How HR caused Toyota to crash

by 04 Mar 2010

Toyota’s current predicament is a result of poorly designed practices and weak execution on the part of the human resource department, writes Dr John Sullivan

Unless you have been living off the planet Earth, you have probably already read or heard about several mechanical failures in Toyota automobiles that led the automaker famous for quality to recall nearly nine million cars worldwide. In ad dition, poor handling of the issue in the public eye has dam aged the automaker’s brand reputation and caused sales to fall to their lowest point in more than a decade.

This think piece wasn’t written to inform you further about the mechanical failures, but rather to determine if the human error could have been caused by factors beyond the employee’s control.

The eight HR processes that contributed to Toyota’s downfall

If the root cause of the problems Toyota is facing are failure by employees to make good decisions, confront negative news, and make a convincing business case for immediate action, then the HR processes that may have influenced those decisions must be examined.

The HR processes that must at least be considered as sus pect include rewards processes, training processes, perform ance management processes, and the hiring process.

1. Rewards and recognition – The purpose of any corporate reward process is to encourage and incent the right be haviours and to discourage the negative ones. It’s im portant for the reward process to incent the gathering of infor mation about problems. It’s equally important to reward employees who are successful in getting executives to take immediate action on negative information. Key questions – Were rapid growth (sales have nearly doubled recently) and “lean” cost-cutting recognised and rewarded so heavily that no one was willing to put the brakes on growth so as to focus on safety? Were the rewards for demon strating error-free results so high that obvious errors were swept under the table?

2. Training – The purpose of training is to make sure that em ployees have the right skills and capabilities to identify and han dle all situations they may encounter. Toyota is famous for its four-step cycle – plan/do/check/act – but clearly the training among managers now needs to focus more on the last two. In addition, in an environment where safety is paramount, every one should have been trained on the symptoms of “group think” and how to avoid the excess discounting or ignoring of negative external safety information. Key question – If Toyota’s training was more effective, would the managers involved have been more successful in convincing executives to act on the neg ative information received?

3. Hiring – The purpose of great hiring is to bring on board top-performing individuals with the high level of skills and capa bilities that are required to handle the most complex problems. Poorly designed recruiting and assessment elements can result in the hiring of individuals who sweep problems under the rug and who are not willing to stand up to management. Key questions – Did Toyota have a poorly designed hiring process that allowed it to hire individuals who were not experienced in the required con structive confrontation technique? Were their hires poor learners that did not change as a result of company training?

4. The performance management process – The purpose of a performance management process is to periodically monitor or appraise performance, in order to identify problem behaviours before they get out of hand. If the performance measurement system included performance factors to measure responsiveness to negative in formation, Toyota wouldn’t be in turmoil today. Key questions – Was the perform ance appraisal and performance monitoring process so poorly designed that they did not identify and report groupthink type errors? Did Toyota’s famous high level of trust of its employees go too far without reasonable metrics, checks, and balances? Did HR develop sophisticated metrics that produced alerts to warn senior managers before minor problems got out of control?

5. The corporate culture — The role of a corporate culture is to informally drive employee behaviour so that it closely adheres to the company’s core values. Because these errors occurred under difficult driving conditions, it’s hard to blame the production group, which has a well-known reputation for Six Sigma quality in its construction. The negative reports came to func tions such as government, risk analysis, corporate and customer satisfac tion. As a result, it is the culture within the corporate offices that need to be more closely monitored rather than assuming that the culture was aligned. It appears that the corporate culture created leaders so concerned with “sav ing face” and so adverse to negative publicity, that they for years post poned making the announcement of a massive recall. Key questions – Did HR’s failure to measure or monitor the corporate culture contribute to its mis alignment? Was the corporate culture (the Toyota Way) so biased toward pos itive information that employees learned not to make waves, in spite of their professional responsibility to be heard on safety issues?

6. Leadership development and succession – The purpose of leadership development and succession planning processes are to ensure that a sufficient number of leaders with the right skills and decision-making ability are placed into key leadership positions. It is likely that the leadership development and the pro motion process both failed to create and promote leaders who were capable of confronting problems and making difficult decisions. Key question – Was the leadership process at Toyota so outdated that it produced the wrong kind of lead ers with outdated competencies, who could not successfully operate in the rapidly changing automotive industry?

7. Retention – The purpose of a retention program is to identify and keep top performers and individuals with mission-critical skills. Key question – Did the re tention program ignore people that brought up problems and as a result, did these whistleblowers often leave out of frustration?

8. Risk assessment – Most HR departments don’t even have a risk assess ment team whose purpose is to both identify and calculate risks caused by weak employee processes. Clearly HR should have worked with corporate risk man agement at Toyota to ensure that employees were capable of calculating the long- term actual costs of ignoring product failure information. Key question — Should HR work with risk-assessment experts and build the capability of identifying and quantifying the revenue impacts of big HR errors, including a high hiring failure rate, a high turnover rate among top performers, and the cost of keeping a bad manager or employee?

Final thoughts

Toyota’s problems are not the result of a single individual making an isolated mistake, but rather a companywide series of mistakes that are all related to each other. So many corporate functions were in volved, including customer service, government relations, vendor management and PR, that one cannot help but attribute the crash of Toyota to systemic management failure.

Unfortunately, in this case, the famous Japan ese saying is true. “The nail that stands out” was not encouraged to be different, but instead it was “pounded down” to conform.

The key lesson that others should learn from Toy ota’s mistakes is that HR needs to periodically test or audit each of the processes that could allow this type of billion-dollar error to occur.

Dr John Sullivan is professor and head of the HR program at San Francisco State University, and is a noted author, speaker and advisor to corporations around the globe.