Decide Better!

One interesting aspect of Toyota’s botched crisis decision making is how the Japanese culture may have influenced its decisions. In studying decision making globally, I’ve found that business decisions are shaped by both corporate culture and national culture. Culture biases decisions. One company’s inclination and tendencies in decisions is different from others. Companies rooted in one national culture have decision inclinations and biases different from others. In my book Business Decisions I discuss how corporate culture influences business decisions. Let’s use the Toyota example to see how national cultures influence business decisions.

First, Japanese companies do not make good product recall crisis decisions. Historically, they tend to overlook product recall problems, even though they are good at quality. There have been several examples of this in the last decade. They generally respond very slowly and tend to minimize the concern of product risks on customers. Either a cause or effect of this is Japan’s product liability law, which limits damages in cases where customers are injured. In the Japanese culture the shame of product problems can loom large, so there is a tendency to hope it will go away. Second, there is more respect for higher authorities in Japanese companies. Workers don’t dare to speak out and challenge superiors. So in cases like this, even though some of the engineering and support people may have known about the sudden acceleration and braking problems, it was not in their culture to speak out. Finally, decisions in the Japanese culture are slow and deliberate. They study an issue like this extensively and build a consensus within the company before deciding what to do. Crisis decisions require a quick response from leaders. Toyota seems to have been studying these problems while customers continued to be killed or injured by the problems they were studying.

The way the Japanese culture influenced Toyota’s response may be an explanation, but it is not an excuse. Global companies must make decisions based on global expectations, not national culture. Otherwise Japanese companies which are now known for high quality because of the way they make decisions will also be known for risky products because of the way they make crisis decisions.

Toyota’s recall January 21^st of millions of cars because of dangerous sudden acceleration problem provides a case study in how crisis decisions can suddenly accelerate (pun intended). Chapter 18 of my book Business Decisions I discuss dealing with crisis decisions and point out that how a company makes a crisis decision can mean survival or failure. It illustrates examples of how a crisis decision should be handled, and how it can be a catastrophe if not handled appropriately. Toyota should have read my book. The way it handled this crisis decision is appalling, and it is only just beginning to see the impact of this blunder.

The keys to handling a crisis decision are to identify it early, take it seriously, move quickly, and over react instead of under react. A business needs to make sure that any issue that could become a crisis filters quickly to the top, and executive management needs to be very responsive to these types of issues. This was Toyota’s first big mistake. Toyota first identified accelerator pedal problems with its Tundra early 2007. This should have filtered up to be a potential crisis decision: could this really be a problem and how many vehicles could have the same problem. Toyota should have investigated and tested this extremely thoroughly and changed the pedals in all vehicles, just to be cautious. Being overly cautious (over reacting) is the way a crisis decision should be made. Companies that over react to potential problems like this build a reputation of being trusted; those like Toyota won’t be trusted again for more than a decade. Early in 2009, a Toyota spokesman blamed customers for this sudden acceleration problem, saying that drivers were under a lot of pressure and had many distractions; were busy with the kids, boyfriends and girlfriends; and distracted by pagers and cell phones. Later that year in August, a California Highway Patrolman and his family were killed in a sudden acceleration accident. Toyota kept its focus on floor mats (either they didn’t really evaluate the problem or thought floor mats were a better explanation) and vehicles were recalled to replace/fix floor mats, sometimes they were just tied down.

The day after Christmas last year, four people were killed near Dallas in a Toyota Avalon because of sudden acceleration – and their floor mats were in the trunk. [Note: A commercial for the Toyota Prius just came on TV. We were going to buy one – but not now.] January 21st Toyota recalled 2.1 vehicles in the US, but kept selling them. Now it is required to stop selling them. For Toyota, this crisis is now accelerating and it needs to make better crisis decisions.

So far, Toyota has made all the crisis crisis decision mistakes. It dismissed indications of these problems without taking them seriously enough. Who made that decision? Most likely nobody; it was just ignored. When owners of Lexus sedans began reporting harrowing crashes involving stuck accelerator pedals in early 2007, Toyota told U.S. safety regulators there was no safety problem with its floor mats — but it would send owners an orange warning sticker just to be sure. Maybe Toyota has problems both with floor mats and the accelerator pedal; maybe the floor mats were just more easily blamed. Toyota is still making poor crisis decisions. It needs to really understand the underlying problem, come clean with its mistakes, cease selling vehicles until it overly fixes the problem, apologize for those who were killed or injured and pay restitution, and make it up to all owners of vehicles that are recalled by giving them free loaner cars and big rebates to purchase new Toyotas to offset their losses on the resale value of their cars. This will cost a lot of money, but its reputation for safety and maybe its survival are at stake here and now.