16 Feb 2010

Harvard Business School Faculty on Toyota Recall


BOSTON— With its once sterling reputation for quality now tarnished, Toyota is in a crisis of immense proportions, traveling down a road that no company ever wants to take. Two Harvard Business School professors--one an expert on branding and reputation, the other a historian-provide their perspectives.

Professor Stephen A. Greyser

Professor Stephen A. Greyser
Richard P. Chapman Professor of Business Administration, Emeritus

It takes years to build a strong brand reputation - a major corporate asset that typically helps create new customers for products that deliver value and brings satisfied ones back for repurchase. But customer loyalty and corporate brand reputation can be fragile. Just ask Martha Stewart or Tiger Woods. Tiger's brand value as an endorser - built over years of outstanding performance on the golf course - fell precipitously in the wake of scandals in his personal life.

Toyota is a more traditional corporate tale of great "ups" and rapid "downs." The company's track record of performance, reliability, and product value has been seriously dented. Its strong corporate values of quality are now questioned.

Where is Toyota now? The story is still incomplete, since a congressional committee probe and U.S. Department of Transportation initiatives continue to unfold. What is clear is that Toyota will remain center stage, in the spotlight of vigorous criticism that reveals ever-bigger "feet of clay" for the world's leading car manufacturer.

There are inherent problems with all recalls, because "reversing the channels of distribution" can be difficult. The cost to customers of abandoning the product is a key element. Consumers have an alternative to virtually all over-the-counter drugs, for example, and can toss out potentially tainted pills. Even a coffee maker that may cause a household fire can be disposed of readily because of available alternatives. In contrast, an unsafe car is a very different story - an expensive purchase not easily replaced.

How can Toyota make a comeback? I see five essential steps:

  • Swift fixes that work - for owners, potential repurchasers, and prospective buyers,
  • Resolution of the problems to the satisfaction of U.S. and Japanese investigators,
  • No further difficulties on the road for the affected or other models,
  • Extended warranties to reassure current owners, and
  • Internal activities that offer assurance that Toyota truly understands why the problems occurred, reveals them publicly, and is undertaking actions to prevent any recurrences.

Even these expensive and in some cases time-consuming initiatives may not work - or may take a long time before they reassure current owners or prospective buyers. But not doing them will virtually guarantee that car consumers will explore, even seek, other brand alternatives.

What are the broader lessons from Toyota's travails? In allowing serious safety problems to reach the current crisis stage, the company has compromised the essence of its brand--reliable, high-quality, safe vehicles--in an era that is trust-intensive. Toyota's "reputation reservoir" has been substantially drained because of the breadth and high visibility of its problems.

Other organizations need to learn from this and other corporate crises to avoid repeating the past: Find the facts and tell the truth about them. Address the problems, even if costly. Work to regain eroded trust via acts, not just ads. And remember that the CEO is the ultimate guardian of corporate reputation.

Toyota still has a long way to go if its goal is to regain its prominence as the world's leading car manufacturer. The court of public opinion and purchasing power will be the final arbiter of their success.

Stephen A. Greyser is the Richard P. Chapman Professor (Marketing/Communications) Emeritus at Harvard Business School and a frequent author on brands in crisis and corporate reputation. Among his many books, articles, and over 300 HBS cases are the original HBS cases on Tylenol, Audi, Perrier, Intel Pentium, and other brand crisis situations. He is the author of "Corporate Brand Reputation and Brand Crisis Management" (Management Decision, 2009).

Professor Richard S. Tedlow

Professor Richard S. Tedlow
MBA Class of 1949 Professor of Business Administration

As the world knows, Toyota finds itself in the midst of a product recall situation that bears directly on the safety of its product and the lives of its consumers. In the media, Toyota's conduct is frequently being compared to what is universally described as "the gold standard" in product recalls: Johnson & Johnson's management of the poisoning of its flagship pain reliever Tylenol in 1982 and 1986, which resulted in eight deaths. What could be a more devastating calamity for a headache remedy than that people take it and die? Despite this catastrophe and against all odds and predictions, however, J&J;, led by one of the great CEOs of American history, James E. Burke, saved the brand.

J&J;'s achievement was an incomparable corporate tour de force. But should it be used as a point of comparison to Toyota's situation today, or to other product recalls? The answer is no.

There is a key difference between the Toyota situation today and the Tylenol situation in the 1980s. That difference lies in the fact that the deaths caused by Tylenol were not the result of any fault by J&J.; First of all, Tylenol was tampered with. Those eight deaths were not in fact caused by Tylenol, but by cyanide, which some as-yet-unknown perpetrator put into Tylenol capsules. It is important to note that J&J; received letters from the appropriate federal agencies to the effect that this substitution of cyanide for Tylenol - in other words, the tampering - did not take place in a J&J; plant. Indeed, it occurred sometime after retailers had purchased the product.

Second, J&J; wanted to withdraw the product from the market in the wake of the tampering. The FDA and the FBI, especially in 1982, at first wanted J&J; to keep the product on the market because they feared that withdrawal would stimulate copycat crimes. This is the reverse of almost all recall scenarios, in which the company wants to keep its product on the market and the government wants to take it off.

The situation with Toyota is wholly different. This company, world-renowned for years for its commitment to quality, has marketed automobiles that have a defect or defects that directly affect the core functioning of the car.

What we do know for sure, however, is that the accelerator problem is Toyota's fault as much as the Tylenol problem was not Johnson & Johnson's. Is it the floor mat? The accelerator mechanism itself? The electronic controls? Whatever the case, Toyota is to blame for this product failure.

The lesson: When the product failure is your fault, there is nothing more difficult than handling it in a way that puts the customer first.

What should Toyota do? It is vital that the company communicate to governments and people around the world a simple answer to a simple question: If I own a Toyota, what am I supposed to do? U.S. Secretary of Transportation Ray LaHood didn't seem to know what's best. He recently told the public not to drive Toyotas. Within hours, he recanted that statement. But if Toyota couldn't educate him about what steps consumers should take, what chance do they have with the mass buying public? They must move on this front, and they must do so immediately.

Richard S. Tedlow, the MBA Class of 1949 Professor of Business Administration, is a specialist in the history of business. His video interview and case study of James Burke, the chairman of Johnson & Johnson during the Tylenol crisis, has long been a staple of the HBS curriculum. His forthcoming book, Denial: Why Business Leaders Fail to Look Facts in the Face, will be published in March.

About Harvard Business School

Founded in 1908 as part of Harvard University, Harvard Business School is located on a 40-acre campus in Boston. Its faculty of more than 250 offers full-time programs leading to the MBA and PhD degrees, as well as more than 175 Executive Education programs, and Harvard Business School Online, the School’s digital learning platform. For more than a century, faculty have drawn on their research, their experience in working with organizations worldwide, and their passion for teaching, to educate leaders who make a difference in the world. The School and its curriculum attract the boldest thinkers and the most collaborative learners who will go on to shape the practice of business and entrepreneurship around the globe.