Brief Overview of the company
This report will provide glimpse and importance about the various particulars concepts related to Risks, Risk Management and Risk Management Knowledge and Strategy and Prioritization of risks. These concepts will be applied to an international company i.e. Toyota Motor Corporation Private Ltd. (TMCA).
In the automobile industry, Toyota Motors Corporation is one of the world’s largest leading automakers who is producing all range of models including luxury cars, trucks and buses. It was founded by Kiichiro Toyoda in 1937 and headquarter is situated in Japan . According to the financial year 2018, the revenue of the company was around ¥ 29,379,510 (Statista, 2018) million and the number of employees present was 369,124.
The key products of the company are economy vehicles, mainstream vehicles and luxury vehicles. General risks related to this company are the risks leads to fuel shortage, cultural differences, and brand image related to manufacturing whereas the whole automobile industry is facing the risk of disruption in technology, selling scale, economic risks and the consumer demand (Bos, 2013).
The report will be further divided into various sections like core concepts of risk and risk management, risk identification, ranking by prioritization and recommended strategies to response with risk management. All sections with are inter-related with the selected company i.e. Toyota Corporation including its internal operations and external environment.
Risk stands for the future uncertainty, which originated from different decisions and situations. It is also categorized into many forms where the chances of actual outcome differ from the expected plan.
Risk Management is the process of identifying any potential threats and taking various possible actions to minimize the adverse effects. In an organization, Risk management tool is used for monitoring both financial and operational risks affecting the decisions of the business (Carvalho & Rabechini Junior, 2015). The standardised process of risk management is –
Source: (Sutton, 2014)
Risk event is a kind of action, which is particularly subjective and has a specific use in risk management activities (Silvers, 2009).
The major characteristics of a risk are that it is uncertain and concern about future happenings. It also results in unwanted losses and consequences. Risk Management is the positive approach that helps the organization in making proactive solutions for minimizes the risk. It also serves in planning and controlling function of the organization.
One of the evolutionary and the merging file of risk management is Knowledge risk management. It intersects two different major fields i.e. risk management and knowledge management. According to various researchers and economists, knowledge is very necessary to manage the risks as they have some similarities like the need for the employee insight, the importance of action and the value of the lesson learned (Jafari, Rezaeenour, Mazdeh, & Hooshmandi, 2011).
Risk and Risk Management
In Toyota, risk management knowledge can be used –
- For the planning of the various resources like effective and low-cost supplier for the parts in terms of supplier or country.
- Changes in the external environment factors relating to disruptive innovation, competitors strategy and political factors.
- Designing of the product using the product differentiation strategy, which will help the company in a competitive position.
- In solving ethical issues and problems with help of benchmarking.
The company selected for the risks management approach is Toyota, which had faced several risks in their business cycle, but with the help of effective risks management approach and knowledge, they successfully able to mitigate the risks and this make them a leader in the industry.
The four real-world examples where the risk management knowledge is used as a tool are –
- In 2017, Toyota had stated that they would increase the price of their products by up to 3% from Jan 2018 (Bureau, 2017). This is because of the rise in commodity prices like aluminium, platinum, rhodium and ferrous vehicles used in the manufacturing of the vehicle. Risk knowledge management can help the company by helping them in using the derivative instruments so that the fluctuation of the commodity price risk can be hedged. It used to manage their commodities price risk by holding the minimum stock levels.
- In the past, Toyota also faced the risk of manufacturing that leads to a decrease in quality levels. This is because of the cost competitive strategy as they started manufacturing their products through outsourcing (Bradbury, 2018). However, failure of the supplier’s side leads in the decrease of the quality and thus their image was destroyed. Later on, using the risks management knowledge approach they go up with a various strategy like launching a risk management department, establishing a global quality control team and training program for the purchasing personnel.
- Once, Toyota wants to enter into the hybrid car market and as a first mover and early adaptors, a high proportion of risks was involved in the plan. However, the company managed to successfully enter into the market by dividing the risks into several strategies relating to planning, manufacturing, distribution and customer service (Reid, 2017).
- The other risks faced by the company are in the form of public transportation as it provides a competitive advantage over personal and private transportation. However, Risk Management Knowledge help the company in analysing various risks like pollution and public transportation system in this strategy which makes the company started focusing on the key success factors by launching the hybrid and electric cars in the world to fulfil the market potential.
As Toyota is an international company, which belongs to the automobile industry, there are some global and general internal risks faced by the companies in the whole industry. Every company in the industry faces these risks as they are generalised in nature.
- Industry evolution and transformation– Connective cars and autonomous driving creates various uncertainties in the industry players.
- New Powertrains and New Regulations (Balancing the Demands of Technology and Government) – The new legislation relating to controlling of CO2 emissions and exhaust gas emissions- such as particulates and nitric oxide (NOx) – improving fuel economy. In addition, to make balance in the rapidly changing social preferences within a changing regulatory environment.
- Safety, quality and security risks – These risks are present and related to the operations and manufacturing of the product. The various company here use to MES (Manufacturing execution system) approach, which helps them to mitigate the risks in their operations.
- Unskilled labour/personnel – The risks are present here in the form of incompetent staff. Retaining key talent staff and personnel is necessary to mitigate these types of risk.
- Ineffective information systems – In every organization, there is required of effective and efficient information system as it is connected with every process of the business like operations, supply chain, management, etc.
Toyota is one of the companies who started the concept of lean management which was later be used by many industries and companies (Souza, 2009). Toyota faced these four major risks affected by the external environment.
- Risk of cultural differences – Because of the corporate culture of the company, Toyota overtook GM to become the world’s biggest carmaker in 2008 (Marr, 2009). The key features of the company’s culture are the “people orientation” and customer satisfaction”.
- Risk of losing sales by war – Ethnics groups and local government pressurize the local divisions in the Middle East or in Eastern Europe and this is impacting the daily business of the company.
- Risk of natural calamities – Natural calamities like global warming, tropical storms and tornado can able to destroy local plants and facilities.
- Risk of outsourcing technology networks and systems – Third party misuse of information through hacking.
Source: (Dinçer & Hacio?lu, 2016)
Source: (Dinçer & Hacio?lu, 2016)
Risk management framework is a series of the structured process which integrates various risk management activities into the system development life cycle.
Source: (Damodaran, 2008)
Prioritizing the Risks – The various risks are given to ranking which helps them the management. Like –
A: High Impact / High Likelihood
B: High Impact / Low Likelihood
C: Low Impact / High Likelihood
- Low Impact / Low Likelihood
Source: (Carey & Turnbull, 2001)
In the above picture ‘C’ will be – Risk of cultural differences, ‘A’ will be – Risk of losing sales by war, ‘B’ will be Risk of natural calamities and ‘D’ will be Risk of outsourcing technology networks and systems. This patterns will fill the quadrants as per the series.
The main focus area and quadrant will be ‘A’ as it will lead to maximum impact and happen more likely as with the time, competition will also expand. ‘B’ quadrant has the major impact on the company resources but this happens quite often. ‘C’ section includes Risk of cultural difference and this is anyway as Toyota is a global and international company. ‘D’ section is lowest affected by the risk.
A proactive solution for any issue is very necessary for the organization and for minimizing the effect of risks, there is a need for certain effective responsive models. It may include general risk response strategies divided into avoiding, transfer, mitigation and accepting the risks.
An organization or company need to train their all employees trained and so when any type of risks came, they can actively and effectively serve as a part of the team in mitigation the risks.
Conclusion
This report gives ideas about various risks for Toyota and its related theories and approached like risk knowledge management, ranking etc. If all the risks monitored in a particular order, the long-term success can be achieved. With monitoring of the risks, various environmental factors should also need to be analysed as they also have a potential to generate new risks.
This monitoring should be done on a continuous basis so that necessary actions can be taken before the time comes.
References
Bos, B. (2013). The Big Risks for Toyota Motors. Retrieved from https://www.fool.com/investing/general/2013/04/13/the-big-risks-for-toyota-motors.aspx
Bradbury, J. (2018). Quality Control In Manufacturing. Retrieved from https://www.graphicproducts.com/articles/quality-control-in-manufacturing/
Bureau, E. (2017). Toyota to raise prices by up to 3% from January 2018. Retrieved from https://economictimes.indiatimes.com/industry/toyota-to-raise-prices-by-up-to-3-from-january-2018/articleshow/61962606.cms
Carey, A., & Turnbull, N. (2001). The boardroom imperative on internal control. Pickford, J.(ed).
Carvalho, M. M., & Rabechini Junior, R. (2015). Impact of risk management on project performance: the importance of soft skills. International Journal of Production Research, 53(2), 321-340.
Damodaran, A. (2008). Strategic Risk Taking: A Framework for Risk Management. New Jersey: Pearson Prentice Hall.
Dinçer, H., & Hacio?lu, Ü. (2016). Risk Management, Strategic Thinking and Leadership in the Financial Services Industry: A Proactive Approach to Strategic Thinking. Turkey: Springer.
Jafari, M., Rezaeenour, J., Mazdeh, M. M., & Hooshmandi, A. (2011). Development and evaluation of a knowledge risk management model for project-based organizations: a multi-stage study. Management Decision, 49(3), 309-329.
Marr, K. (2009). Toyota Passes GM as World’s Largest Automaker. Retrieved from https://www.washingtonpost.com/wp-dyn/content/article/2009/01/21/AR2009012101216.html?noredirect=on
Reid, D. (2017). Toyota says all its cars will have an electric or hybrid option by 2025. Retrieved from https://www.cnbc.com/2017/12/18/toyota-says-all-its-cars-will-have-an-electric-or-hybrid-option-by-2025.html
Silvers, J. R. (2009). Risk Management for Meetings and Events. USA: Routledge.
Souza, L. B. (2009). Trends and approaches in lean healthcare. Leadership in health services, 22(2), 121-139.
Statista. (2018). Toyota’s net revenue from FY 2007 to FY 2018 (in billion Japanese yen). Retrieved from https://www.statista.com/statistics/262752/total-net-revenues-of-toyota/
Sutton, I. (2014). Process Risk and Reliability Management. USA: Elsevier Science.
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