Ethics Assignment on application of Decision making framework to case study

Product recall or replacement: a case of Tata motor’s Nano

In the biggest ever recall for the Indian auto market, Tata motors took 1.4 lakh Nano cars off

the road to replace the starter motor free of cost, for all the cars sold since its launch in 2009 till

November 2011. The expected cost of this exercise was Rs 115 cr.

A spokesperson for Tata Motors said, “We have devised a better starter motor and so we are

upgrading it in our old Nanos for improved performance. We have not received any complaint

for this and this is not a recall. We will change the part in all the old Nanos that were sold before

launching the Nano 2012 in November.”

Product recalls are double-edged swords. It may mean an immediate cash outgo. There is also

the risk of adverse publicity as customers might interpret the exercise as a sign that the product

is flawed. But there is also the possibility that the company earns the goodwill of its customers

as a consequence. Which of these two possibilities finally plays out in the market depends on a

number of factors, prime among which is goodwill.

We’ll use Hodgson’s three stage ethical decision making framework to resolve the above

dilemma of whether Tata Motors should go for product recall?

Step: 1 Examine the situation

- Get the critical facts: The launch of the car in 2009 was soon followed by reports of many

Nanos catching fire. Tata started first recall to install safety protection. This, the second

recall, started in October 2011, to replace a faulty motor unit for the entire lot of Nano since the

launch of car in 2009 (about 140,428 units of Nano as per Society of Indian Automobile

Manufacturers, cost of this exercise to the company was around 115 Cr.

- Identify the key stakeholders: the consumer, the regulatory agency, insurance companies and

the company (Tata motors).

- Identify each stakeholder's options:

1) As, customers are spoilt for choices and are much more aware of their rights, they would

demand immediate recall or replacement, even with one-off incident.

2) The regulatory agency would want that the car on roads to be 100% safe and would ensure

the payment of proper compensation, as per consumer protection act, in case the company fails

to adhere to the prescribed safety standards.

3) There might be mixed reactions from the car insurance companies. On one hand the recall

would reduce the immediate cash outgo on its part, but in the longer run fewer buyers might

opt for insurance, anticipating similar action from Tata motors, hurting its future revenues.

4) Tata Motors has to decide whether to even go for recall and if so then for either partial or

complete recall, depending on the cost and the perceived benefits to its customers.

2 Establish the dilemma

- Identify the working principles and norms that drive each option (why each stakeholder

wants it done)

Driving force behind what the customers and regulatory agencies want is the need for the

secure drive and safety of its family .The environmental and political aspects to these two

groups are minimal. While for the insurance companies and the Tata motors, economic motives

may play important role in their respective options. These two motives might clash in this

situation leading to the dilemma

- Project the possible outcomes (consequences) of each stakeholder option. Do any violate your

principles or those of your organization?

The possible outcomes are as follows:

a) As the Tata Motors spokesperson clarified, there are not any formal complaints received,

so Tata motors might not go for the recall at all.

b) Tata motors might choose to go for the partial recall depending on the results of its

random checking of cars

c) Tata motors can also go for the complete recall and in the process build strong brand

loyalty

Neither of these possible outcomes violate my personal principles as such, because Tata

Motors is doing this to build long term goodwill and is under no moral or legal obligation

to recall or replace the electric circuit fuse of those unaffected cars.

- State the dilemma

The dilemma for the Tata Motors is whether to go for Product recall in first place. As stated

earlier, customers may view this exercise as covering up for the below par product undermining

the core philosophy of recall i.e. build long term goodwill. But as a responsible corporate citizen ,

it wants to pass on the benefits of superior technology and take proactive steps which will

reduce the probability of any future accident due to faulty electric circuit fuse to zero. Company

has to choose between these two difficult choices.

3 Establish the options

- Identify the General Principles(s) behind each option.

The general principles can be categorized into followings:

a) Cost concern Vs. Safety/Values: company should decide whether to stick to its founding

fathers’ values of putting society ahead of business or go simply as per rules of book and

not go for any recall for the fear of draining out shareholders money.

b) Proactive Vs. Reactive: Here company has the choice to set example by becoming ideal

and responsible corporate citizen and not just follow others’ footsteps ( Honda Motors

and Maruti Suzuki have recently recalled their cars after complaints of faulty engine

part)

c) Build long term goodwill Vs. short term gains : for a company like Tata motors, which

has survived over decades on people’s trust , it is imperative to go for recall and preserve

the brand’s image.

Choice of Action: Among the choices available, after analyzing pros and cons of each, it is clear

that Tata Motors should go for replacement of Electric circuit fuse of all cars sold between 2009

and 2011. This way it may incur few crore in near term but the intangible value in terms of

brand loyalty, goodwill and motivation among employees, will in the long term give company

much higher benefits. This is also the most responsible option which will build trust between

governmental regulatory bodies and company, which might help in future litigations.

Dipak Haridas

Roll no. G12079

XLRI- GMP (2012-13)