Starting in 2009, Toyota was hit by one of the biggest series of recalls in the automotive history. Even though it was later proven that there was no intention from Toyota to hide anything and that eventually it was established no defect affected the electronics of the car, the damage to the company’s reputation and business was huge.
In 2007, Toyota had become the number one automotive maker in the world. This fantastic continued growth was the result of its reputation on superior quality and safety. A lot of literature had described the recipes of Toyota. It had become the benchmark for almost every company in the world and a symbol of quality and operational efficiency.
All of a sudden, particularly early 2010, everywhere in the world, the headline of the news was about Toyota cars having become unreliable and Toyota having lost its way. The impact was huge for Toyota in terms of sales loss that could be counted in hundred thousands. But more importantly, the essence of Toyota, its reputation was hit in what was the most important for customers, safety. As measured by Interbrand, the brand value of Toyota decreased from 2008 to 2010, in just 2 years, by an impressive 25% globally and lost 8 billions from 34 to 26 billions US$.
In 2014, Toyota brand value, still according to Interbrand, had more that recovered from its pre-crisis level and achieved more than 42 billion dollars up 62% or 16 billions US$ from 4 years before in a comfortable first position among automotive brands.
What made Toyota come back in the race?
I would like to bring here a perspective from inside as I experienced it of how, under Akio Toyoda’s leadership, the company recovered.
In 2010, I was in charge of marketing and product planning of Toyota in Europe at TME (Toyota Motor Europe). In 2011, I was called to Japan to take the responsibility of the global “brand project” which eventually became “brand strategy” in the marketing arm of Toyota in Japan. I could witness the rebound from a privileged position.
There were 3 phases of the recovery.
1) Go back to basic and communicate with customers and dealers:
What struck me during the crisis was that everybody stayed relatively calm. We knew that the foundations and values of the company were still here. Toyota was about contribution to society as I could witness everyday.
The first thing we did was to communicate a lot with our customers and dealers. We had to explain in all transparency that some things had gone wrong in the company but that the base, what had made Toyota so successful, had not disappeared. After the peak of the crisis, we communicated using our real people to show that Toyota was made of people really dedicated to quality. In Europe this campaign was called: “Your Toyota Is My Toyota”
Akio Toyoda who had been appointed a year earlier at the helm of the company, went in front of the congress to apologize and explain that Toyota was fully committing to work transparently to reestablish its reputation.
What was very important is the reaction we got from our customers and dealers. They fully supported the company during that period. Customers appreciated that we made the effort to contact each of them individually. In fact if our ability to conquest new customers was impacted, we did not lose any sales to our loyal customers at all. Dealers remained very supportive and loyal too. Akio Toyoda likes recalling how he was moved to tears during a long standing-ovation in front of the American dealers. The famous internal motto, “customer first, dealer second, Toyota third” proved very precious in this time.
2) Empower the regions:
Akio Toyoda had the feeling that the company had grown too big too fast and lost its way in chasing volume and profit. He established a new organization to pilot quality improvements. The base of this organization was to empower the regions and make sure that once detected, any defect could be solved in the region and get the support of headquarters if necessary. The function of regional Chief Quality Officer (CQO) was established. Like-wise, regular organization to identify and cure the quality issues was created. In a few months, the time to find and bring solutions to quality issues was reduced dramatically. Rather than increasing the level of control, Akio Toyoda made the bet that trusting people would be more efficient and it worked. On a regular basis, Akio gathered the CQO to make sure that they had the necessary support from HQ’s. Akio Toyoda decided to stop the increase of manufacturing capacity and froze all new projects of plants. He decided to dedicate temporally a big part of engineers to quality issues with the impact that some projects of new cars would be delayed. By doing so, he clearly showed where the priority of the company was. Restoring quality and confidence was more important than growth or profit.
3) Improve the brand:
A very important move that is less known partly because of when it was announced was the clarification of the company vision. Akio Toyoda considered this was a key milestone of the company recovery. We needed to go to basic and define a guidepost so that everyone at Toyota could make decisions according to the company vision. It was unveiled on the 9th of March of 2011 two days before the terrible earthquake and following tsunami that struck the north east part of Japan. The link is here. The company vision reemphasized the values and foundations of the brand: quality and safety first, contribution to society and continuous improvement. But it brought what Akio Toyoda likes calling his personal seasoning: exceeding customers’ expectation and bring a smile on their face. In short, he brought a customer driven spice of emotion in the company policy. It was later summarized in the Japanese onomatopoeia: “Waku-Doki” or the feeling of excitement when you anticipate a great experience. It is on this base that, in 2011, we started establishing a brand architecture with the regions, under the initiative of Hiroshi Takada, head of Toyota Sales and Marketing after the proposal of Bob Peterson. The goal was to define our own brand journey. The first 18 months, we received the support of Jim Stengel, a marketing champion well known for his conviction that companies need a purpose. We, collectively with the head of regional marketing functions, defined our brand promise, which KPI’s we wanted to focus on, which common methods and rituals were to be established, which actions we wanted to collaborate on and what our ideal situation should be. This idea of “freedom within a frame” was of upmost importance. We defined the frame collectively, the role of the leader was to listen, understand, analyze, suggest and inspire rather than to decide. Each region would decide to implement its own plans following the common frame freely. Transparency in the group, not control, had become the rule and the level of emulation and communication became very high. All the elements of the communication, from digital to motor-show, from each region’s tagline to hybrid communication, Toyota was fighting to bring more emotion and eventually a smile on customers’ face.
What I learned from those five years had a huge impact on my life and on how I think big companies should be managed. It will be a big part of my book.
I would like to summarize in three key points:
- All organisations should have a purpose that is beyond profit and growth but contribute to improve the world
- Company need to have a clear strategy and this strategy cannot be centrally defined only
- Management should be left to operations in the frame of the strategy. Transparency is more important than control
The model of pure consensual bottom-up approach relying on operational efficiency to outperform competition has gone, especially when competition is becoming multi form. The model of top-down approach relying on control to ensure implementation does not work either. Ideas come from everywhere and speed has become key. It is time for companies to embrace the “Third Road” of management.