The recent debacle at Toyota which has seen the company lose a reported $155 million per week has been widely reported. With continuing product recalls around the world, the losses are estimated to have caused an astonishing $30 billion loss in Toyota’s valuation on the stock market.

At HRwisdom we always focus on ideas and practices that can actively improve or protect a business. Today, we refer you to an excellent analysis of how poor HR policies and staff management practices potentially led to the $30 billion loss at Toyota.

The Eight Bad Staff Management Practices

In his excellent analysis, John Sullivan lists the eight bad staff management practices that contributed to Toyota’s massive downfall.

1. Rewards and recognition — The purpose of any corporate reward process is to encourage and incentivise the right behaviors and to discourage the negative ones. It’s important for the reward process to incentivise the gathering of information 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 recognized and rewarded so heavily that no one was willing to put the brakes on growth in order to focus on safety? Were the rewards for demonstrating error-free results so high that obvious errors were swept under the table?
2. Training — The purpose of training is to make sure that employees have the right skills and capabilities to identify and handle 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, everyone should have been trained on the symptoms of “groupthink” 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 negative information received?
3. Hiring — The purpose of great hiring is to bring on board top-performing individuals with the high level of skills and capabilities 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 constructive 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 behaviors before they get out of hand. If the performance measurement system included performance factors to measure responsiveness to negative information, Toyota wouldn’t be in turmoil today. Key questions — Was the performance 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 behaviors 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 functions like government, risk analysis, corporate and customer satisfaction. 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 “saving face” and so adverse to negative publicity, that they for years postponed making the announcement of a massive recall. Key questions — Did HR’s failure to measure or monitor the corporate culture contribute to its misalignment? Was the corporate culture (the Toyota Way) so biased toward positive 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 planning — 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 promotion 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 leaders with outdated competencies, who could not successfully operate in the rapidly changing automotive industry?
7. Employee Retention — The purpose of a retention program is to identify and keep top performers and individuals with mission-critical skills. Key question — Did the retention 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 assessment team whose purpose is to both identify and calculate risks caused by weak employee processes. Clearly HR should have worked with corporate risk management at Toyota in order 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 major 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 from John Sullivan

Toyota’s problems are not the result of a single individual making an isolated mistake, but rather due to a companywide series of mistakes that are all related to each other. So many corporate functions were involved, 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 Japanese 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 Toyota’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.

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Kind regards,

HRwisdom Support