The Mark 2010

The automaker’s sluggish response to quality control problems may well ruin its brand.

Johnson & Johnson’s handling of the 1982 Tylenol crisis is widely considered the textbook example of excellence in crisis management. It took courageous leadership – fearless, direct, and honest. What was costly in the short run proved salutary in the long run, as the company’s credibility came through intact and customer confidence rebounded almost immediately.

Toyota’s situation today is not as simple, and so far, it is not clear that the world’s top automaker will emerge as well as Johnston & Johnston did 28 years ago.

In fairness, an automobile is a far more complex product than a bottle of medication, especially with Toyota’s just-in-time manufacturing model. But still, the Japanese company has built its reputation on an obsession with quality – a reputation that is now on the line.

The trouble began in November when the company recalled 4.2 million cars because of a potential problem with accelerator pedals catching in floor mats. The recall was well handled, and individual owners received timely and comprehensive information packages with procedures to follow. But that turned out to be just the beginning.

It then emerged that the gas pedals themselves were faulty, and may, in some cases, stick, causing unintended acceleration. The recall has now spread to more than 8 million cars worldwide, and sales of Toyota’s top-selling models have been halted completely for the moment. Factories sit idle and dealers are in trouble. In full-page ads, the company says it has put things on hold for the sake of its customers. How is this possible, and what does it mean?

Toyota’s highly regarded operations have had to grow very quickly to meet demand – both because of their own models’ reliability and because Detroit automakers have been losing customers. Is it possible that the company was unable to adapt its management structures and culture to keep up with the new dimensions of the business?

In my experience, people on the shop floor usually know about quality problems long before top managers become aware of them. In companies with courageous leadership that is unafraid to hear the truth, employees tend to follow this example, becoming vocal and courageous themselves. In strong organizations, important information, no matter how sensitive or controversial, percolates up very fast. Was an unwillingness to be the bearer of bad news a factor in Toyota’s case?

Did Toyota, a known role model for its high level of employee commitment, tumble to simple, risk-averse compliance? When this happens, people may do as they are told, but they do not take the kind of initiatives that make the difference between adequate and excellent.

Even though the problems with the pedals are “rare and infrequent,” according to Toyota, the delay in dealing with the unfolding public relations disaster is now jeopardizing the company’s entire future. Ironically, Toyota’s top competitive advantage – its reputation for quality – makes it even more vulnerable.

Its competitors would do well to bear this in mind as they try to take advantage of Toyota’s difficulties. The shoe might well fit on the other foot.

In the meantime, the jury is out: Will Toyota’s leadership have the courage, the vision, the communication skills, the engineering, and the production competence to resolve the situation quickly? Will consumers who have trusted the company for 30 years be willing to continue risking their hard-earned money and their personal safety on Toyota products?

What lessons will Toyota take away from this? Will it re-examine and retool the level and depth of ownership and communication within its ranks, from the assembly line up to its senior leadership?

I suspect that we will know the answers to these questions fairly soon.