Toyota's Woes Unsettle Corporate Culture In Japan

Toyota President and CEO Akio Toyoda i i

hide captionToyota President and CEO Akio Toyoda speaks to reporters after meeting with Japan's Transport Minister Seiji Maehara in Tokyo on Feb. 9. Earlier that day, Toyota announced a recall of about 437,000 Prius and other hybrid vehicles worldwide to fix brake problems, the latest in a string of embarrassing safety lapses at the world's largest automaker.

Shizuo Kambayashi/AP
Toyota President and CEO Akio Toyoda

Toyota President and CEO Akio Toyoda speaks to reporters after meeting with Japan's Transport Minister Seiji Maehara in Tokyo on Feb. 9. Earlier that day, Toyota announced a recall of about 437,000 Prius and other hybrid vehicles worldwide to fix brake problems, the latest in a string of embarrassing safety lapses at the world's largest automaker.

Shizuo Kambayashi/AP

Toyota's President Akio Toyoda is scheduled to give testimony at a congressional hearing Wednesday, a task complicated by federal prosecutors' decision to launch a criminal investigation into the company's recall of 8.5 million vehicles.

Once seen as a trailblazer whose management techniques were a model for others, Toyota has fallen on tough times. Toyoda plans to tell the House Oversight and Government Reform Committee he is sorry for the problems, and that his company's soaring growth compromised its commitment to safety.

First came Japan's "Lost Decade" of economic stagnation in the 1990s. Now, Toyota's woes are ushering in a period of soul-searching for corporate Japan.

One of the company's latest commercials proclaims: "History has shown a good company will fix its mistakes, a great company will learn from them."

But Toyota is up against multiple recalls: for badly fitting floor mats, gas pedals that stick and faulty brake software. It's also investigating complaints about steering problems in the Corolla, the world's top-selling car.

The venerable Japanese company is facing the worst crisis in its history, and the onus rests on Toyoda. His behavior hasn't helped: His first apology came two weeks after the recalls began, turning a crisis into a public-relations catastrophe.

Corporate Gulf Between Japan, West

Kenneth Grossberg, professor of marketing at Waseda University in Tokyo, blames a gulf in corporate culture between the West and Japan.

"It is proper behavior not to air linen in public. It is not considered a cover-up in terms of Japanese culture, it's considered proper etiquette. You don't talk about it," Grossberg says.

In Japan, Toyota is almost totemic; it's the most profitable company, the biggest taxpayer, and, until now, its management techniques — known as the "Toyota Way" — were widely envied and emulated. Like many other Japanese companies, it's stuck to the Japanese way.

"Many Japanese managers are convinced that the economics of homogeneity, of being ethnocentric, outweigh the advantages of being a globally integrated enterprise," explains Stefan Lippert, a former management consultant with McKinsey and Company who teaches at Temple University's Tokyo campus.

"There's a comfort level in holding management meetings that are done in Japanese that, of course, also increases performance," he says.

The Future Of Japan Inc.

Lippert says Toyota's appointment eight months ago of Toyoda, 53, the grandson of its founder, shows its commitment to tradition and to the Japanese way of doing things. Now, Toyota's troubles underline the stark choice faced by Japanese businesses.

"That's not the end of Japan Inc. Japan Inc. just has to decide what it wants to be," Lippert says.

"Does it want to follow the old model, being an ethnocentric Japan-based organization that exports to the world? Or does it want to be globally integrated? To what extent should they open up their operations [to] international talent, to what extent should they compromise on their corporate spirit, which is the kaisha spirit, which is basically a very Japanese spirit?" Lippert says.

Jeff Kingston, Temple University's director of Asian Studies, believes the lessons are clear.

"This has to be a turning point for corporate Japan, a wake-up call. ... They need to become less insular. They need to become more international. They have to regain some of that competitive edge that they had in the 1980s that made them into world-beating companies," Kingston says.

Change Doesn't Come Easy

But changing Japanese companies, with their long years of tradition and entrenched bureaucracies, is like turning around a ship in motion.

For long-term employees, even the concept of change is unsettling.

When asked if it is time to consider changes to the Toyota Way, one Toyota Group employee who would only give his name as Mr. Yasuda was quietly horrified.

"I'd never think that this could be the end of the Toyota Way or that we should ever change our ways at all. We just need to tackle this minor issue that affects only a small number of people; maybe in the past, we didn't take it seriously enough," he says.

The Toyota Way includes principles such as "going to where the problem is" and asking "the five whys" of troubleshooting.

But the company didn't follow these tenets when dealing with the safety issues. Writing in The Wall Street Journal, Toyoda says the company must adhere more closely to its principles.

Whether the company can find its way back to the Toyota Way — and whether that really is the answer to its troubles — will be watched closely in Japan by its friends and rivals alike.

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