Reference no: EM132638396

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.

Problem 1: How might have extrinsic incentives contributed to Toyota's decreased focus on quality?