Toyota problems? No big Quality!

Jeffry Liker, in his recent HBR blog post, minimizes the scope of quality problems arising from Toyota’s hyper growth over the last decade. He sees those who believe Toyota has serious quality/safety problems as uninformed. He accuses them of contributing to a “growing mythology,” viewing their “faulty generalizations” as “laughable.” It is hard to square his views with the following three statements.

In January 2008, Chris Tinto, then Toyota’s Vice President for Technical and regulatory Affairs, in an internal presentation, warned “some of the quality issues we are experiencing are showing up in defect investigations (rear gas struts, ball joints, etc).” “Although we rigorously defend our products through good negotiation and analysis, we have a less defensible product.”

In Sept 2006, Jim Press, then the company’s President of North American Operations, at a Toyota Japan headquarters presentation, reported that the number of Toyota vehicles recalled had increased sharply from 2003 to 2005. Parenthetically, I note that complaints lodged against Toyota with NHTSA, increased in almost linear fashion from about 1,100 in the year 2000 to almost 5,000 in 2009. Mr. Press concluded that “as more of our customers experience recalls, customer loyalty will suffer.”

Recently, President Akio Toyoda repeatedly attributed Toyota’s quality/safety problems to its rapid growth which outstripped its human resources. He said the company could not train enough personnel to keep up with its rapid growth. He acknowledged that a misguided strategic focus at the company warped the “order of Toyota’s traditional priorities” so that the stress on product safety and quality first, and sales volume and cost second, became inverted as Toyota began rapidly expanding a decade ago.

Company executives do not casually make such damning statements about their own firm. Are these executives uninformed as to their own company’s problems? Does Prof. Liker know Toyota better than its own executives? Prof. Liker’s concluding statement, “I am not suggesting that Toyota is perfect,” seems light years away from the harsh reality captured in these statements. Prof. Liker’s analysis limits the problem scope to what he sees as two isolated engineering incidents. He asks where is the data that indicates a trend toward greater quality/safety problems? Consistent with John Shook’s (a former Toyota manager) observations, the three statements strongly suggest that while one can assign Toyota’s current problems to specific causes, they are also part of a pattern, one that reveals growing quality problems.

Notwithstanding Prof. Liker’s attempt to discredit opposing views, knowledgeable outsiders are also attributing Toyota’s problems to hyper growth and the growing technical complexity of autos. These developments have stretched thin its cadre of engineers. This was the thesis in my earlier blog post, one quite parallel to that of Prof. Takahiro Fujimoto, the leading student of the Toyota production system in his Nikkei Business Online analysis (in Japanese).

Prof. Liker critiques use of recalls as a measure of quality “when you are trying to make inferences about operations strategy.” He notes that one problem can cause 2 million car recalls, but it is only “one problem.” From an operational perspective, he is almost right (it’s two: first the original defect, and second, the failure of quality control to catch it before products were shipped). From a customer perspective, however, he is dead wrong. For 2 million customers, it is 2 million problems. Here, Prof. Liker fundamentally misunderstands Toyota’s traditional guiding principle of Customer First.

Recalls are, in fact, a powerful measure of quality because they are an important determinant of customer trust. Customer trust, in turn, is a major factor in quality perception. A survey commissioned by Toyota found 30% of U.S. customers said “having a recall on their current vehicle would make them seriously consider not buying that automotive brand again.” With quality, perception is everything. A recent USA/Gallup national survey finds that 31% of respondents now believe Toyota vehicles are unsafe. It doesn’t matter if the media hyped the problem or the politicians politicized it. Customer perception is what it is.

Prof. Liker says Consumer Reports’ (CR) evaluations are a better measure of quality than recalls. He claims that information from CR shows that “Toyota had one of its best years of the decade in 2009.” Yet, if we examine the percentage of a brand’s vehicles recommended by CR, the trajectory shows significant decline from 85% in 2007, to 73% in 2008, to 47% in 2009 (partially reflecting current recalls).

Prof. Liker vigorously denies that rapid growth led to problems with supplier quality. His assuredness is mystifying since the relationship between rapid volume growth and the emergence of quality problems is well recognized by both quality experts and practitioners.

The growing difficulty Toyota had with growth and complexity in relation to supplier management is three fold. They had to delegate more design work to suppliers, Toyota personnel found it increasingly difficult to closely supervise suppliers’ detailed component design, and less experienced Toyota engineers increasingly came to evaluate supplier work.

The CTS brake pedal module is a case in point. No one at Toyota denies that the detailed design and material choice was done by CTS. Toyota, per its policy, however, had full responsibility for approving that design, including providing testing instructions. Given the problems that arose, it is hard to deny its monitoring of the design process and outcome was insufficient. For Prof. Liker to assert as “truth” that the sticky pedal was “one very specialized isolated design issue” appears questionable at best.

Prof. Liker doubts there is a “need to explain the failure of the Toyota production system based on the current recalls.” No knowledgeable expert has made such claims. Many of us are saying, however, that Toyota stressed its production system beyond its capabilities. What resulted was not a failure of the Toyota production system, which is still deservedly the envy of almost every major manufacturing firm worldwide. Rather, it was a failure of management, letting its 15% global market share target overshadow its traditional priorities.

Robert E. Cole is Professor Emeritus, Haas School of Business and Dept. Sociology, UC Berkeley, Executive Director, and Visiting Researcher, ITEC, Doshisha University, Kyoto, Japan