Changing Gears
11:13 am
Mon May 23, 2011

Give Americans more authority, Toyota told

Toyota’s reputation for quality suffered a significant blow the past two years in the wake of millions of recalls.

Now, a blue-ribbon panel of outsiders says the Japan-centric carmaker must give its managers and employees in North America more authority to jump on problems, in order to prevent another such crisis.

The Toyota North American Quality Advisory Panel also said it found Toyota paid less heed to problems reported by its customers, regulators and outside experts, than it did to those inside the company.

Moreover, its quality and safety efforts were hindered by its slow decision making process, the panel said.

“Although Toyota is in the car manufacturing business, it — like most modern corporations — is also a decision factory,” said a report from the panel, issued this morning. “Toyota’s reputation in North America increasingly will be based as much on the quality of its decision making as on the quality of its vehicles.”

In a statement, Toyota chief executive Akio Toyoda said he appreciated the panel’s candor. He said the report had given the company “further insights into how we can achieve our vision of exceeding customer expectations with the safest and most responsible vehicles.”

The panel was assembled last year as Toyota was under heavy scrutiny from Congress and the Transportation Department over defects in its cars. It does not shed new light on the causes of sudden unintended acceleration in Toyota cars, but focuses intently on the way Toyota is run.

The panel’s conclusions have special significance for the Midwest.

Although its headquarters remains in Japan, Toyota has hundreds of engineers, designers and safety experts at its operations in Ann Arbor and York Township, Mich. Its North American manufacturing headquarters sits just outside Cincinnati, and it builds vehicles in Princeton, Ind., as well as in the South and Ontario.

The panel, whose work will continue, is headed by former Transportation Secretary Rodney Slater. It began work as Toyota was besieged by reports of sudden unintended acceleration in its vehicles, including a series of high profile accidents. Toyota recalled more than 8 million vehicles worldwide for two problems: sticking accelerator pedals and floor mats that could become caught in the pedals.

At the time, a number of experts suggested the problem’s root cause lay partly in Toyota’s aggressive drive the past decade to become the world’s biggest carmaker. Despite having the Toyota Production System, which is designed to emphasize quality and eliminate defects on the factory floor, Toyota had stretched its resources too thin.

Though it had expanded world wide, decision making authority still lay primarily in Japan, where a cultural emphasis on consensus routinely means action is slower than in other parts of the world.

Moreover, the company sometimes took action on problems in one part of the world without informing operations elsewhere that the issue had occurred.

The panel, which was given access to Toyoda and other company executives, plants and other operations world wide, said that approach worked against the company in its efforts to stem the recalls.

In North America, it said, Toyota still lacks a chief executive in charge of all its divisions (such as sales and marketing, general corporate, engineering, and manufacturing). Instead, there are individual heads of each division, each of which reports directly to Japan, resulting in what management experts call “silos.”

“This structure contributed to several of Toyota’s quality and safety issues in North America,” the report said. The Japan-centric approach “hindered information sharing and contributed to miscommunication” and “delayed response time to quality and safety issues, fueling criticism that Toyota was being unresponsive to regulators and customers.”

Because Toyota traditionally combined its quality and safety operations, Toyota did not have an senior executive designated with overall responsibility for safety until recently. Nor, the panel said, could the group identify “a clear management chain of responsibility for safety.”

Toyota executives have often insisted that everyone in the company bears responsibility for safety as well as quality.

However, the panel members said they were concerned that “this safety philosophy might suffer from the old adage, ‘when everyone is responsible, no one is accountable,’” the report said.

The lack of a single executive responsible for safety on either a regional or company-wide basis “might diminish accountability for safety issues raised both inside and outside the company.”

Because of its inward focus, Toyota did not give the same weight to complaints by its customers, and others outside the company, such as federal regulators and analysts, the panel said. That is seen as serious criticism for a company that has always emphasized the importance it places on customer feedback.

On the vehicle assembly line in Toyota factories, any worker can pull a rope called an “andon cord” to slow or stop production so that the problem can be quickly fixed, the report said. “But when external sources have complained about quality and safety issues, it has often taken Toyota too long to pull a metaphorical andon cord and quickly try to solve the problem.”

Instead, Toyota initially reacted to consumer complaints and other issues “with a degree of skepticism and defensiveness,” the panel said.

The report “confirms our view that Toyota’s culture–one that works well in times of stability–left it uniquely vulnerable to a fast-moving crisis, such as the safety issues that enveloped the company last year,” said Jeremy Anwyl, the chief executive of Edmunds.com, a web site that offers car advice to consumers.

However, the panel members said they were optimistic that Toyota would improve its quality and safety, even though the work will have to take place as Japan is rebuilding from the March 11 earthquake. At a news conference today, panel members said they had seen “many, many changes” internally, in response to the crisis.

“Toyota is clearly a great company that is capable of doing great things for drivers, for the countries in which it operates, and for the world of business,” the panel said.

Read the full report here. EMBARGOED_COPY_Toyota_Quality_Advisory_Panel_Report