Toyota’s Top-Down Management: Not a Model for the 21st Century

Toyota needs to cede control to local managers, its panel says

IHS Global Insight analystPhil Gott told me thatToyota’s management had demonstrated “too muchcoya.” Thinking that was some Japanese phrase reflecting ancient wisdom on how to run a business, I asked for clarification. “No, not coya,” he said, “CYA — cover your ass.”

And, indeed, that has been Toyota’s management problem, clearly seen in its insular handling of the sudden acceleration crisis and multiple recalls. That’s the thrust of a just-released report from a blue-ribbon panel (including former Transportation Secretary Rodney Slater) commissioned by the company. Toyota (TM) may have gotten more than it bargained for, because the report is blunt and plain-spoken — exactly the opposite of Toyota itself.

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Any analysis of the 77 percent drop in Toyota’s January-March profits (to $300 million) has to attribute much of it to the devastating effects of the Japanese earthquake and tsunami — but the company’s management issues haven’t helped. Indeed, there are striking parallels between Toyota’s slow, evasive crisis management and that of Tokyo Electric Power, which stonewalled about an emerging nuclear meltdown after the earthquake.

Both offered occasional vague public statements when sharp, frequently updated specifics were what was needed. And both put forth spokesmen on short leashes, who glanced nervously back at the head office whenever discussion strayed from their talking points.

The problem for Toyota is that it was on top so long it had no mechanism for handling serious problems. So when crises such as sudden acceleration arose, it fumbled the ball.

The report said that Toyota responded with “skepticism and defensiveness” when faced with legitimate consumer complaints, and developed an “adversarial” relationship with regulators. Toyota’s top-down, centralized management style slowed responsiveness to a crawl, the panel said, and the company “needs to shift the balance somewhat toward greater local authority and control.”

A recurring pattern

In many years of covering Toyota, I’ve seen a recurring pattern that confirms that analysis. News leaks in Tokyo often blindside the company’s U.S. communicators, who are unable to respond in a timely fashion until they get guidance from HQ in Japan (where there are further delays because of time zone differences). It didn’t matter that much when the issue was how much Toyota’s earnings were up, but it had a devastating effect when it slowed the company’s response to the rapidly unfolding sudden-acceleration problem.

The public face of Toyota on this side of the ocean should have been U.S. chief Jim Lentz, but instead it was the company’s president and dynastic figurehead, Akio Toyoda. The Japanese chief stayed out of sight for far too long (getting tagged “elusive”) and then endured a disastrous encounter with Congress early last year. Edmunds’ Anita Lienert called that day of testimony, which included thunderbolts hurled down by a tag team of angry legislators, “[u]ndoubtedly the low point for Toyota in 50 years of operating in the U.S.”

Toyota’s acceleration misery included $50 million in federal fines, and it isn’t going away — a federal judge ruled last week thatacceleration victims can sue Toyota for economic losses. The whole experience should have sparked major policy changes within the company, but the report said its recent management shuffles haven’t been far-reaching enough. Other Japanese automakers are working harder to be responsive to customer complaints and safety issues, as Gott reports:

The concept of decentralized control means listening to the company’s people in its various regions. Honda and Hyundaihave been getting better at that, and I attribute Hyundai’s recent success to its ability to give more autonomy to its markets around the world. It’s important to be close to the marketplace, and Toyota has been slow in this regard. When the sudden acceleration issue broke, Toyota had a global focus, when its American arm would have focused on minimizing internal damage in the U.S.

Despite its downbeat tone, the report does say that Toyota has made progress. At a news conference, panel member Brian O’Neill, former president of the Insurance Institute for Highway Safety, said that in the next crisis, Toyota’s managers would be “more pro-active and faster than they have been in past cases.” And Akio Toyoda is also saying all the right things about making the needed changes, and listening to the customers. But then, he usually says the right things — just not always in the right forums, at the right time.