NOTE: The following article, written in March 2010, was excerpted and published in the May 2010 issue of the Japanese magazine — Kohokaigi.
It will be many months before we can objectively assess the long-term impact of Toyota’s recall situation on the company’s reputation and its future success as a business. For now, perceptions of the company’s communications approach undoubtedly are somewhat different in the US and in Japan. Unfortunately, from any perspective, what began as a drama has turned into a crisis, which we define as an event or series of events that threaten the company’s ability to carry out its business strategy and achieve its goals.
From a reputation management perspective, Toyota’s main problem is that its understanding of the company’s obligations to the public were not aligned with the public’s perceptions of Toyota’s obligations. This happened as a result of the company’s success, and the apparent ease with which the company became the icon of quality. This is partially the fault of an approach to branding that oversimplified the hugely complex task of generating such exceptional results.
At some point in the past decade, among consumers, investors, policy makers, and influential business and academic leaders there was a fundamental shift. Everyone began to think of Toyota not as a car company that makes a quality product, but as quality company that happens to make cars. When quality became the product, and reputation became two-dimensional (quality and size), reputation risk began to increase. Because reputation is an often unappreciated component of corporate value, this increase in reputation risk invisibly increased the overall risk profile of the company—just the opposite of the expected result of the company success.
Much remains to be understood about the facts of Toyota’s situation, the company’s actions and decisions. In the US, the cultural bias of the public is to fill in the unknown with the assumption that businesses always act out of self interest unless they are forced to protect the interests of consumers. Because automotive product risks were at the heart of America’s consumerism movement forty years ago, and the failure of homegrown automakers has been an emblem of US economic decline, the always sensitive automotive category was especially ripe for public reaction (or overreaction, depending on your point of view).
One thing that Toyota did well, in the early weeks of the situation, was to control the response to questions. Dealers, suppliers, company executives all stayed on message and did not break ranks and defend their own interests. This was to be expected from a disciplined organization like Toyota.
However, as in any crisis involving the public in most Western economies, consumers began to manage their growing perception of risk by demanding more information. In response, the company sought to manage its growing risk by attempting to be more certain of its facts, and therefore slower and less forthcoming with information. In this natural conflict, cracks began to appear — internal differences of opinion, information from multiple sources inside or close to the company no longer were so controlled. In any crisis, as individual executives or corporate allies feel their own credibility is threatened, new information emerges. Inevitably, that stimulates consumers and their advocates to escalate their search for certainty about what happened and what will be done. Finding no certainty, they turn to authorities—legislators and the courts—to resolve the problem and prevent recurrences.
After millions of online comments and thousands of media stories, the prevailing opinion in the US is that Toyota’s management intentionally hid the severity of quality and safety problems to avoid financial loss and damage to the brand.
Consider this excerpt from the blog of San Diego, California newspaper technology columnist Phil Baker, describing his reasoning when he became one of the first to publicly declare that there was a “cover up.”
“While I had no inside information to draw that conclusion… it was obvious that Toyota was being untruthful. The company had failed to provide details about the tests it had conducted, and didn’t make its engineers available to discuss the issues. Since my column first appeared, much more evidence has come out that has substantiated these charges. . . .Internal Toyota memos now show that it bragged about saving $100 million in recalls by successfully negotiating with NHTSA regulators to curtail its investigations.”
The failure to produce information when the public demanded it, and the reluctance to make experts available, were signs to American audiences that the company was hiding something. This perception is much worse than the product problems themselves. American consumers will forgive quality problems much more readily than they will forgive a cover-up—whether the intent to hide product issues is true or not.
The speed and severity of this crisis were generated by more than the apparent facts of the situation. Toyota has the misfortune to have its problems come to light at a time when the following four strong currents are reshaping the business environment in the US and in much of the world:
1) Involuntary transparency: Much has been written about the impact of universal, instant access to huge amounts of unedited information now available online to consumers and those who influence them. Add to that the enormous growth of social media as an opinion shaping force, and individuals gain immediate access to the experience and expectations of their peers and experts, whether or not companies participate. The result is the potential for involuntary transparency—the discovery and viral spread of sensitive information beyond the company’s control.
Transparency is always a critical component of reputation. But many companies around the world feel they are doing enough, in good times and in bad, if they meet minimum standards for disclosure and reporting information to relevant authorities. Therefore, information demand outstrips supply. The internet fills this imbalance, sometimes with inside information from unofficial sources. Involuntary transparency creates surprise and shame for many organizations.
US-based companies tend to be more active in the online environment than those headquartered in Japan, but most have only recently begun to use social media in the ways that individuals use it. Most companies, in the US and elsewhere, still push information out to audiences, and may respond to specific questions. Overall, they still favor control of information more than the participation in a dialogue. This is a continuation of the branding approach of the past, where visibility for products was bought.
Today, in the US and elsewhere, consumers often reject the controlled environment of corporate and brand communications. Many US companies have adapted by treating consumers, employees, investors, and other audiences as potential advocates, rather than marketing targets. These companies aggressively monitor the online dialogue about their brands, and give communications staff and other employees the role of maintaining an ongoing dialogue with outside audiences. This dialogue is less formal and more responsive, as it would be in a personal relationship. There is less sense of authority and more of a sense of a shared outcome between the company and its customers. Today, US companies of all sizes have multiple blogs, affinity group websites, and participate actively in social media like Twitter and Facebook. Even some of the most conservative companies use these voluntary, interactive communications for official announcements, as well as ongoing discussion.
2) The growing role of government in business: In the US and many other western countries, the public wants jobs and economic growth, but does not see government as a partner to business. Instead government is seen as the counterbalance to business. The public outcry over Toyota’s lack of transparency, and the public frustration with politicians’ inability to do more about the country’s economic problems created an air of frustration in Washington, DC that called for fast, visible action by elected officials. Although Toyota is responsible for thousandd of US jobs, and has been a part of the US economy for decades, no amount of last-minute lobbying could overcome the fact that no politician could afford to look like Toyota’s friend once the crisis peaked. That led to public interrogation of Toyota executives that were reminiscent of the political beating banks and hedge funds took at the height of the US financial crisis.
Although the recent economic and political scenario in the US is extreme, this potential always exists. More active political relationship building over the long term can help. But unless company officials in headquarters are actively involved in that process, and really understand the need to allow regulators and politicians a visible role in resolving problems on a small scale, the outcome of a crisis will always be at least symbolic conflict between the company and the government.
3) Complexity and certainty: Increasing complex products and services present a challenge to engineering-driven companies. Problems can emerge quickly and are hard to diagnose and resolve. At the same time, marketers want to avoid complexity and make products with thousands of parts and processes appear simple and supernaturally reliable. So, a gap emerges between consumer understanding of risks versus benefits. When problems do emerge, companies that take pride in their processes and engineering need to find better ways to quickly resolve internal debates about causes and solutions. Or, if possible, make those debates more open and public, despite risks to liability or competitive advantage.
4) Multinational challenges: Companies that operate across borders and cultures have special challenges in managing their reputation in the best of times. That is especially true for complex businesses that face conflicting local regulations and high public visibility. Without a consistent effort high in the organization structure, it is difficult for multinational organizations to maintain a consistent view of external reality among the members of the senior management team, looking across two dozen time zones, multiple political and economic systems, and wide variations in consumer behavior. As a consequence, in a crisis, at least 50 percent of the management team’s time is taken up by debating what the reality is outside the company’s walls.
Companies raise their risk when they fail to discuss on a regular basis how issues of public concern shape the reputation environment in which they operate. Organizations that have rigid layers of management also face difficulties when crises strike, because time is lost, and honest appraisals may be compromised, when managers and communications executives in distant markets are prevented from direct discussion with top decision makers in the company’s headquarters.
Toyota’s situation has a long way to go. But it is not too soon to draw some specific conclusions about the new communications environment that sped up this crisis and that has changed the context for all corporate reputations. We can also learn some specific lessons for managing reputation and communications in a large global enterprise.
• Renewed focus on communications: It is difficult to watch a great company struggle, but adversity can be good news for communications as a function. In major corporate crises, the business impact of communications failures becomes more obvious to senior executives throughout an industry or across a country. As a result, the communications function often gets part of the blame, but it also gets a chance to improve, receives additional resources, and gets more management attention. This ultimately enhances the role that communications professionals are able to play in building and protecting reputation.
• Alignment of internal standards of success and external measures of satisfaction: An organization’s values are never more on display than in a crisis. In Toyota’s case, it may be true that internal measures of success—like saving money and legal liability by keeping product problems hidden, or isolating information between parts of the organization to protect engineers and managers from criticism—were not ones that customers, line employees, shareholders, or policy makers would all agree were acceptable goals. One definition of a great company is that it deals with problems well, and achieves its business goals while delivering results in a way that is consistent with the common interests of all its constituencies. Toyota lost its ability to align quality control, financial risk management, customer satisfaction, and corporate citizenship. But there is no reason Toyota’s recovery cannot set a new standard for alignment of corporate and public interests.
• Shift from brand thinking to reputation strategy: A crisis that casts doubt on an iconic company, and a whole manufacturing philosophy, as Toyota’s does, can be a turning point for the communications profession globally. Business leaders must now realize that some of the factors that make this crisis so difficult are true for all companies, and are moving the global economy from the brand era to the reputation era.
Twenty years ago, brand became the focus of value creation in many industries. The idea then was to use the growth of media and higher disposable incomes around the world as platforms for increased consumer loyalty and price tolerance. By reducing the story of a brand to a few attributes, differentiated from competitors, and repeated thousands of times, branding and brand awareness became a fundamental approach to marketing and communications.
• Globalize reputation management: While some corporate structure and business culture aspects of Toyota’s situation may be unique, hundreds of companies headquartered in other countries are equally unprepared for a similar situation.
Companies with major operations in distant locations from corporate headquarters need to adopt a principles-based, rather than a centralized, rules-based approach to reputation building. They need to create a faster, more flexible framework for making communications decisions across borders, cultures, and time zones when problems emerge. In each major market, the company should use influencer mapping, the process of identifying technical, social, and political influencers and experts, and create a long-term, ongoing program of personal engagement between the company’s managers and engineers, and those influential outsiders. That way, when problems emerge there is already a widespread, localized base of understanding among credible outsiders who can publicly and independently echo the company’s commitment to standards and performance.
An important part of globalized, integrated reputation management is a long-term relationship building effort with government leaders and their staff members, regulators, and non-governmental organizations and political parties. This is more than lobbying for specific policies. Even in highly successful companies, it is common to find government relations conducted very separately from other reputation and relationship building efforts. This can be counter-productive to building a focused, clear reputation for a complex company.
• Fully adopt digital social media: The evolution of information technology is not just a matter of instant access to endless amounts of information. The relationship between organizations and their audiences is changing fundamentally. Businesses do not live outside of society, and major societal shifts must be reflected in corporate practices and policy.
To adapt, companies must first actively monitor trends in the content and tone of online dialogue. Then they must learn to rapidly respond to shifts in perception, using credibility that they earn by continuously engaging in peer-to-peer relationships with outside audiences. They should also integrate the information they gain from online content analysis with other data, such as employee attitude surveys, customer satisfaction polls, and evaluations of the company by NGOs and policy makers.
Social media are reputation builders because reputation is what others say about you. Businesses can no longer rely on what they say about themselves, through traditional branding and corporate reporting, to build and protect reputation. Overall, management teams must give up the idea that they can control how the company is perceived by controlling information. Instead they can stimulate and guide the discussion about the company, and explain the context for success and the company’s philosophy.
Toyota faces the daunting challenge of fixing its quality issues, fixing its credibility, and fixing its integrated, global communications function in order to rebuild its business and its reputation. By quickly stepping up to the practices and attitudes described here, the company can build a stronger foundation for a quicker recovery.
