The Role of Human Resources During a Major Product
Recall: TS Tech Alabama
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Author: Jaime Williams, Richard J. Gentry
Pub. Date: 2018
Product: Sage Business Cases
DOI: https://doi.org/10.4135/9781526439659
Keywords: recall, product recall, human resources, staff, Alabama, staff retention, air bags
Disciplines: Business & Management, Human Resource Management, Human Resource Management
(general), Health & Safety Management, Human Resource Strategy & Planning
Access Date: December 11, 2023
Publishing Company: SAGE Publications: SAGE Business Cases Originals
City: London
Online ISBN: 9781526439659
© 2018 SAGE Publications: SAGE Business Cases Originals All Rights Reserved.
Sage
Sage Business Cases
© Jaime Williams and Richard J. Gentry 2018
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Abstract
The word “recall” strikes fear in the hearts of all business owners. Recalls not only tend to be a large
expense for a company, but they also damage reputations, causing a dip in profits or even bankruptcy.
Another serious, albeit less obvious, issue caused by recalls is the worry, stress, and uncertainty that
all of the workers in the company will likely feel once a recall is announced. This case study looks at
a major Honda recall due to defective parts made at TS Tech and the role of the Human Resources
department before, during, and after the recall. Students are asked to focus specifically on the role
Human Resources can play in employee retention during a recall.
Case
Learning Outcomes
By reading this case and discussing the questions that follow, students will have the opportunity to:
• Describe how a company in crisis can utilize the Human Resources department effectively and how
the functions of a Human Resources department may differ during a crisis from its “normal” operating
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mode.
• Describe how the issue of turnover may affect a company during a crisis, which departments may
have more issues with turnover than others, and the variables that affect employee turnover.
• Explain the importance of including the Human Resources department in all company strategy and
planning meetings.
• List some possible questions that may be asked by different types of employees during a crisis, the
benefits of proactively distributing information to employees, and the importance of planning during
a crisis.
Introduction
TS Tech is a Japanese owned company with manufacturing plants throughout the world producing motor cycle, automotive, personal watercraft and other vehicle seats. Their main facilities in the United States are major Tier I suppliers to Honda, manufacturing the seats for Civics, Accords, CRVs, Odysseys, and Ridgelines.
The focus of this case study is TS Tech Alabama, a mid-sized automotive company in Boaz, Alabama that
supplies all of the seats for the Odyssey vans and the Ridgeline trucks. The workforce fluctuates between
625 and 675 employees and runs two shifts Monday–Friday with occasional Saturday production. This manufacturing plant has been in business 17 years and has won several awards for quality, delivery, and service
to Honda as well as the Automotive Supplier of the Year award for 2015 awarded by the Alabama Automotive
Manufacturer’s Association.
Despite TS Tech’s excellent track record, on December 29th, 2016 Honda issued two safety recalls for
Odyssey minivans manufactured between 2011 and 2016. The first recall centered on second-row outboard
seats due to problems with the release levers. The release levers that allowed the second-row seat to slide
forward for easy access to the third row sometimes stayed in the unlocked position, even after the secondrow seats were returned to their proper spots. If the vehicle were involved in a collision or sudden stop, seats
with malfunctioning release levers posed an increased risk of injury to passengers in the second row. The
second recall dealt with the second-row center seat and the fact that when that seat was moved forward
using the horizontal adjuster bar, that bar could also remain in the unlocked position. Should that happen,
the seat wouldn’t remain stationary if the minivan was involved in an accident or a sudden stop, resulting in
an increased risk of injury to passengers. In all, 641,000 vehicles are being recalled for possible issues with
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1,923,000 seats. This represented more than 80% of TS Tech Alabama’s entire production for the years of
2010 to 2015.
A recall is when a product is removed from the market or a correction is made to the product because it is
either defective or potentially harmful. Generally, there are two types of recalls: (1) the company discovers
the problem and voluntarily issues a recall of a product; (2) a problem is found by or disclosed to a regulatory
agency, which calls for the company to recall the product if the issue is determined to pose a severe risk to
the health and safety of the public. No company has ever refused to do a recall when asked to initiate one
by a regulatory agency. Some of the regulatory agencies in the United States that can request or mandate
a recall are the Food and Drug Administration, The National Health and Safety Administration, United States
Department of Agriculture, and The National Highway Traffic Safety Administration. In the case of TS Tech
Alabama, Honda discovered both problems and even though there had been no reports of injury due to either
issue, Honda initiated the recalls based on the possibility that someone could be injured. The Human Resources department at TS Tech took several specific steps before, during, and after the recall in an attempt
to limit its toll on employee morale and to retain employees who feared their jobs were at risk. In this case
study, students will focus on Human Resources and the role this critical unit should play in order to facilitate
employee retention during a recall.
The Damage of Recalls
Recalls damage a company financially—in the short term, because the company assumes responsibility for
repairing or replacing faulty items; in the long term, because the company’s reputation sinks. Not only do recalls affect the direct manufacturer of a certain product but, if the recalled product is not a finished good, those
companies who are customers of the tainted product are also affected. This has a major trickle-down effect
for the employees of these companies. If the company is in dire financial trouble, one of the first resources to
be reduced is human resources. Employees are one of the most expensive investments for a company and
generally, the easiest way for many companies in crisis to immediately relieve some financial stress, is to lay
off workers. This is especially true when there is a large reduction in product or service demand.
One of the most prominent recalls made in recent years was the Takata airbag recall, which affected 22 different automakers and 42 million vehicles in the United States; around 69 million total airbags had to be replaced. This recall was initiated by the National Highway Traffic Safety Administration after an investigation
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found the front airbags made by Takata were responsible for 11 deaths and 180 injuries. 1 These deaths and
injuries were caused when the metal casing around the airbag’s inflator deployed explosively due to a chemical imbalance. This explosion turns the metal casing around the inflator into shrapnel which is then sprayed
through the interior of the vehicle.
In November 2016, it was leaked that Takata was considering filing for Chapter 11 bankruptcy for its U.S. unit
as they struggled to build replacement parts for the faulty airbags. Takata initially tried to keep their massive
workforce in place; however, they were only charged with supplying 25% of the replacement airbags, as many
of their customers fled to their competition, and there were no new customers due to their widely publicized
problems. Though actual turnover numbers are not available publicly, employees expressed their dissatisfaction to the press regarding the lack of communication from Takata management about the company’s future
and the fear they had about losing their jobs. 2 In the U.S., Takata pleaded guilty to manipulating the safety
data and withholding key information about the faulty inflators, which led to a $1 billion fine. Takata is also
required to set up a $125 million fund to compensate the victims injured by their faulty airbags as well as the
families of those killed. In June 2017, the 80 year-old titan Takata confirmed they were filing for bankruptcy.
3 Takata is selling the majority of its company’s assets to their biggest rival, Key Safety Systems. Key Safety
Systems has stated that they plan to maintain Takata’s 60,000 employees. 4
Takata’s failure seems logical given the circumstances, but it was not inevitable. Just because a company is
the subject of a recall, it doesn’t mean that the company will go out of business, sell to another company, or
go bankrupt. The successful management of a recall can allow a company to maintain their workforce, continue to have solid sales, and even add new customers as in the case of TS Tech. The next section details
the role of an often-overlooked department in the management of recalls, Human Resources, and details the
role they played in ensuring a successful recall process at TS Tech Alabama.
The Role of Human Resources During a Recall
In spring of 2015, Honda notified TS Tech that there was a sporadic issue with the side levers of the two outboard seats. By the end of the summer 2015, a fix had been created and installation of the improved parts
began on October 2, 2015. At this time, some general conversations were occurring unofficially between certain departments at Honda with their counterparts at TS Tech. With the knowledge that a recall was possible,
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upper management created a cross-functional recall reaction team to formulate plans as to what TS Tech
would do in the event of a recall.
Multiple departments at TS Tech dedicated their energies toward facilitating the recall, including those involved with fixing the defective parts, producing new parts, and handling the public relations. However, there
was an initial gap in the planning for abating the fears of the company’s workers. Steve, the Human Resources Manager, knew of the high-level meetings with Honda about recalls and asked to be included on the
planning committee. He knew that during the course of a successful recall, the Human Resources department
would have to be called in for planning and damage control. He had noticed a major flaw in the executives’
process: there was no plan for communicating with employees of the plant about what this recall would mean
for them. In order for the company to be able to conduct a successful recall, Steve knew the upper management had to make priority of keeping as much of its workforce intact as possible. If a large portion of the company’s workforce were to leave for other employment, it would be extremely difficult to keep up with regular
production and produce replacement parts for the components that had been recalled.
Once Steve was included on the planning committee, he was able to gather the details he needed to be able
to communicate with employees and maximize retention in the case of a recall. Steve knew that communication would be the key because if the employees think the company won’t survive or if their uncertainty about
their own future with the company increases, it is highly likely the at least some employees will start looking
for jobs elsewhere. It is better to find a new job before you lose the job you have. Steve knew that when a
company is starting or in the middle of a recall, losing the current workforce will terminate any hope the company has of recovery. You can’t build replacement parts if there are no workers and it is highly unlikely people
will look for employment at a company with a damaged reputation and a poor financial status that may be on
the brink of shutting down. Steve initiated general planning for a recall in the Spring of 2016.
In the Summer of 2016, Honda notified TS Tech of the formal initiation of a recall. The first steps after the upper management made HR aware of the need for a recall was the creation of specified action plans. Human
Resources was included in all meetings where the recall planning was discussed. There were two stages in
which the HR department needed to have an action plan: (1) before the initiation of a recall was widely known
about internally and (2) after the announcement to the public. As soon as the Human Resources Department
was made aware of a recall, stage 1 detailed planning started immediately. Some of the plans for stage 1
included when, who, and how the information was given to the employees that the company was issuing a
recall. It was critical that the first time the employees heard about the recall was from the company itself, and
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not from an external source like a news agency. HR coordinated with other departments like PR to ensure
that the message given to the employees did not contradict the information that was given to the public. HR
also worked with the rest of the departments involved in the recall to put together a time line for when the
recall would commence, when the replacement parts would be added to the production schedules, as well as
when the recall was projected to end. Steve wanted to construct a realistic picture of how TS Tech employees
would be affected so HR could offer realistic answers to employees’ questions.
During the time of the first announcement, it was important to Steve to relay that no layoffs were going to be
conducted. He also provided the timeline for the recall. This gave the employees the perception that the company was being open and honest with them, the company was in control of the situation, and plans had been
made to successfully complete the recall while keeping jobs intact. The more HR worked to reduce uncertainty about the future for the workers, Steve reasoned, the less stress and fear would permeate the workforce.
As it turned out, there was only a 4.2% increase in turnover in the three months following the recall announcement.
Stage 2 of Steve’s HR plan commenced in December 2016 almost simultaneously with the initial recall announcement to the employees, as the company did not want the information of a recall leaked before they
made their official statement. Phase 2 consisted of continuous status updates to employees about the recall,
as a proactive approach toward combating misinformation generated internally and externally. Phase 2 also included planning with management regarding the lengths to which TS Tech’s employee retention efforts
would go, as well as contingency plans for larger than normal workforce replacement, if necessary. Continuous communication was the most critical role for HR. HR had to have the most up-to-date information about
the recall as well as work with management on the dissemination of information on a daily basis.
Initially, there were issues with rumors being generated and passed around internally about how the plant
was going to be closed or half the employees were going to be fired because Honda was going to take away
the Odyssey business and give it to a competitor. However, constant, detailed communication was the key to
reducing these issues. Another item that HR worked on with management was to create employee retention
plans. Depending on level of the necessity of workforce retention, management and HR considered offering
differing levels of incentives for workers to stay with the company such as bonuses and non-monetary benefit
increases. Finally, a contingency plan was put in place with a local agency that provided temporary workers in case turnover increased and the company needed to replace a larger than normal number of workers.
Working with the local temporary agency was the best way to ensure that new workers could be brought into
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the facility and trained quickly if the worst happened and much of the workforce chose to leave the company.
The traditional two-day quality and safety training was condensed into one 4-hour training and the number of
people qualified to train others was also increased with a month-long training push that doubled the number
of approved trainers/mentors.
After the recall, upper management credited HR, good communication within the plant, and the dedication of
the employees as the major reasons that the recall has been successful so far. Though the company took a
hit financially during the recall and more stress will continue to be placed on the shoulders of the workers due
to increased production, the company is still recording average profits at the time of this writing. There was
only a slight increase in average turnover during the first three months after the announcement of the recall
before the turnover rate re-stabilized. HR has achieved its mission of employee retention so far.
Conclusion
Recalls can be devastating to a company. Or, a company may be able to go through a recall and come out on
the other side stronger. One thing is certain: a recall will be nearly impossible to manage if the company cannot retain its workforce. It is the job of the Human Resources Department to create plans to retain as much of
the workforce as possible by keeping the employees informed about the goings on, combating misinformation
and rumors, working to create employee retention incentives such as bonuses or other non-monetary benefits, and having a plan of action in case a large number of replacement workers are needed.
TS Tech is still conducting the recall and a shortage of parts from a sub-supplier of a bracket has pushed the
completion date of the defective part replacement back by a few months. Currently, the workforce is stable
and the current production as not been affected. Their projected profits for the year 2017—where most of
the recall costs will be realized—are down from the previous years; however, with a new model of Odyssey
launching in 2018, sales are projected to be up quite a bit in the last quarter of 2017 and into 2018. Steve
continues to engage with both the executive team and managerial staff to take whatever proactive steps will
help employees gain a sense of resilience. The crisis isn’t over yet, and he wants to be prepared in case a
future crisis situation does necessitate layoffs, or if an innovation hits the market that requires the company
to quickly re-train employees so that TS Tech can retain its status as a top Honda supplier. Once the parts
from the sub-supplier are available, the hours the employees will be required to work will likely increase to
10–12 hours a day along with added production days every Saturday. With a large number of added hours
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and additional work days with little time off, employee fatigue will increase. When employee fatigue increases, possibilities for safety incidents increase exponentially, morale drops, and turnover can increase. Errors
in judgement due to stress have the potential to snowball into mistakes serious enough to compromise the
product and even necessitate another recall. Steve will have to figure out a way to deal with these new issues
when they arise.
Discussion Questions
1. In a company the size of TS Tech, what are the main functions of the Human Resources department
during normal operations? How do these functions change in emphasis and priority when a crisis,
such as a product recall, occurs?
2. Which departments in a manufacturing company like TS Tech might you expect to have the greatest
and least amount of turnover? What are some variables that affect employee turnover and retention?
3. What does the HR director need to know about the company’s overall strategy in the event of a recall? Discuss the benefits of Human Resources having a consistent presence in a company’s strategic planning process. What might Steve need to do differently if he learns that layoffs will occur due
to a product recall or other crisis within the company?
4. In a situation such as a product recall, what are some specific questions employees will have? List
them. Consider employees at different levels and in different functional units of the company—what
will concern them the most?
5. Describe some possible incentive schemes HR can offer to retain employees, both in good and poor
economic times. What are the risks and benefits of each scheme? Are certain incentives more attractive than others to employees during a crisis such as a product recall? Which ones, and why?
Notes
1. http://www.consumerreports.org/cro/news/2016/05/everything-you-need-to-know-about-the-takata-air-bagrecall/index.htm
2.
http://www.japantimes.co.jp/news/2017/06/26/business/corporate-business/takata-bankruptcy-raises-
fears-impact-local-suppliers-employees/#.WW6lMIjytPY
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3. http://money.cnn.com/2017/06/25/news/companies/takata-bankruptcy/index.html
4. https://www.usatoday.com/story/money/cars/2017/06/26/takata-bankruptcy/427371001/
https://doi.org/10.4135/9781526439659
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