in-time: TPS aims to fulfill customer demand in a most efficient way by linking production activity to demand on the real marketplace, so the just-in-time production means production of exact needed quantities of required items. So, Toyota Production System has developed an approach that deal with the challenge in cost-effective and efficient way. Here it is important to mention the heijunka term that is used to minimize the inventory costs, because the required parts are coming only as they are needed. Heijunka eliminated mura because it levels the volumes and allows efficient, continuous, smooth flow. In this process muri (overburden) is eliminated as well, and in this way these two unnecessary pillars known as muda (waste) are both eliminated.

Takt-time: Time is the very important concept in Toyota Production System and takt means customer demand rate. So Takt-time as a term controls the work-cycle in order to avoid under or overproduction determining the flow rate and eliminating the time delay risks.

Kanban: is important concept for efficient, smooth and flexible workflows where everything must be in right time at the right place (right components to build the product). Kanban card as it is called, is the device that the system uses to order needed components, because minimum component stock is held in workplace area. The kanban system continuously secures supply of exact quantity, location and time of demanded inventories to be found in the manufacturing facility. These are visual and ban means cards that signal to ensure the right inventory quantity resulting in a highly customer need responsive production system where waste is eliminated and low costs are ensured.

As Taiichi Ohno has said:

‘’Toyota Production System is a production system and kanban method is a technique for its implementation.’’

The above mentioned two concepts are important in the business because they reduce the wasted time, capacity and materials cost by careful planning and on demand movement of goods. There is one more principle that is very important to be mentioned:

Jidoka: the concept that deals with the quality checks in each production process step. It helps in ensuring that all abnormalities are seen and addressed immediately. It actually means ‘’automation’’, referring to the "automation with a human touch".

Genchi genbutsu: meaning ‘’going to the source’’ and helping to understand the real fact of the problem and addressing it on your own. Here, the andon board will help and notify the management that certain employee has identified the problem showing its location precisely. This means that the workers are taking product quality responsibility, and they can even stop the production if that is needed. When production line is stopped, it will not start working until the problem is resolved and reason is identified.

Importance of standardization: it is very important for the quality assurance and with obtained standardization consistent high quality levels and continuous improvement is ensured. To easily understand it, TPS is an expression of the Toyota Way where its employees practice and share (at all levels of the organization during their daily work and in their mutual relations) the core values of the Toyota Way. So, Toyota gains the ability to secure customer satisfaction in a sustainable way.

As it has been already argued, TPS is based on two major principles: continuous improvement and respect for people which can be divided into smaller parts for easier understanding into: challenge (maintenance of long term vision and in that regard meeting all kinds of challenge with the creativity and courage), kaizen (continuous improvement of the process, with belief that no process can ever become perfect and that there will always be room for improvement), genchi genbutsu (to understand the core of certain problem or abnormality employee must go to the source of it to see the real facts and take best decision), respect (making every effort to understand others and in order to create mutual trust environment company accepts responsibility and does its best), teamwork (stimulating professional and personal growth and development, sharing opportunities to maximize individual and team performance).

All this is important because reputation for quality is built through production process where each worker has responsibility as a team member to do quality check, find and correct the abnormalities or defects and prevent bad quality products to reach the customer. High quality products of Toyota are important for its customers because they benefit from better productivity, greater return on investment and less downtime.

In these four rules identified by S.Spear and H.K. Bowen in their Harward Business Review Article (1999) called Decoding the DNA of the Toyota Production System, and they guide the operation, design and improvement of any activity that concerns product and service. Rule number one says that all the work done should be specified as to content, sequence, timing, and outcome. Rule number two, argues that there should be direct connection between every action among customer and supplier and that there should exist yes-or-no way to send requests and receive responses. Rule number three, argues that there should be simple and direct pathway for every product and service. Finally, rule number four defines that planned improvements must be in accordance with the scientific method, under supervisor guidance at organisation’s lowest possible level.

PDCA cycle:

The Kaizen activity cycle or PDCA cycle has an aim to standardize activities and operation, to measure the activities in the process (inventory measurement), to ascertain the measurements against the requirements, to make innovations to increase productivity, to standardize improved and new operations and this cycle is continuously running. In the quality circles the team members must identify problems/ abnormalities, identify their reasons, make analysis of the causes, and after implementing the tests should define the new standards and activities.

Kaizen that it oriented towards management covers all business areas, starting from reduction of the waste in the workplace to usage of the head rather than the money. One of the most important ideas introduced by Taiichi Ohno in the Toyota Production System.

Figure 2: PDCA cycle

PDCA was designed in 1930s by Walter Shewhart (sometimes called as Shewhart cycles as well) and was later on in 1950s popularized by W. Edwards Deming. These cycles involve the process of planning, doing, checking and acting. It is a process that contributes to the system improvement, where the managers can identify and change the process parts where the improvement is needed, in order to enhance efficiency, productivity, customer satisfaction and accuracy.

TOYOTA`S SUCCESSFUL PERFORMANCE: What is the secret?

After Toyota`s founder Kaiichiro Toyoda, Taizo Ishida (1888-1979) became the president of Toyota. At that time the company was near to bankruptcy, and many problems existed, so Ishida by resolving the existing problems due to his business understanding and good leadership became known as the "restorer of Toyota" who saved the company. Ishida by usage of Japanese minds and skills established a new business understanding, with an aim to develop the industrial capability of the nation. Through good and quality products Toyota has very good results that have origin in invention and Kaizen (creativity and craft and giving importance to the development of people). Toyota had another great chance because its employees were country people with rural values of hard work and the system additionally imprinted the so called self reliance principle and the principle of joint effort (all for one and one for all) with emphasis on zero tolerance to waste. It is well known fact that Ford and Chevy dominated the global car market when Toyota, at that time unknown importer, opened its car dealership in America in late 50s. Today, Toyota is known as the biggest car manufacturer in the world, getting up best grades from experts and its customers for great quality. One of the reasons for Toyota’s success can be the long –term planning where the long term stability of the company is much more important than the trends or short term profits. One of the examples for the Toyota’s success through long term planning is Prius hybrid model that was developed in early 2000s when the gas was pretty cheap. However, this model later on became a revolutionary vehicle that made a breakthrough and Toyota became a leader in the hybrid technology vehicles. One of the important secrets behind Toyota’s success is the fast movement of the product to the market (the best among its competitors); even though it takes a long time to take a corporate decision, because Toyota likes to make in-depth research of all alternative options. This company by studying Ford Motor’s experiences and mistakes became very successful at largest car market in the world, the US market, and it is sometimes able to predict customer needs in America much better than the local industrial giants. Toyota is obsessed by waste and tends towards continuous improvement always trying to reach best of the best. What is also one of the most important characteristics of Toyota is that the managers see themselves equal to the rest of the company workers.

The Industry week research went beyond Toyota Production System as the major reason for success and assessed Product Development System of Toyota. Toyota has s good team and 116 staffed research and think tank department that works on reading public mind. Their job is to predict the consumer trends, and to create cars in accordance to the needs. Their professionals make field research and speak with the car users (genchi genbutsu concept meaning that workers should visit the place where the problem has occurred to see the actual happenings).

Toyota Product Development System:

In their book called Toyota Product Development System Morgan and Liker (2006) called this system ‘’Lean Product Development System’’ introducing 13 leand product development principles. They argue that if the car has the poor design and lots of waste because of it, than no operational kaizen can save it or overcome that waste. Furthermore, the company cannot please its customers as well. This is why Toyota is famous as an expert for development of new automobiles. Toyota’s engineers start their careers at the car dealerships and sale stores, because there is the belief that if designers will create the cars, they firstly need the first hand experience to know to who they are selling their cars. The main player here is the chief engineer that is responsible for the car design, from the beginning to the end. Toyota, as a company, invests years in each of its engineers, technically or otherwise. Its system is people centered and assumes that turnover will be very low, so the system stimulates the so called continuous improvement of skills and knowledge.

13 principles that Morgan and Liker define in their book:

Establish customer-defined value to separate value-added from waste,

Front-load the product design process while there is design space to thoroughly explore alter native solutions,

Create a leveled product development process flow,

Use rigorous standardization to reduce variation, thereby creating both flexibility and predictable outcomes,

Develop a chief engineer system to integrate development from start to finish,

Organize to balance functional expertise and cross-functional integration,

Develop towering technical competence in all engineers,

Fully integrate suppliers into the product development system,

Build in learning and continuous improvement,

Build a culture to support excellence and relentless improvement,

Adapt technology to fit your people and your processes,

Align your organization through simple, visual communication,

Use powerful tools for standardization and organizational learning.

Source: James M. Morgan and Jeffrey K. Liker, ‘’the Toyota Product Development System’’ Productivity Press, New York, 2006, 363 pp. 212/686-5900

There is the data that one Toyota factory in one year receives million suggestions from its employees. These suggestions are read by the management, and the employees are organized in small groups (5 people) and the ideas are presented in the group or team. When the idea is seen as good and is adopted, line employees directly start using it (bottom up system of continuous improvement and worker empowerment), and there is no need for management approval. In this way huge idea pool is generated and these later on bring effectiveness and efficiency to the organization. The only exception is when the large investment is needed.

In the area of systems improvement there are some new concepts, such as cross-functional management, policy deployment, and quality deployment and for a good quality control there must be employee participation, continuous employee training and education, quality control circle activities, and national total quality promotion. This means that the management should extremely focus on quality and quantity, safety, cost, delivery time and employee morale. The total quality process must be not manufacturing, but customer oriented. There is always an emphasis on cross functional management that would include suppliers, vendors, subcontractors and all international activities as it can be also seen at the figure below.

Figure 3: Cross –functional management

The cross functional management actually refers to breaking of the barriers to the interdepartmental communication. To sum up this part, the employees in the organization should be satisfied with their job and should have will for continuous improvement if we want the Kaizen strategy to work. Also the company should be dedicated and managers must be encouraged to work with employees constantly for this strategy to have positive results. Full dedication of the workers and good teamwork where the mistakes are seen as a positive thing that will improve the process is a must. Toyota historically was the company that had weak superstructure, because it invested firstly into its infrastructure to fill it and make strong. So, its composition made it possible to continuously have superior results that lasted for 20-30 years.

It can be clearly concluded that Toyota has developed a good system through time; however I believe that the most important reason for its success is the Kaizen philosophy that include components such as improvement and standard operating procedures maintenance combined with the training and discipline. This philosophy is important because it goes for small improvement in the current system, and is different from Western and innovatory way of thinking that needs to have major changes (large new technology or equipment investment). So in Kaizen the improvement is reached through application of large number of small steps that at the end leads to organization’s competitive advantage that becomes much more productive at lower cost. At the table below the differences between Japanese way of thinking and Western way of thinking can be clearly viewed.

THE GREAT TRANSITION AND TOYOTA TODAY:

In 1990 a shift in the company (Toyota Motor Corporation) from responsibility to service occurred, meaning that instead of duty of social responsibility, contributing to society mission was adopted (Hino, 2006). In the early 90s Toyota management went further and started thinking and valuing the global environment (in Toyota Action Plan for Global Environment and Toyota Global Earth Charter documents) through adaptation of different values in its new principles. Even today through various activities Toyota considers the environment as part of its daily work activities analyzing the each stage of the production-development, manufacturing, operation and recycling. In this regard the company has 3R philosophy –reduce, reuse, recycle having as one of the key principles muda (waste) reduction as it has been previously explained. With waste reduction in inventory, processing, overproduction, conveyance, waiting, motion and manufacturing defects have direct positive environmental impact. TMHE (Toyota Material Handling Europe) manufacturing sites have all achieved ISO14001 certification. Toyota’s policy of reduction of CO2 emissions, more efficient usage of resources and reduction of the environmental risk factors shows how it considers the environment in its production and also it customers have respect for these responsibilities for the environmental issues.

1990s were the time when Toyota started creating the ‘’Development Centers’’ aiming to increase the contextual knowledge. As the Japanese economy entered into the 21st century after the ‘’lost decade’’ it had, and together with the emergence of China as new global factory, Japan could not predict its place in the world. However, with good basis, and successful managerial skills Toyota today is the industry leader, and is better than the global industrial giants such as General Motors and DaimlerChrysler, and has put in question their results and strategic effectiveness. In his book ‘’The End of Detroit: How the Big Three Lost Their Grip on the American Car Market’’ Maynard M. analyzed the reasons for fall of Detroit and slowing down of the American car industry. Even though the car sales still have historically high levels Detroit’s share fall down, because of the strong competition from Asia. There is the statistical data that General Motors alone had 60% of the American market back in 1960s. Today foreign companies hold 40% of this market in USA.

Even though, the reasons beyond its success are clear and have been already mentioned, it can be also added that it is successful because it has a system and core competencies that are difficult-to-imitate. Toyota’s management is viewed as an iceberg. Its product sale performance and brand strength is seen at the surface, but its infrastructure that is responsible for all the good results is below the surface. But, with threat that came from Chinese rise, Toyota started reproducing its core competencies and has made it available to all other Japanese companies. For example in 2008 Toyota Motor Corp. had an excellent business position. However in spring 2009 it announced decline in profit and at the same time it recalled 3.8 million cars having the accelerator problem, what caused additional problems to the company. The figure below shows the sales, production and market of Toyota US.

Toyota Today: car recalls, figures and good management in crisis times

Toyota of Today world has managed to become one of the biggest 3 car makers in the world, with the greatest customer potential (due to hybrid cars) and with bigger net profits than Detroit’s Big three combined together. Toyota has great market capitalization, had sevenfold growth in productivity in last 25 years, with great financial performance.

Toyota is an outstanding phenomenon in the car industry, since from 2000 onwards global car industry output has risen by 3 million cars (increased to 60 million cars yearly) and half of this increase came from Toyota, and it is important to emphasize that Toyota will soon have more cars produced abroad than at home.

Unfortunately this enormous growth in Toyota car production after 2006 started various types of problems on the cars, and the most probable reason behind this situation seems to be not well educated newly coming workforce. This is the reason why millions of Toyota cars that had problems were recalled and multiple lawsuits and government investigations were started. Public apology that came from Toyota’s president together with other drawbacks created serious damage of Toyota’s great reputation. These all show that even though Toyota Production System worked perfectly for the quality control, there occurred a situation when it was not enough to have a good system only.

Toyota has never formally has mission of becoming world’s number one car manufacturer or being better than the General Motors, and its whole system was created to have good quality and production efficiency. However, when its global market share became 10% in 2002 than its president Fujio Cho decided to make a plan for the company to reach 15% until 2010. This means that in the period after 2002 Toyota started increasing its global production capacities.

In 2008, sales of Toyota were 8.9 million, while sales of General Motors, its major competitor, were 8.3 million cars, and Toyota for the first time had great profits. Later on, in spring 2009, Toyota again has billions of losses, and seemed in a crisis.

At the end of 2009 and start of 2012 Toyota Motor Corporation had three separate car recalls (first to with help of NHTSA-US National Highway Traffic Safety Administration due to pedal entrapment -5.2 million vehicles, and unintended acceleration -2.3 million vehicles plus addition 1.7 million vehicles subject to both, and the third one for hybrid anti lock brake-around 1.8 million cars). Toyota suspended sales for recalled models for several weeks, until its parts were replaced. As recall announcements were coming, covered in US and world media, various investigations and lawsuits were emerging as well. After the investigations done by NASA and NHTSA, most of the incidents that took place seem to be pedal misapplication or driver error, and not the Toyota system defect. But, even if there is the driver error, it is hard to prove it and there is risk of losing the customer, so this was addition problem that Toyota as company has faced. Actually most of the accidents that occurred seem to be due to some other reasons, rather than car errors.

Examples: With findings of driver error in a March 9, 2010 Prius alleged sudden acceleration crash, where a 56-year-old housekeeper claimed to have braked but was recorded pressing the wrong pedal, and also in a March 29, 2010 Camry alleged sudden acceleration crash, where a 76-year-old driver claimed to have braked, but was filmed not doing so until after impact (Struck, Mary, 2010).

After several months of investigation, NHTSA also could not find evidence of defect or bad quality of parts. The petition for further investigation by NHTSA was initiated in November 2009, but the agency stated that they were unlikely to reach any additional conclusions (Denial of Motor Vehicle Defect Petition Federal Register: November, 2009, Department of transportation NHTSA). And on February 2011 after 10 month research NASA and NHTSA published their findings regarding Toyota malfunctions in 2009 where they announced that they did not find car faults that could cause sudden acceleration problems (NASA, NHTSA Study, 2011).

Statement of Toyota CEO Akio Toyoda on recalls:

"

Toyota for the past few years had been expanding its business rapidly. Quite frankly, I fear the pace at which we have grown may have been too quick. I would like to point out here that Toyota's priority has traditionally been the following: First; Safety, Second; Quality, and Third; Volume. These priorities became confused, and we were not able to stop, think, and make improvements as much as we were able to before, and our basic stance to listen to customers' voices to make better products has weakened somewhat. We pursued growth over the speed at which we were able to develop our people and our organization, and we should sincerely be mindful of that. I regret that this has resulted in the safety issues described in the recalls we face today, and I am deeply sorry for any accidents that Toyota drivers have experienced. Especially, I would like to extend my condolences to the members of the Saylor family, for the accident in San Diego. I would like to send my prayers again, and I will do everything in my power to ensure that such a tragedy never happens again.

"

Source:  "Toyota president Akio Toyoda's statement to Congress". The Guardian (London). 2010-02-24. Retrieved 11 February 2011

Even though this situation seems as settled game to ruin Toyota’s reputation and global success, it can be argued that it has been successful, because it came in difficult time for Toyota. In 2009, there was the recession, car sales were worsened, and exchange rate of yen to US dollar was very low. With the announcement of recalls, 750 job cuts occurred in Toyota’s British plant (Allen, Katie, 2010).So it really had a negative economic impact and Toyota shares fell by 15% and negative impact on prices of used Toyota cars, so the Toyota owners have been negatively affected as well. These recalls created a challenge for the whole Toyota Way philosophy of manufacturing and production because they seem not to be because of quality control problems, but rather because of design issues that led to consumer complaints, so Toyota needed to establish better communication with customers, in order not to lose them to the competitors since it was obvious that the competitors were waiting for this crisis to happen for a long time. Just a day after Toyota announced suspension of sales GM started offering $ 1,000 cash rebate and the target were Toyota owners. A little bit later also Ford, Chrysler and Hyundai started offering similar incentives.

According to certain polls in February 2010 (Rasmussen poll) 59% Americans saw Toyota still favorably and 29% seeing it unfavorably.

Before the vehicle recalls in November 2009, polls done by Starch show that more than three quarters of US adults (83%) had a positive opinion about and confidence in Toyota as a brand and only 17% had negative opinion. After the first recalls in 2009, consumer attitudes began to change, and positive opinion fell to 78% and negative opinion rose to 22%. As the recalls continued over the next year, Starch poll from 2010 shows that positive opinion about Toyota brand fall to 59%, and negative attitudes rose to 41%. These data can be seen on the figure below.

Japanese experts have concluded that the major reasons for the car recalls were speed of growth and internationalization, and also some new product develpment nd testing problems which are specific. The company management still has maximum belief in Toyota Production System and its efficienca and competitive advantage, believing that the recalls were not caused due to manufacturing system but the design and development. CEO in his public sorry speach argued that one of the reasons might be Toyota’s fast growth, and his rapidity damaged degree of control for the quality.

‘’Moving Forward’’

After its pre-recalls motto ‘’I love what you do for me, Toyota!’’ the brand preferred a new motto, ‘’Moving Forward!’’ after the recalls, with an aim to establish better communication with the customers and making a fresh start and searching for the better future. It is true that its consumers gradually started to regain the trust, and new data show that positive opinion toward Toyota has increased to 70% and negative has fall to 30% in 2011. Now the company is on its way to regain its reputation combining quality products with smart prices.

Toyota’s problem solving understanding:

Toyota believes that for successful problem solving, the employees must be aware of every step in order to successfully implement its Kaizen strategy. A problem can be anything that creates inconvenience to employees and the process, and of course the end user i.e. the customer. Problem seems difficult to be solved because those that create problem are not the ones who suffer the resulting inconvenience, so for the successful kaizen it is important to create such kind of the environment where people are sensitive for the inconveniences they cause to the other people, in this case the customers. In the kaizen oriented organization or workplace, problems are seen as opportunities for getting better/improving, and they should not be hidden because of the fear of blame. For solution to the any problem cross-functional cooperation is needed.

So, when due to improper installation of all-weather floor mat on Lexus sedan by the dealer in 2009, Toyota faced the most challenging crisis in its history, attack on its principles of safety and quality. US media, government and many awaiting for Toyota’s destruction were very much disappointed when report on defected cars was published in February 2011, saying that there is no evidence to prove that Toyota cars really had problems, and all accidents can be connected to some other reasons (such as driver errors). This drag in the mud lasted for one year and Toyota spent lots of money and lost reputation in this crisis.

According to the first data published in 2013, Toyota again is the number one car seller in the world for year 2012 with 9,7 millions of cars what is 22% more than in 2011. After Toyota there are American General Motors with 9, 29 million (2,9 % increase when compared to 2011) and German Volkswagen brands with 9,07 million vehicles (11% increase in sales). So, Toyota has regained its first place after it lost in 2010 and 2011 to General Motors (biggest car seller for 70 years) and Volkswagen (Toyota fell to 3rd place) after recalls and tsunami in Japan that had negative impact on sales.

CONCLUSION:

Japanese manufacturers as newcomers were the subject of attention in the industry during 90s because they managed to successfully transfer their manufacturing practices and production overseas (Oliver & Wilkinson, 1992; Abo, 1994). In the post-war Japan special economic, historical and socio-cultural circumstances were created and these produced certain practices and institutions that could not be seen anywhere else. This created a problem for Japanese companies that were opening overseas because they needed to adapt to new environments. It is the well known fact that when the changes in corporate environment, like an economic crisis occur, managers need to develop practices and take steps in accordance with norms and practices of their corporations. The case of Toyota can be an example of manufacturing system created from its strengths using the advantages of network level performance are the crucial steps for the company to overcome damaging series of problems it has faced in last 5 years. It is possible to list 5 major reasons for the success of Japanese heavy industry after WWII. When Japan started developing its industry, due to lack of experience and knowledge it was importing production technology from U.S. and European countries, and Japan managed to improve and adapt these technologies in a successful manner. Firstly, in 50s they managed to improve the transport technologies introducing some more efficient methods such as oil tankers and large container ships that could transport large quantities of goods on low cost, so the transportation costs were reduced. In the car manufacturing industry, production cost per unit was lowered by introduction of robots, and gain of high efficiency. Secondly, labor productivity was improved through introduction of vocational trainings that companies offered to the employees in order to increase productivity levels (major reason for Japanese success in developing its industry). For example in Toyota Production System we can see the concept of lifelong learning. Thirdly, Japanese invest a lot in research and development in the companies. Fourthly, de to lack of natural resources in Japan, the country depends on import of raw materials and for stable supply of raw materials it created good relations with other countries, exporting manufactured goods back to them. Finally, Japan government policy was create External Trade Organization (JETRO), aiming to restrict export goods in order to protect local manufactured goods, and promoting Japanese manufactured goods to other countries. Government worked on improvement of the infrastructure, subsidizing local companies and supporting establishment of large numbers of the research centers for development of new manufacturing technologies. This short history of development of the Japanese industry actually shows us the great business conditions that Toyota Motors Corporation had when it started producing its first cars. The Toyota Production System that it has developed was based on a team work and good manufacturing management process where the major aim was continuous improvement and more efficiency. This process created individual responsibility and has increased morale and quality that is essential for kaizen philosophy success where everybody in the organization is involved. Knowledge, experience and skills of every single worker are valued, since kaizen encourages the worker empowerment concept and because they are directly inside the process they are the most important figures of it. This can be supported by the example that workers in one year give about 3,000 improvement proposals at production sites of Toyota Material Handling Europe. These proposals are evaluated by the employees themselves and presented inside of the team. In the case they are valued as usable; they are applied to the process directly. TPS is not only about production, it is rather a wider concept that includes whole organization where every employee, o matter its position, has the same treatment. Its system is what makes Toyota different and its products profitable to buy, since its customers know what they can expect and have direct benefits after buying Toyota, due to its quality and continuous improvement. Toyota’s concern about the environment and safety are other reasons why people prefer it over the other brand and due to its honesty and stability supported by philosophy and stable foundations, it is the number one manufacturer that work on the principle of Total Quality Management or Total Quality Control.

Japanese have totally different business and manufacturing understanding from American companies. As Imai explains it, while American companies tend to be result oriented putting emphasis on the short term performance, Japanese companies are rather process oriented (providing bridge between process and results, ends and means, goals and measurements and focusing on people –discipline, time management, participation, skill development, communication and morale) putting emphasis on the long term performance.

Toyota had faced the biggest crisis and public relations nightmare in its history in late 2009 when it recalled about 9 million vehicles due to some errors (gas pedal and unintentional acceleration concern) reported by its users and US National Highway Traffic Administration (NHTSA). To react promptly Toyota encouraged its customers to remove the improperlt fitted floor mats, and recalled some models to fix the problem, and these so called corective action were reported by media. Beginning of 2010 was a real nightmare for Toyota Motors Corporation, and it started to fear about the future of the company due to various suitcases and investigations that the company had te go through. American government officials and Toyota owners became suspicious of this previously well considered company. Toyota did not take any further actions right away, because due to its management philosophy it firstly needed to see and consider all the alternatives, find the roots of the problems and than take the decisions. So its public relations answer to the recall crisis was rather slow, and many thought that the company was hiding something or covering the tracks, so it was criticized by American media for lack of action and transparency. The first statement came from Toyota CEO Akio Toyoda on February 5th 2010, that showed that Toyota was taking certain actions, ut because it practiced Japanese style of public relations, uneasy with the cultural differences, this crisis became a media platform. Lot of time was lost due to opinion differences of American and Japanese managers on the issue of handling the crisis, and this prolonged the solution to recalls for a while. Toyta decided to take some time and quietly try to solve the problem before giving any statements to the media, and in US this company behavior was seen as unprofessional, because all the affected sides were waiting for answers and actions. İn America, when the crisis occurs in the company, it is expected that the President or CEO will try to explain the reasons for the problem, apologise and take immediate actions to stop the crisis. So Toyoda was criticized in American media for poor crisis management skills ("Toyota’s President Getting," 2010). Due to these cultural differencies that created major problem for Toyota in bringing the solution to the recall crisis, Toyota additionally faced the distrust from American media and public relations crisis as well. So, learning from this crisis lessons, after everything was over company’s CEO Toyoda took steps for improvement of the communication methods in the company and most probably it will further work on cultural issues and their incorporation into the company strategy and philosophy, in order to improve the public perception towards the company. Toyota’s results for year 2012 show clearly that it has managed to overcome the sales and production crisis, but it seems that it entered into global company cultural crisis. Learning from its experience the company should continue prioritizing its quality and all the possible problems or defects must be eliminated. The company management should establish open communication with the public, since this crisis has been multifaceted, complex, and on large scale, and this large and global company does not have luxury to stay passive and must always be ready to give explanations.