Toyota Company’s Guideline for Risk Assessment
Organizational risks can be defined as threats, negative impacts or challenges which may occur in addition to an action or an event within an organization or company. It is important to note that the transactions and managements within an organization are more complicated in addition to the risks that result from them. The risk management within an organization stretches beyond financial aspects; it includes all other levels of an organization’s operations. Risks within an organization can result from two major sources; external and internal sources. Internal risks may stem from the processes or the organization’s management information. However, external risks may come from outside factors such as political instabilities or national or global economic slowdown. This paper examines Toyota Company with regards to its organizational risks (Harvey & Brest, 2008).
Risks and potential effects
Toyota as a multinational corporation has been at a risk arising from global production. It is important to note that the company has been producing in large scale. As a consequence, any error in its production may result into the risk of reduced sales. For instance, the recent recall of its millions of products from the global market stemmed from technological error that affected its products accelerator pedals. This can be said to be a risk arising from substandard production process that leads to quality deterioration in the international market (Hampton, 2009).
It is also notable that Toyota is at risk of technology leak; in this case, its new technological innovations may leak to its major competitors, especially in countries where its subsidiary manufacturing plants are situated. This is facilitated by the fact that it may not be easy to manage workers in the overseas subsidiaries making it possible for them to leak such information as pertains to company technology to competitors. This is especially possible with former employees of the company who may work for competitors (Young, 1993).
Toyota Company is at risks to dependency on other firms to supply some of its manufacturing components. The suppliers have a larger global network and are able to assist other competitors to penetrate new markets. This means that the Toyota Company may not have unique features should the suppliers shift their supply to competitors. The suppliers can also provide design and research services to high paying automotive firm which places Toyota at a risk of losing its business influence in the global market. It is also possible that the company is likely to have legal problems with governments of the countries of its operations. This may arise due to violation of certain government laws; besides, the countries of operations may come up with regulations such as protectionist policies that may prove to be difficult to comply with.
The global business transactions involve the use of various currencies. Due to this, the company is likely to face risks associated with currency fluctuation in relation exchange rates. Also, it is crucial to note that different countries may decide to devaluate their currencies due to certain economic factors. For instance, China had devalued its currency. These financial factors have the potential of having negative impacts on the global operations of the company.
The above risks have lots of effects on Toyota Company. The risk of quality deterioration that the company faced led to a loss of about $2 billion. The loss included the recall cost which might have been the most expensive in the history of the global automobile industry. The recall led to lose of revenues that might have come from sales. Moreover, the different legal challenges in the countries of operations may lead to the company closing some of its operations in countries with tough measures.
The assets and functions necessary for business to continue require that the company had been ready to continue business after it faces a disaster. After a disaster, the company needs to have a crisis communication plan. This ensures that proper information is passed to employees and staff of the company on what needs to be done. This is also important to pass information and give an assurance to other stakeholders. It is also important to ensure the company is financially able to begin operations after a disaster. The finances may be important in terms of replacing other assets that might have been destroyed or lost during disaster and also in taking care of the employees’ needs. However, the risks involved here is on price fluctuations of the company automotive products and reduction in share value of the shareholders. It will also be important to have the commitment of the company’s top management; the task of the top management is to coordinate the disaster recovery plan and ensure it is effective during recovery process. But the recovery process may lead to more disaster if not well planned. Therefore, the top management should ensure only those with extensive knowledge on recovery are selected to spearhead the recovery plan.
After a disaster, the company may make use of its other investments that may be spread across the world. These include using plants in its subsidiary firms, selling shares. Besides, the company can also get the benefits from its insurance if the disaster may be linked to what the insurance covered. Even so, the use of other assets in other countries may interfere with or slow down the company’s international production process and hence further affect its revenue flows. Again, the disaster may occur at a period when the share value may have gone down which may result into financial losses should they be disposed at the low prices (Snedaker, 2007).
Toyota Company has a number of risks it faces as a multinational corporation. One the risks is that which a rises from global production. Notably the company is likely to experience a similar situation in which it recalled over nine million cars if the production line experiences yet another malfunction. Fluctuation in various currencies of states of operations is yet another risk may affect the profit margins of company. This is coupled with the risk of global economic slowdown and currency devaluations by countries of operation. These risks are able to jeopardize business operations of the company and may even lead tog closure of some of its activities in some countries.
After a disaster has occurred the business needs to continue. In order to succeed, the company may have to utilize the assets it might have acquired in other countries, it might also dispose the shares it holds with other companies to raise revenues for funding its operations. Besides, in case of where the damaged assets were insured, the company can claim compensation from its insurer to be able to fund its new strategic operations and also take care of the needs of its employees (Snedaker, 2007).
Hampton, J. (2009). Fundamentals of enterprise risk management: how top companies assess risk, manage exposures, and seize opportunities. New York: AMACOM Div American Mgmt Assn.
Harvey, H. & Brest, P. (2008). Money well spent: a strategic plan for smart philanthropy. U.S: Bloomberg Press.
Snedaker, S. (2007). Business continuity & disaster recovery for IT professionals. New York: Syngress.
Young, T. (1993). Leak detection for underground storage tanks. New York: ASTM International.