GIBS Review 

ISSUE FOCUS: TOYOTA TRIES TO RIDE OUT THE RECALL CRISIS

Toyota’s worldwide 8m vehicle recall – the biggest ever – comes amid claims that the manufacturer knew for years that some models were prone to potentially lethal, unexpected acceleration. If proved true, it has massive ethical, legal, operational, marketing and strategic implications for a firm that more than any other vehicle maker built its name on quality, writes WMG Media. Toyota's insistence on quality is exemplified by its policy of allowing individual workers to shut an assembly line – despite the enormous cost – if they notice a quality defect. ‘Now, Toyota is having to stop the line at the corporate level in a big way,’ says Prof Paul MacDuffie, of the International Motor Vehicle Program at the University of Pennsylvania’s Wharton Management School.

Larry Hrebiniak, also of Wharton, says Toyota has done exactly the wrong thing. ‘This is a very serious issue, they know it is going to hurt them and their quality image, so they are trying to downplay it. When a business makes a mistake it is best to be upfront because delays and uncertainty only make matters worse in the long run.’

The Toyota experience highlights problems with the industry as a whole, that might well presage recalls by other manufacturers down the line:

• Pushing the edge – Manufacturers might have moved too fast in product development. In fact, Toyota acknowledged this nearly three years ago and has since slowed its product development time frame and reintroduced more physical, rather than digital prototyping into its process.
• Commonality – Manufacturers are increasingly using the same components and platforms across many different models in order to gain scale and cost advantages. If one part is bad, the number of vehicles affected will be much larger than in the past.
• Complexity – Cars used to be primarily mechanical devices, but now they are also ruled by numerous sophisticated electronics overlaid on top of traditional mechanics. ‘And it is not always such a happy marriage between electronics and mechanical systems,’ points out Matthias Holweg, of the Judge Business School at the University of Cambridge.

MacDuffie says the crisis suggests that Toyota's public relations expertise does not match its overall strengths as a manufacturer. Despite some slippage in its quality performance, Toyota continues to win more top quality rankings than any other car manufacturer. The greatest damage to Toyota's public reputation would be if, beyond this recall, the company reveals more problems associated with acceleration. Alternatively, ‘Toyota will take this opportunity to display its famed ability to focus intensively on a revealed problem, to get to its root cause, and to solve it permanently,’ says MacDuffie. ‘This would reinforce its image as a company that is capable of continuous learning in order to meet customer needs.’
Knowledge@Wharton: Quality on the line: The fallout from Toyota’s recall

Akio Toyoda is, at 52, younger than any of the previous 10 Toyota presidents, but the man once hailed as a symbol of a fresh, new epoch for a recession-battered car-making industry has now been heavily criticised for the way he has handled the crisis, reports The Telegraph. Among the questions being asked are whether Toyoda – whose grandfather started the company 73 years ago – sacrificed quality control to claim the coveted world number one spot from General Motors.

Toyoda has been criticised for initially delegating the public management of the crisis to relatively low-ranking executives, reports The New York Times. Arthur Liebler, a former Chrysler vice-president and communications adviser to Lee Iacocca, recalled how Iacocca used his personality and fame to Chrysler’s advantage when the company faced a scandal of selling used cars as new models in the 1980s. ‘Lee attacked it head-on by saying, ‘We screwed up, we made a mistake, and we’re going to fix it.’

Toyoda eventually did take charge and even bobbed his head in apology, writes WMG Media. This is part of the traditional Japanese ritual of corporate apology that is finely nuanced.

The Los Angeles Times explains that it all goes back to feudal times, when samurai warriors committed seppuku, disembowelling themselves in atonement. Akio Toyoda’s brief dip of the head before the television cameras, rather than the deeper, longer bow that some expected, was a careful signal. It ‘suggested regret for causing so much trouble for his customers … but bend too low, hold the pose too long, and Toyoda might have found himself in sticky legal trouble, his ritual of apology construed as a sign that the company accepted its culpability in the mess over all those defects’.
The Telegraph: Toyota woes: Staring into the abyss
The New York Times: Toyota’s top executive under rising pressure
Los Angeles Times: A ritualistic bow from Toyota chief

What of the future? Toyota has such brand strength that while the recall has been damaging, it is by no means fatal, writes WMG Media.

Long-time automotive analyst Graeme Maxton is quoted in Asia News Network as saying that though the recall is a big surprise and will be costly, it won't damage Toyota too much. ‘They have such a lot of goodwill. But they better not let it happen again. That would be much more serious.’

Indeed, other big manufacturers have rebounded from product defects – even some very embarrassing ones – including: fatal crashes of the Audi TT because of stability problems; the propensity of the A-class Mercedes Benz to flip over in routine road situations; faulty cruise controls on millions of Fords; Bridgestone Firestone recalling 6.5m tires that contributed to SUV rollovers; and exploding fuel tanks on GM trucks that cost the company $500m paid out in damages suits.

And in an editorial, the Asahi Shimbun warns that there can be no room in any Japanese industry for complacency or overconfidence in world markets that are going through radical changes in market structure and technological innovation. ‘Recent consumer surveys have shown Hyundai of South Korea outperforming Japanese makers in terms of product quality. With international competition getting fiercer by the day … sensitivity to product safety and quality will be a vital factor … Toyota's current plight offers a cautionary tale that Japanese companies can only ignore at their peril.’
Asia News Network: Not the end of the road for Toyota
Asahi.com: Editorial: Toyota’s recall woes
 

LOOK PAST THE DOWNTURN, A NEW GOLDEN AGE BECKONS

The headlines remind one daily that there is plenty to worry about, yet if one takes a longer view one sees that industrial society has been here before. The global economy is in fact poised to enter a new phase of robust, dependable growth, according to an article in Booz & Co’s strategy+business. Technological and economic historian Carlota Perez calls it a ‘golden age’ and argues that such ages occur roughly every 60 years, last for a decade or more and are part of a long cycle of technological change and financial activity. Long cycles of technology and investment have been tracked and analysed by an impressive roster of scholars and apparently we are just past midway of the current cycle. How does it work?

• An economy spends 30 years in what Perez calls installation, using financial capital to put in place new technologies.
• Ultimately, overinvestment and excessive speculation lead to a financial crisis, after which installation gives way to deployment: a time of gradually increasing prosperity and income from improved goods and services.

This time, lynchpins of the golden age will include the worldwide build-out of a new services-oriented infrastructure based on digital technology and a general shift to cleaner energy and environmentally safer technologies. In the emerging markets of China, India, Brazil, Russia and dozens of smaller developing nations, a billion people will enter the expanding global middle class.

‘When deployment begins, general assumptions about business shift accordingly. Financial capital becomes less of an economic force. Executives with a greater interest in long-term stability than in rapid returns are placed in charge of global affairs. There are clear signs that this is happening now,’ writes Perez.
strategy+business: The new golden age
strategy+business: Carlota Perez: The thought leader interview
 

THE YEAR OF THE TIGER – THE CHINESE CENTURY DAWNS

China has just celebrated its New Year. But how much do we really know about the economic powerhouse in the East – and what lies in store for the rest of the world? The Independent hunts down the answers to some of the common conundrums relating to China.
The Independent: The Year of the Tiger: The Chinese century

Making room for a new superpower should not be confused with giving way to it, writes The Economist. China is becoming more assertive and less tolerant of being thwarted – and not just over its ‘internal affairs’. A 'Beijing consensus' has been gaining ground, 'extolling the virtues of decisive authoritarianism over shilly-shallying democratic debate'. Simultaneously there has been a loss of Western self-confidence.

The danger is of the West either trying to placate China or being panicked into unnecessary confrontation. Instead, ‘the West would do better to get China to take up its share of the burden of global governance. Too often China wants the power due a global giant while shrugging off the responsibilities, saying that it is still a poor country.’
The Economist: Facing up to China
 

DRAFTING COMBAT-HARDENED RETIRED WORKERS

The idea that older managers are over the hill and have nothing to contribute to the workplace is being challenged, writes WMG Media. In South Africa they are being recruited to mentor young entrepreneurs in an economy where skills transfer is crucial to growth. In developed economies it has been so long since a deep recession, that older managers are being brought in because they have useful firsthand experience of how to manage in tough conditions.

The Volunteer Senior Mentor Programme matches the industry-specific skills of retired and semi-retired individuals with emerging entrepreneurs, reports Business Day. ‘A lot of retired and semi-retired businesspeople miss feeling useful and want to be involved in the growth of SA. We’re looking at utilising people who will stay involved in the mentorship process for at least a year and transfer much-needed skills to fledgling entrepreneurs, as well as providing role models,’ says Cathy Wijnberg, director of the programme.
Business Day: Experience brings wisdom to work

When times are tough it is good to be able to call upon managers who have seen it all before, writes Management Today. Last year the focus was survival, so companies wanted interim managers with a strong financial background but ‘now companies are looking for organisational efficiencies – cost savings that won’t make them fall over as business picks up. After all, lots of firms typically go bust just after the end of the recession,’ it writes.
Management Today: The value of battle-scarred execs
 

FINDING A NEW ABC FOR BEE

The SA government signalled a re-examination of its Black Economic Empowerment (BEE) policies at the recent inauguration of its Broad-Based Black Economic Empowerment council, writes WMG Media. Deputy President Kgalema Motlanthe said that the government had to admit that the ‘broad-based’ part of BEE had remained elusive.

‘The last 15 years has been a story dominated by a few individuals benefiting a lot ... This can no longer be tolerated ... We are also aware that there is a section of our society that is opposed to BEE. It is tempting to dismiss their concerns as misinformed at best and malicious at worst. It would however be a mistake to dismiss such concerns outright without carefully considering them,” said Motlanthe.

The comments reflected the country's ‘deep disenchantment’ with the empowerment process, which had come to be seen as a means to instant wealth for people with political connections and influence, while ordinary people have largely continued to live in poverty,’ wrote Business Report.

Columnist Sipho Ngcobo, a former managing editor of Enterprise Magazine, writing on Moneyweb, said that the ‘brutally frank’ words of Motlanthe were an acknowledgment of the failure of a ‘noble … well-intentioned’ concept. Because there was no real transfer of skills involved, the black partners were never able to add value and were hence viewed as weak and useless by their white partners, eventually leading to a fall-out.

‘These fallouts are often traumatic and emotionally taxing. White partners would end up genuinely believing: “These blacks are useless.” Blacks on the other hand end up internalising the belief that: “These whites are bad. They don't want to embrace change”,’ writes Ngcobo.
Business Day: New body to expedite empowerment
Business Report: Motlanthe warns BEE council has failed
Moneyweb: BEE: A man-made disaster
South African Government Information: Opening address by President Jacob Zuma to the inaugural meeting of the President's Broad-Based Black Economic Empowerment (BBBEE)

Inequality in SA is no longer such a black and white issue, writes IRIN Africa News. Drawing on a recent Organisation for Economic Co-operation and Development (OECD) report, it writes that it is important to flag the fact that poverty and inequality trends within the African community increasingly dominate wealth misdistribution.

While between-race (African, white, coloured and Indian) inequality remains high and is falling only slowly, it is the increase in African intra-race inequality which is preventing the aggregate inequality measures from declining,’ the OECD report notes.
IRIN Africa: South Africa: Inequality not too black and white
OECD Report: Trends in SA Income Distribution and Inequality since the fall of apartheid
 

HOW TO SAVE GOOD IDEAS FROM BEING BINNED

The chances are that your bosses were friendly enough when you shared the ‘big idea’, now after a few months of pestering, the word comes back. A polite ‘no’. BusinessWeek counsels that you ‘should not sulk and swear back to your cube, vowing never to stick your neck out again’. Examine your big idea – and how you package it – from your superiors' perspective. Chances are, your arguments fall flat for at least one of five reasons:

• Low ROI – While no one disputes that your idea has merit in theory, your superiors still need to know how it translates to the bottom line.
• Poor planning – The diagnosis was flawless, but the solution’s a bit fuzzy because you haven’t done your homework.
• Lacking credibility – They were turned off by your informal air, shaggy hair and creased shirt. Build trust with your superiors and guard your personal history with the organisation.
• Irrelevance – Maybe they're removed from the situation, unable to imagine what you're proposing. Or you might have chosen the wrong time when other priorities take precedence. Test your ideas on others first.
• Lack of consensus – You don’t have enough support because the wrong people agree with you or people agree with your data and arguments, but not your conclusion. So focus on the big picture and keep your ego in check.

BusinessWeek: Five reasons your ideas get rejected
 

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