FINAL Individual Reasearch Paper

RUNNING HEAD: INDIVIDUAL RESEARCH PAPER 1

Toyota Recall Research Paper

Richard Jennings

Business 307: Organizational Behavior

November 22, 2015

Dr. Adeogun


Introduction

Recalls, are they accidental or intentional? Are big corporations handled in a clear and

organized manner? Many businesses are in a rush to make new products and quickly put them on

the market. A good business needs proper communication skills and need to be prepared in case

of a product harm crisis.

Toyota Recall Problem

Toyota’s being one of the best car businesses of all time had a big struggle with its

business in late summer of 2009. In Santee, California, a family of three lost their lives as their

vehicle went out of control when it accelerated, hit another car and caught on fire. Toyota said

that the owner’s floor mats were the wrong ones and were placed there accidentally when their

car was being worked at Bob Baker Lexus of San Diego. Evans and MacKenzie (2010) say, “On

the following month, Toyota announced that they were going to recall the floor mates of 4.2

million Toyota and Lexus vehicles” (pg.1). Toyota advised owners to place their floor mats and

place them in the trunk and had the dealers who would use zip ties to secure floor mats so it

would not interfere with the gas pedal. When the National Highway Traffic Safety

Administration examined the car’s it noticed that the gas pedal was mounted to its stalk while

other cars have hinged pedals. In response, Toyota sent a letter to all owners and said that no

defect existed. It was claimed that Toyota ignored over 1,200 complaints for acceleration issues

in their cars over the past eight years. Reports showed that cars were still getting acceleration

issues without having the mats on the floor. So Toyota made the announcement that the software

from the gas pedals will be fixed by 2011. It was a problem for the company because they had to

halt sales from new models and it was estimated that Toyota lost $1.5 million of profit every

week because of it.


What Caused the Recall?

First, there was no leadership in this recall; the business was irresponsible for not looking

into the complaints from the customers. When a mistake is made, regardless whether the

individual did it or did not, if he is a leader in the company, he is fully accountable for any

mistake or problem in the company. Also, the leader needs to make sure the problem is fixed

immediately. Specifically, Toyota did not use servant leadership which is helping stakeholders

fulfilling their needs. Informal communication was another problem in the recall towards both

internally and externally. In the business, the gas pedals were placed in the wrong vehicle; so

employees were not properly trained, and customers sent letters that were again ignored by

executive employees. Culture played a role, for United States owners could not make any

changes for it was up to the headquarters in Japan to change the vehicle due to the recall. This

culture led to a lack of negotiation. Many Toyota businesses wanted to recall the vehicles, but the

executives did not want to negotiate with the other stores, making the whole company look bad.

Quality Management

Most businesses want to get a product out as soon as possible, but what they do not

understand is that it is not all about the quantity but about the quality. Iwaarden and Wiele say

(2012) that quality management is viewed systematically for a product to be given to the

customer, at a reasonable time and with a reasonable cost. This situation will ensure that the

customer sees that the business focuses solely on the customer. The problem is a product may

not be ready when the customer wants it. Businesses want to excite their customers with great

products but some of them do not have the time or resources to fulfill them. According to

Iwaarden and Wiele, “In a situation of short product life cycles and a large product variety, it is

questionable how well quality management systems are able to maintain a focus on each of the


many customers and provide them with the right product at the right time” (p. 472). Months

after the Xbox 360 was released back in 2006, consumers suffered a recall that was called the red

ring of death, which was a type of hardware error. The main cause was the company Microsoft

promised a release date for the product that was not ready for release; Microsoft did not test their

product long enough for its longevity.

There are two types of learning when it comes to business recalls, voluntary and

involuntary. Haunschild and Rhee (2004) says, “Voluntary recalls will be better for learning than

involuntary ones. A nuclear power plant study found that when solutions to problems were

internally developed and voluntarily adopted, the plant was better able to develop competencies

related to improved safety” (p. 1547). It is important to motivate employees; this is key for a

successful business and to avoid recalls. Haunschild and Rhee (2004) also mention, “Involuntary

recalls may produce better learning responses than voluntary, because involuntary recalls are

more likely to draw organizational attention to a problem” (p.1547). With involuntary most of

the situations are new, like new procedures; so a lot of involuntary recalls are learned quickly.

Many food recalls occur because of the lack of FDA powers. In the House Committee

there are many members that indicate strong FDA powers. In an incident with children’s cold

medicine, there were many questions that arose whether the FDA had the authority it needed to

regulate drug and biotech manufacturers. One of the biggest incidents due to poor quality

management was in 2009, during a big recall of peanut butter which was one of the most costly

food recalls in history. Roman and Moore (2012) says, because the Peanut Corporation of

America, a smaller company, did not check their products for salmonella their peanut butter

products led to nine deaths, over 700 illnesses and a list of recalled products from peanut butter

to candy to even dog food. Immediately after the recall, PCA filed for bankruptcy protection and


fired their employees. Unfortunately the incident led to PCA gone bankrupt and all corporate

operations were ceased. The company is currently awaiting criminal and civil court proceedings.

Importance of Contracts

Fremlin says (2008), that in order for a product to have quality standards, a good contract

needs to be in order as well as a legal recourse that the buyer has against the supplier in case of a

breach. So a contract will set two or more businesses straight so there are no grey areas as far as

a product. It is important because if there is a recall of a product, the buyer is not taking blame

for a bad product by a manufacturer. At the same time, a manufacture is safe if the buyer is not

using the product properly. A supplier needs to have worldwide coverage on the agreed amount

to the product liability. According to Fremlin (2008), “Also in the contract provision it should

also state that the supplier is responsible for any deficiencies or gaps in coverage or deviations

from the specified insurance terms” (p.35). Any buyer needs to make sure that the product is

properly insured for the safety of the company and for the consumer. In any case of a recall the

buyer should not have to suffer from selling a product that he did not know was improperly

designed.

If a recall does occur it is important that the buyer does not have to suffer from any

financial loses. Fremlin (2008) says, with product liability lacking on the supplier,

reimbursement must be imposed by the buyer for product liability, safety recall costs and

liability through contract provision that state obligations by the supplier (p.37). A safety recall is

pretty much part of the contract for the supplier to reimburse the buyer for any kind of cost to the

recall. Fremlin (2008) also implies, “If the contract does not explicitly or adequately address

reimbursement from the supplier for costs of the recall, an innocent buyer, even a vigilant one


with stringent safety standards, will have little or no chance of recovering recall costs from the

supplier” (p.37). This would not be good for a business because not only would they lose money

from the product, they would also lose business from the customer. It is scary enough for a

customer to second guess whether or not they need that product; it is even scarier for them to

have to fear of a recall and not get money back.

Communication Skills

If the business cannot communicate with its customers and be honest then it runs the risk

of losing customers. Goldberg says (2012) that a big reputation risk is in communications, public

perception, brand protection and “taking responsibility for what is happening and taking

responsibility for protecting your customers” (pg. 20). He says, “The message your company

delivers and the tone you set as an organization either builds the trust of your customers and

supply chain partners, or diminishes trust”(p.20). Lancendorfer says that a problem that

corporate executives make is refusing to respond in an incident of crisis, causing a loss of control

in their company. To make sure this does not happen, these business leaders need to present the

honest truth in the story to prevent damage to their company’s reputation and profitability (p.96).

It is understandable that an executive would be frightened to lose customers to a recall and

chances are they might lose a few; nevertheless, it is important for executives to be honest with

their customers and to ensure them that whatever the problem may be, the company is doing

their best to fix the problem. A lot of loyal customers will understand and move forward. With

that being said, a lot of less loyal or ignorant customers might turn away from the company. It is

also important to make sure that an employer communicates with their upper level management

to avoid any future issues. Jusko (2015) says, “There are substantial monetary-multimillion

dollar monetary-penalties that can be sought if a company fails to report a safety issue they


should have reported” (pg. 13). Even a minor accident, needs to be reported because a minor

issue can lead to a bigger problem later on down the road. If a company owns a machine that is

having minor difficulties, it needs to be reported to a manager who then tells their other

employers so they know to not use the machine.

Product Harm Crisis

If an individual gets involved with a product-harm crisis, chances are the product will

lead to a recall by the seller and the manufacturer. Anwar says, “Two areas that influence these

issues are short term impacts and long term impacts” (pg.193). The short term impacts are

usually the consumer complaints, fines, penalties, and protests. The long term impacts could be

the business’ loss of loyalty, negative publicity, and possible lawsuits from the government and

the consumers.

Good examples of a product-harm crisis that can cause these impacts are toy companies;

toy companies are affected the worst when it comes to recalls because children are the biggest

consumer of toys. When a child chokes on a piece of a toy or gets sick from a type of chemical

they placed in the toy, most parents will not think twice on exchanging a product. When a food

product contains a harmful ingredient, the situation can become a lot worse than just a product

malfunction. Gendel, Khan and Yajnik (2012) reminds us that the U.S. Food and Drug

Administration supports the consumers and makes sure that these companies are labeling their

products correctly by containing complete and accurate information about the presence of food

allergens (pg. 302). They also state that a manufacturer can prevent mislabeling through an

allergen control plan, which ensures that all food allergens are labeled correctly.


Differentiation

Differentiation is an issue that is unsolvable and is only an obstacle in life that a manager

has to cope with for a company to be successful. If a job has both younger and older employees

working together, the employees will have some sort of conflict. The younger group might be

less productive than the older group or the older group might be slower with technology, having

the younger group pick up the slack. The best way of solving a differentiation is by reducing the

differentiation within the organization. One good way for reducing differentiation is having

employees from different departments working together with other departments to help fulfill a

task. Another way is to move managers into different departments in the organization so that

way, these managers become more experienced in different departments, making the

organization run smoother. The final way is to build an organizational structure, which will help

employees feel comfortable in their organization. It is important that business owners do not let a

culture form in a business. Culture needs to be developed when the business is being developed.

Co-workers are going to have different personalities and cultures, so it is important for a business

to have opportunities to communicate and understand each other. According to McShane, “In the

Johari Window process, individuals disclose more about themselves so others have a better

understanding of the underlying causes of their behavior; a variation of Window occurs in “lunch

and learn” sessions, where the employees in one functional area describe work and its challenges

to co-workers in other areas” (pg.198). Window’s idea broadens an employee’s perspective and

outlook of the company when the employer is informed about how the company runs in different

departments.


Operations in Toyota

The way Toyota operates is through the use of coordination and cooperation. Gieszl

enforces, “The centerpiece of the new organization is a consolidation of the operating divisions

reporting directly to Executive Vice President Yale Gieszl. In this regard, the number of separate

operating divisions has been reduced from ten to the following six major groups: planning and

development, automotive operations, customer services division, legal and risk management,

industrial equipment, and external affairs” (p.1). Toyota follows a matrix organizational

structure, which provides authority for the lower level of authority for the employees to get a

bigger part in participation and make suggestions for Toyota. Toyota also brings teams together

to come up with one product line, whereas divisional structures will have teams work on separate

product, and these divisional structures do not have lower level authority. The matrix structure is

designed to have better flexibility, communication, and innovation within Toyota. A few

problems with businesses that use matrix structures are the conflicts among shared powers of

managers and having two bosses weakens the accountability in the business. Toyota’s board of

directors consists of twenty-nine Japanese men with seniority to the company; since it is a

centralized power structure the company’s authority is usually not assigned. It is mentioned

before. Toyota has a lot of flexibility and will let employees work on their own as long as the

employees use proper communication. The executives in the United States are mentored by the

Japanese executives and are not allowed to issue a recall; decisions are made back in Japan.

Task Relationships

Since Toyota is a matrix structure, all employees are involved in the business. With this

being the case, a lot of conflict can arise within the organization. Not everyone is the same, thus


generally provides a good way of solving tasks. A workplace needs to have different opinions to

expand on a task and get different sides. In organizational conflict there are three different types:

task, relationship and process. Task conflict is a conflict that is the most beneficial to a company,

for it is conflict on the task at hand, nothing personal between the employees. Process conflict is

a conflict that shows how a task should be done. It can be judged by large groups. Task and

process conflicts are both considered functional conflicts which are positive in a company. One

dysfunctional conflict is relationship conflict, which is generally an outside problem that affects

the business from within. Big examples are couples in the workforce, who might bring problems

from home to work. Resource scarcity is a shortage of resources needed in a company, and it can

be another source of conflict. Most problems happen when a manager does not clarify rules and

procedures to their employees, causing conflict between their co-workers and the managers.

In order for a company to fix conflicts within its workforce, the company needs to reduce

its interdependence. Co-workers tend to be dependent on each other, so if there is a dysfunctional

conflict between co-workers, chances are the co-workers have a high mutual dependence.

Creating buffers is one way to reduce interdependence for it is a mechanism that loosens the

coupling between two or more people or work units. Integration is another strategy which

coordinates work activities toward the completion of a common task; integration will reduce

interaction between the employees and rarely has authority over the departments so it relies on

referent power and persuasion to manage the conflict. The final way of reducing interdependence

is combining jobs; that way it is less stress on individuals doing the same task. For Toyota, one

could put on the tires and the other could put the body of the car.


Recommendations

Lives were lost because of this recall; it takes humanity to realize that there was a

problem. Every business has made a mistake at some point in its life cycle, so if a manager can

realize anything in a management career is that mistakes are going to be made. Mistakes are

unavoidable, it may not be anything the manager did wrong, and it could be another employee.

The problem Toyota made was keeping it a secret and even worse just ignoring the problem. In

order to keep customers, the business has to be honest with the customers; being honest is the

ethical way to run a business.

It is clear that Toyota was not careful when placing its vehicles on the market. Test

driving a vehicle a few extra times in different situations should be an option when selling a car;

driving a car can be a dangerous situation if the car has a manufacturing problem. Doing more

test drives may cost more, but it would not be as bad as losing billions of dollars in profit. It

seems Toyota needs to work on communication between employees. This is a bigger problem

when the headquarters of the company is in a different country. Toyota might want to consider

giving the United States a little control in the decision if there was another recall. All

stakeholders need to cooperate at the global level to create a consumer friendly environment by

making sure they bring out the best product in the safest way possible. Contracts can be another

way of preventing the whole business itself from being completely liable to a product. A

company needs to be sure that their company has recall insurance for risks of recalls on the

product.


Conclusions

In conclusion, recalls can be avoided if the company uses proper protocol. A lot of recalls

occur due to pure laziness, and as long as jobs are properly done, the companies should not have

to face the consequences of a recall. Quality management is getting a product to a customer at an

efficient time without rushing the product out. A company also needs a strong contract that is

heavily detailed to make sure the company does not get penalized for something that a

manufacturer has done wrong. In addition the company needs to communicate well, not only

within the company but with other companies that are affected by the business. If the company

does experience a recall, then it might experience a product harm crisis, which could harm both

the company and the manufacturer.

The best way of solving a differentiation is by reducing the differentiation within the

organization. One good way for reducing differentiation is having employees from different

departments working together with other departments to help fulfill a task. Toyota follows a

matrix organizational structure, which provides authority for the lower level of authority for the

employees to get a bigger part in participation and make suggestions for Toyota. The matrix

structure is designed to have better flexibility, communication, and innovation within Toyota.

The executives in the United States are mentored by the Japanese executives and are not allowed

to issue a recall; decisions are made back in Japan. A workplace needs to have different opinions

to expand on a task and get different sides. In organizational conflict there are three different

types: task, relationship and process.


Reference

Anwar, S. (2014). A case of the changing toy industry. Product Recalls and Product-harm Crises, 24(3), 190-210.

Bauer, T., & Erdogen, B. (2015). 14.1 Organizational Structure: The Case of Toyota. Organizational Behavior, 1.1.

Evans, S., & MacKenzie, A. (2010, January 27). A Chronology of How the World's Largest and Most Profitable Automaker Drove into a PR Disaster. Retrieved August 27, 2015.

Fremlin, G. (2008). A contract with watertight insurance provisions can save retailers, distributors, and importers expenses that result from recalls of defective Chinese products. Careful Contracts Reduce Risk, 35(1), 34-39.

Gendal, S., Khan, N., & Yajnik, M. (2012). A survey of food allergen control practices in the U.S. food industry. Journal of Food Protection, 76(2), 302-306. doi:10.4315/0362-028X.JFP-12-373

Haunschild, Pamela R; Rhee. (2004). Mooweon the role of volition in organizational learning: The case of automotive product recalls. (2004). Management Science, 50(11), 1545-1560.

Iwaarden, J., & Wiele, T. (2012). The effects of increasing product variety and shortening product life cycles on the use of quality management systems. The International Journal of Quality & Reliability Management, 29(5), 470-500.

Jusko, J. (2015). 4 things you should know about product recalls. Industry Week, 264(5), 12-14.

Lacendorfer, Karen. "Pet food panic: Procter and gamble's use of crisis response advertising (CRA) in recall crisis." Corporate Reputation Review 17.2 (2014): 94-113. Print.

McShane, S. (2014). Organizational Behavior. 3rd edition. Mc Graw-Hill.

Roman, K., & Moore, M. (2012). A case study of crisis communication, image restoration and utilitarian ethics: a recall of contaminated peanut butter examined. Journal of Business Case Studies, 8(3), 311-323.

Toyota Motor Sales, U.S.A. Announces Organizational Refinements for the 21st Century. (2000). PR Newswire, 1(1), 1-1.

Sowinski, L. (2012). A holistic approach to recalls. Food Logistics, 205(141), 18-22.

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