Risk is something we face every day, such as going to lectures, the gym, anywhere. There is no one single definition for risk but as Gonzalez stated 'risk is a probability or threat of damage, injury, liability, loss, or any other negative occurrence that is caused by external or internal vulnerabilities.' Risk is unavoidable, it is present all the time in our lives. Toyota were at risk of losing millions of customers and the destruction of their reputation after their product recall in 2009. Toyota had to recall millions of their vehicles from all round the world. 'There were several issues: potentially sticky gas pedals, pedal entrapment and software glitches that affected braking on some models.' (Cole, 2011). 'Safety recalls are common issues occurring in automobile industry, few may have long run impact on the automakers involved if handle correctly.' (Feng, 2010). Although, if Toyota had to use system safety concept, that 'uses systems theory and systems engineering approaches to prevent foreseeable accidents and minimize the effects of unforeseen ones.' (Leveson, 2008). they could have avoided the millions of recalls they had undergone. 'System safety emphasizes analysis in addition to past experience and codes of practice. Standards and codes of practice incorporate experience and knowledge about how to reduce hazards, usually accumulated over long periods of time from previous mistakes.' (Leveson, 2008). Applying this system in Toyota manufacturing could be very beneficial for the company as they would have a better chance of identifying any future risks that the business faces and can try and prevent them.
Risk management is a central part of any organisation's strategic management. It is the process of identifying loss exposures faced by an organisation and the selection of appropriate techniques for treating these exposures. As it exists today, risk management represents the merging of three specialities; Decision Theory, Risk Financing, and Risk Control. The process of risk management involves identifying loss exposures, analysing the loss exposures, choosing the most efficient methods of controlling and financing loss exposures and implementing them, and monitoring outcomes.
The first step of the risk management process, the identification and measurement of exposures, is basically a brainstorming exercise to identify any risk present in the organisation now or in the near future, both internally and externally. (EisnerAmper, 2015). There was a major problem in a few of the Toyota vehicles as floor mats were placed poorly and some incorrect floor mats were used under the driver's seat which lead to the driver's not being able to control the acceleration in their vehicle. (Cole, 2011). This lead to many accidents in the United States. In the United States on the 28th August 2009, there was a fatal accident in a Lexus ES350 because of acceleration problems, involving Mark Saylor, an off-duty California Highway Patrol Officer, and three of his family members. (Bensinger and Vartabedian, 2009). This could have been a different situation of the company had applied the concept of safety systems. 'System safety analysis attempts to anticipate and prevent accidents and near misses before they occur, in addition to learning from the past.' (Leveson, 2008). In 2006, before the Toyota Product recall in late 2009, 'the company's management commissioned a survey of U.S. consumers that included the following question: How much influence does having a recall on your current vehicle have on subsequently purchasing that same automotive brand again?' (Cole, 2011). This was done by the Toyota to see if they had a loyal customer following and to see if something were to happen would they still be loyal to the business. It is possible that some of Toyotas customers 'are likely to choose another brand, and the long-term risk is that some of these buyers will find that the other brands meet their quality expectations just fine.' (Cole, 2011). This would be distressing for Toyota as they would lose nearly millions of customers who would more than likely never purchase another Toyota car in the future, which would lead to a decrease in the firm's profits.
The next step in the process is analysing loss exposures. This consists of assessing 'the risks for your business as a whole, not department by department.' (EisnerAmper, 2015). After the car accident in the united states in 2009, Toyota
'Recalled more than 6 million' cars in total around the world 'to make changes to its floor mats and sticky accelerator pedals'. (Rechtin, 2014). According to Roland 'Toyota has recalled more than 20 million vehicles.' (Roland, 2011). Toyota had to recall cars from 2009 to 2011. That wasn't the end to the recalls. Just this year 'Toyota announced that it would be recalling nearly 625,000 Prius and other hybrid cars worldwide', (Passary, 2015) this time the fault was a 'software glitch'. (Passary, 2015) Toyota made the decision to recall millions of vehicles because of the likelihood of more accidents occurring as a result of the defects in their vehicles. 'The company had to pay a $1.2 billion dollar settlement to the Justice Department because of their slow responses on the situation.' Toyota had 'three fines totalling nearly $50 million from the National Highway Traffic Safety Administration.' (Rechtin, 2014). The severity of these losses ae quite extreme. 'The financial impact on Toyota Motor Corporation from its global recall could total more than $5 billion over the next year, due to increased incentive campaigns, litigation costs and marketing efforts.' (Takahashi, 2010). Losing that amount of money might not bother a corporation such as Toyota but their good quality image has now been tarnished and that isn't something that money can buy them.
Toyota had to choose the most efficient methods of controlling financing their loss exposures. 'Toyota has taken action to manage the crisis, in order to retrieve their reputation and rebuild trust from stakeholders, especially the most important groups ' consumers'. (Feng, 2010). On October 2nd 2009, Akio Toyoda, the newly appointed CEO of Toyota Motor Corporations, made a publically apology to the family who died in the car crash in the US and to everyone else who was hurt or injured because of the defects in some of the Toyota vehicles. (Mackenzie, 2010). Toyota's main objective was to get their reputation back to how it was before the crisis. Toyota has a quality brand image and doesn't want to lose that. Toyota issued a statement informing the owners of certain Toyota and Lexus models about the unsuited floor mats (Toyota USA Newsroom, 2009). This brought about the recall of millions of vehicles to cease this problem. 'By late January 2010, Toyota began issuing apologies and promises to do better; its engineers brought up a fix for the accelerator pedals and began rushing it to dealers around the world.' (Feng, 2010). Toyota should have noticed this problem in the stages of production it shouldn't have led to 13 of their customer's deaths between 2005 and 2010. (Thomas, 2011). If Toyota were to apply the systems safety approach it would have identified 'hazards as early as possible in the design stage and then designs to eliminate or control those hazards.' Leveson, 2013). Toyota's brand image and reputation has come a long way since the recall in 2009. 'Over the years, Toyota's favourable reputation for its quality products and reliable services has been highly appreciated by many Toyota's owners upon their direct satisfied experiences. Negative publicity could not sway their trusts because of their loyalties and strong bonds to the brand. With strong affective emotion connected to the brand, Toyota's customers are hoping that Toyota can pull through this soon and still retains reputation.' (Feng, 2010). To monitor the future outcomes of the firm ' new senior management teams move into position of power, they need to recognise that there are no guarantees that the systems and values that have provided the underpinnings for the organisation's success can be sustained without renewed commitment.' (Cole, 2011). The new senior managers need to make sure that the services they provide will ensure that they keep their brand image at the high quality standard. 'Despite its vulnerabilities, the Toyota production system still represents state of the art in manufacturing and continues to provide an important model to companies in a wide range of industries.' (Cole, 2011).
In conclusion, Toyota 'has suffered a severe crisis due to unintended quality problems in its cars. This had triggered Toyota's largest officially recalls of nearly 9 million vehicles all over the world. This crisis has threatened the company's previous reputation of building good quality and reliable cars, as well as damaging its brand image built up over time.' (Feng, 2010). However, Toyota may have taken their time to take control of the situation, but they handled it all the same. If this crisis was to happen again, Toyota need to deal with the situation straight away and not wait a few months to inform customers about specific problems with their vehicles. Not all risk can be identified before they happen, but Toyota need to have a better team to deal with the loss exposures when it does happen and a good consumer based team to deal with all queries their customers may have. Toyota only began to deal with the crisis when there was a fatal crash that killed all four passengers. It needed to be dealt with earlier than that.