The Toyota Motor Corporation is a leading automobile manufacturer that has experienced both success and crises. Toyota pioneered lean production and continuous improvement through its Toyota Production System. However, in 2009-2010 Toyota suffered quality issues that led to massive recalls, damaging its reputation. Investigations found Toyota had taken its eye off quality and become too focused on cost reduction. The company also struggled after the 2011 tsunami disrupted its supply chain. While Toyota recovered, events highlighted weaknesses in its approach to managing operations, employees, and quality on a global scale.

1. An introduction to Toyota Motor Corporation: A Case Study
The Toyota Motor Corporation is a leading automobile manufacturer with production sites
spread around the globe. The company’s strengths have been a strong market position, a
recognisable brand, and a highly focused research and development strategy. Like most
Western multinational corporations it has been developing a competitive strategy in
emerging markets; and in 2013 held 5 per cent of China’s automobile market. Toyota’s
production output has been increasing steadily and in 2012 it became the first company to
make over 10 million vehicles in a 12 month period. Although this figure dropped to 9.98
million vehicles in 2013 the company was predicting an output of 10.43 million vehicles in
2014. Yet this apparent success has come at a price. Until recently, the company was
renowned for its approach to quality. Traditionally the firm has been successful at combining
reliability and product quality with low prices, fuel efficiency, and good design. Arguably, it
remains one of the world’s most efficient multinational corporations (MNCs). In his article on
Toyota, Fujimoto (2012) asks the question: “How has Toyota been able to remain
competitive since the middle of the 20th
century?” (page 26). To date the company’s
achievements have been due to the efficiency and effectiveness of the Toyota Production
System (TPS) which is underpinned by a philosophy of lean production and kaizen. The
closest equivalent term to kaizen is continuous improvement (often referred to as Total
Quality Management or TQM in the developed economies). This approach has been
evolving since the company was founded in 1926 and enables Toyota to achieve vertical
and horizontal strategic integration. Unlike Western MNCs, Toyota’s focus has been on
quality, particularly the elimination of waste (muda), rather than an obsession with costs and
cost reduction.
In 2001 the company launched the Toyota Way which is an expression of the company’s
values which stem from the five principles of the founder of the company, Sakichi Toyoda
(see http://www.toyota-global.com/company/vision_philosophy/guiding_principles.html for
more details). The Toyota Way is a direct reflection of Toyota’s culture which can be
summarised as: teaching people how to act, think and feel. The company culture is based on
kaizen (e.g. finding solutions to the root causes of problems rather than the symptoms of the
problem; eliminating waste (muda); teambuilding and mentoring; thoughtful decision-making
followed by rapid implementation; and long-term thinking). The latter is in stark contrast with
the classic short-termism of many Western MNCs. Given the close connection between
continuous improvement and learning the company has always believed in cultivating or
nurturing a learning climate; and a learning climate characterised by collaboration and co-

2. operation, both of which require high levels of trust. This learning climate acknowledges the
role of social learning. Thus the company believes that people learn from each other and
that teams are better than individuals at solving problems. In the 1980s when Western firms
started to wake up to the threat of Japanese competition there was widespread adoption of
certain methods or techniques. The most popular of these were quality control circles;
although Western firms shortened the name to quality circles. However, successful
implementation of quality circles was limited due to the de-contextualisation of the method.
Western managers simply failed to appreciate that quality circles were a part of a wider
system of quality management and improvement, including the learning climate with its
emphasis on social learning.
The Toyota Way also sets out the company’s approach to innovation which has tended to
focus on incremental changes or improvements (again reflecting the kaizen philosophy).
Toyota has continued to make improvements to conventional technology, as well as
developing the application of new technologies (e.g. the development of hybrid and more
economically friendly, low carbon cars). This approach to innovation also reflects the
company’s attitude toward sustainability. As part of TPS Toyota pioneered the concept of
lean production or manufacturing which involves increasing value, reducing waste and
respecting people; and all of these are consistent with the Toyota Way. Yet persuading
managers and employees to embrace sustainability initiatives has proven to be challenging
at times; even though the company’s culture is already predicated on a belief or commitment
to incremental change.
In 2009 Toyota suffered its first ever loss. This was despite two of its principal competitors,
General Motors and Chrysler, falling into bankruptcy that same year. In 2008 Toyota had
become the world’s leading automobile manufacturer. At that time the company’s reputation
was arguably at an all-time high. Toyota was a byword for quality and value for money. Yet a
year later it was issuing profit warnings. More disaster struck on 2010 when Toyota’s
reputation as a quality brand was severely damaged by a recall crisis. Over 10 million
vehicles had to be recalled due to technical faults (e.g. brake pedals and floor mats). Then
news broke that Toyota had actually been suffering from quality issues for some time but
had been relatively successful in keeping this information out of the media spotlight.
Essentially Toyota’s management had failed to tackle effectively the stresses and challenges
of maintaining quality while at the same time reducing costs and pushing for record
production levels. This veil of secrecy wasn’t a new thing. In the 1990s Toyota had been
forced to buy back pick-up trucks from its American customers in order to avoid potentially

3. bad publicity about dangerous corrosion in the vehicle frames. The 2010 crisis erupted after
a series of fatal accidents made it impossible to keep the situation secret.
The attempted cover-up caused shockwaves across the globe. By February 2010 Toyota’s
CEO Akio Toyoda had given in to mounting pressure and had agreed to appear before a US
congressional hearing which was investigating the recall crisis. In that same month emails
were leaked to the media which revealed that Toyota managers had misled US regulators by
concealing the full extent of the technical problems (particularly the problem with car mats).
A few weeks later senior executives were further embarrassed when a memorandum was
leaked, revealing how management had been warned by workers that safety standards were
being compromised by the firm’s (relatively new) strong stance on cost-reduction. In effect
Toyota’s management had allowed the company culture to drift away from the traditional
values and principles encapsulated in the Toyota Way. As adverse publicity mounted Akio
Toyoda visited China to apologise personally for the company’s mishandling of the situation.
At the company’s annual general meeting in June 2010 a shareholder harangued Toyoda for
weeping during a media interview. In February 2011 Toyoda formally apologised again and
said that he was “deeply sorry” for the way in which the company had managed the recall
crisis. The US government fined Toyota the maximum possible for its failure to recall cars
promptly (i.e. $32.4 million).
Before the recall crisis it would have been unthinkable that Toyota would have allowed
anything like this to happen. Yet the unthinkable had happened. Not surprisingly surveys
revealed that consumers had developed negative perceptions about Toyota with many
believing that the company had handled the re-call crisis in an unethical manner. Toyota’s
managers even admitted that they had not been briefed about the technical problems. They
also appeared unable, unwilling or unprepared to explain the causes of the faults even
though the Toyota culture was predicated on a kaizen philosophy of identifying the root
causes of a problem. Toyota’s predicament grew worse when it was revealed that the
company had been slow to respond to customer complaints. Instead of getting to grips with
the problem the company had buried its head in the sand. Initially it denied the existence of a
problem and only responded once the truth had leaked out in a rather piecemeal and
sporadic fashion. It was even revealed that Toyota had to be pressured by safety officials in
Japan and the US before it initiated the recall process. Had Toyota executives, managers
and engineers wasted too much time on analysing the problem? Was the decision-making
process at fault? Why hadn’t the Toyota Production System addressed these quality
problems before the vehicles were shipped? What had happened to the company’s

4. commitment to the Toyota Way? Had its approach to operations failed? And if so why? A
particularly critical observation was made by Taneja et al (2012):
Toyota’s problem did not appear to be a poor strategy but rather poor implementation of its strategies
and core competencies already in place which had already proven successful as they tried to expand
globally. They forgot who they were (page 136).
Subsequent investigations revealed that the Toyota production system was not necessarily
the principal cause of the faults. Rather, the cause(s) lay in product development, particularly
the design and testing processes. Toyota had taken its eye off quality and had become too
preoccupied with a major cost reduction campaign (which involved an ambitious cost
reduction target of 30 per cent). The company had become worried about the growing
competition from low-cost but high-quality competitors In different markets (e.g. Hyundai in
Korea, Geely in China, and Tata Motors in India). Technical problems including sticky
accelerator pedals and malfunctioning software appeared to be the result of sub-standard
design and testing processes. Toyota substituted traditional mechanical systems with new
technologies and software which relied heavily on computer-aided designs and simulations.
However, this wasn’t necessarily the root cause of the problem but rather another symptom
of the company’s decision to relocate the Toyota’s production base overseas. Could this
aspect of managing Toyota’s operations have been better handled? And if so, how?
As the company was recovering from this crisis another disaster struck: the tsunami.
Toyota’s profits slid badly (by 18.5 per cent at one point) as the company suffered from
parts’ shortages. Essentially, the company’s supply chain broke down as hundreds of the
company’s suppliers were badly affected by the disaster. Lean production relies on stability
and routine, the same processes working in the same way day-in, day-out. This stability and
routine was severely disrupted by the after effects of the tsunami. Rebuilding was needed.
But this was a painful process involving redundancies, not only in Japan but other countries
(e.g. Australia). This went against the grain for Toyota and challenged several of the
company’s values and principles. Events have raised questions about Toyota’s approach to
managing its employees which has been based traditionally on the company’s ‘Human
System’ model. This is – and has always been - an integral component in the Toyota Way.
There is an expectation that managers and employees share the same values and goals.
Employee commitment to the company is gained through a management commitment to
improving working conditions. In that sense it is very much an implicit psychological contract.

5. The training and development of employees is also crucial to the Toyota Way; and this is
consistent with the company’s values and principles (including its emphasis on learning). Yet
the company approach to human resource management and development is both rigid and
control-oriented. For instance: induction. Induction involves new employees undertaking a 5
week orientation programme, which is run by the HR function which also co-opts personnel
from other departments to assist. This programme is the start of an intensive socialisation
process (with the new employee undertaking further induction in their own department or
function). Employees are subjected to daily feedback on their progress. There are
educational presentations on a range of topics (e.g. health and safety) and they are
introduced to senior executives who explain and promote the principles of the Toyota Way.
Induction often involves some form of physical as well as mental conditioning (for instance,
the use of calisthenics). Induction is followed by ongoing training and development with a
particular emphasis on on-the-job training. In fact, this approach to training has historically
been one of the strengths of Toyota. The company is also a strong believer in on-the-job
development (e.g. learning through job rotation). Recently, there has been an increase in
classroom teaching as globalisation influences the company’s approach. One of the
challenges of on-the-job training is that the production line continues to operate at normal
speed. The Toyota Production System is heavily inter-connected. Thus slow downing one
stage in the production process actually affects the whole system.

6. Sources:
http://www.automotivesupplychain.org/features/212/62/The-supply-chain-balancing-act/
[accessed 10th
August 2014]
Cusumano, M. A. (2011) ‘Technology Strategy and Management: Reflections on the Toyota
Debacle’, Communications of the ACM, 54 (1), pp. 33-35.
http://www.dw.de/toyota-becomes-first-carmaker-to-produce-10-million-units-but-sales-lag-
output/a-17393393 [accessed 14th August 2104]
Edgerton, J. (2012) ‘How the Japanese tsunami changed the auto industry’, CBS News
http://www.cbsnews.com/news/how-the-japanese-tsunami-changed-the-auto-industry/
[accessed 9th
August 2014]
Fisher, D. (2011) ‘Japan Disaster Shakes Up Supply-Chain Strategies’, Harvard Business
School Working Knowledge, May.
http://hbswk.hbs.edu/item/6684.html [accessed 10th August 2014]
Fujimoto, T. (2012) ‘The Evolution of Production Systems: Exploring the Sources of Toyota’s
Competitiveness’, Annals of Business Administrative Science, 11, pp. 25-44
http://www.industryweek.com/planning-amp-forecasting/japan-manufacturers-post-tsunami-
rethink [accessed 12th August 2014]
Kageyama, Y. (2011) ‘Toyota's Profit Slides 18.5 Percent On Tsunami Disaster's Effects’,
Huffington Post, November.
http://www.huffingtonpost.com/2011/11/08/toyotas-profit-tsunami_n_1081532.html
[accessed 10th August 2014]
Liker, J. K. and Meier, D. P. (2007) Toyota Talent: Developing your people the Toyota Way,
New York, NY: McGraw-Hill.
Liker, J. K. and Hoseus, M. (2008) Toyota Learning climate: The heart and soul of the
Toyota Way, New York, NY: McGraw-Hill (written in collabouration with the Center for
Quality People and Organisations).

7. Liker, J. K. and France, J. K. (2011) The Toyota Way to Continuous Improvement: Linking
Strategy and Operational Excellence to Achieve Superior Performance, New York, NY:
McGraw-Hill
Liker, J. and Ogden, T. N. (2011) Toyota Under Fire: Lessons for Turning Crisis into
Opportunity, New York, NY: McGraw-Hill.
Mankin, D. P. (2009) Human Resource Development, Oxford: Oxford University Press.
MarketLine (2014) COMPANY PROFILE: Toyota Motor Corporation, MarketLine.
Minhyung, K. (2010) ‘Risks of Global Production Systems: Lessons from Toyota’s Mass
Recalls’, SERI Quarterly, July, pp.65-71.
Mittal, V., Sambandam, R. and Dholakia, U. M. (2010) ‘Toyota Steers Clear of Reputation
Damage’, Marketing Research, Summer, pp. 9-13.
Murphy, C. (2014) ‘Chinese Car Makers Struggle to Lure Buyers’, Wall Street Journal, 21st
April
http://online.wsj.com/news/articles/SB10001424052702304626304579512144185637348
[accessed 10th August 2014]
Piotrowski, C. and Guyette, R. W. (2010) ‘Toyota Recall Crisis: Public attitudes on
leadership and ethics’, Organisational Development Journal, 28 (2), pp. 89-97.
Rajasekera, J. (2013) ‘Challenges to Toyota Caused by Recall Problems, Social Networks
and Digitisation’, Asian Academy of Management Journal, 18 (1), pp. 1 –17
Taneja, S., Pryor, M. G. and Sewell, S. M. (2012) ‘Toyota Recalls: A Strategic Leadership
Perspective’, International Journal of Business and Public Administration, 9 (2), pp. 125-140
The Guardian (2014)
http://www.guardian.co.uk/business/toyota [accessed 5th August 2014]
The BBC (2010)
http://www.bbc.co.uk/news/business-11593952 [accessed 14th August 2014]
The Telegraph (2011)

8. http://www.telegraph.co.uk/finance/recession/8524690/Earthquake-and-tsunami-push-
Japan-back-into-recession.html [accessed 12th August 2014]
Takahashi, Y. (2014) ‘Toyota Output Sets Industry Record’, Wall Street Journal, Jan 29th
.
http://online.wsj.com/news/articles/SB10001424052702304428004579350030132963254
[accessed 10th
August 2014]
Toyota (2014a)
http://www.toyota.eu/
[accessed 7th
August 2014]
Toyota (2014b)
http://www.toyota-global.com/company/vision_philosophy/guiding_principles.html
[accessed 7th August 2014]
Toyota (2014c)
http://www.toyota-global.com/innovation/vision/
[accessed 7th
August 2014]
Toyota (2014d)
http://www.toyota-global.com/sustainability/report/sr/
[accessed 8th
August 2014]
Toyota (2014e)
http://www.toyota-global.com/sustainability/report/sr/pdf/sr13_p26_p27.pdf
[accessed 8th August 2014]
Toyota (2014f)
http://www.toyota-global.com/company/vision_philosophy/toyota_production_system/
[accessed 14th
August 2014]
http://usatoday30.usatoday.com/money/autos/2011-04-25-Toyota.htm [accessed 10t August
2014]
Wu, S., Blos, M. F., Wee, H. M. and Chen, Y-L. (2010) ‘Can the Toyota Way Overcome the
Recent Toyota Setback? – A Case Study on the Theory of Constraints’, Journal of Advanced
Manufacturing Systems, 9 (2), pp. 145–156