Question

Problems experienced by Toyota Motor Corporation with accelerator pedals sticking and brakes malfunctioning in some of its vehicle models illustrate how important it is to identify and control business risks, even for highly reputable companies. Among other things, Toyota was criticized for not acting quickly enough in implementing recalls, which according to some estimates involve 14 million vehicles worldwide. Also, reports suggest that Toyota did not tell federal regulators in Canada about a possible problem with the accelerator pedal when the company first learned of the issue. Instead Toyota waited until after the recall notice had been issued to inform regulators about the problem. Some have suggested that Toyota's rapid growth in worldwide production and sales compromised its focus on maintaining high standards of quality. In response to the crisis, Toyota temporarily closed some plants in Britain and France as a result of lower demand because of the recalls. The company also offered significant discounts to win back lost customers in North America. Toyota eventually announced that it will pay over $1 billion to settle hundreds of lawsuits related to the accelerator problems. Required: 1. Identify stakeholders that were probably negatively affected by the problems experienced by Toyota. 2. How might have extrinsic incentives contributed to Toyota's decreased focus on quality?

Answer 1

1. Stakeholders who were negatively effected were:

(I) Customers

(ii) Stockholders

(iii) Government regulators

(iv) Employees

(v) Suppliers

2. Extrinsic incentives that contributed to Toyota's comprise on quality was that it was expanding globally at a rapid pace, selling vehicles in most countries which increased its revenues and profitability. This led to Toyota take no stance on the recalls unless a recall notice was sent to the company by the government. The company probably analyzed that it can put in the money to handle the recalls which is why it ended up paying billions in lawsuits. Also, since the cash flow was positive it could afford steep discounts to win back customer loyalty.