Sample Essay on Crisis Leadership or Risk Management Report

Crisis Leadership or Risk Management Report

Identification and Description of a Business Crisis Situation, Main Leaders Involved and the Ethical Implications

Recall of vehicles for safety reasons are a common occurrence on the auto industry, and few cases have a long-term impact on the carmakers involved if properly handled. However, Toyota`s recall was a different type of disaster (The Economist, 2010). In 2008, the company became the globe`s largest carmaker when its managed to surpass General Motors in terms of production and sales. However, Toyota`s leading position was short lived and came to an end in 2009. In the U.S., which is the largest market for Toyota, a fatal crash involving one of Toyota`s brands- the Lexus ES 350- occurred on 28th August 2009. The crash received significant publicity. The car`s gas pedal had a problem, which made it uncontrollable. From this date, Toyota`s cars were exposed to numerous issues linked to unintended acceleration. This escalated the Toyota crisis and the company was forced to initiate massive recalls affecting nearly 9 million cars across the globe in a span of six months. The recall news made headlines across the globe. In particular, in the U.S. the company received significant negative publicity on the issue, with many people doubting the quality of the company`s cars and its reputation. Negative events often occur suddenly and can potentially push an organization into a reputation crisis and affect its future survival, profitability, and growth (Greyser, 2009). For Toyota, this crisis had far reaching financial implications in terms of repair costs, loss of market share, and increased production spending. In addition, the company`s reputation for quality and better management was also put to question. Toyota`s reputation for quality vehicles, a foundation on which the company was built over decades was shattered. The main leaders involved in the issue were Akio Toyoda, the company`s chief executive, Bob Carter, Toyota Division General Manager, and Jim Lentz, the president of Toyota’s U.S. organization.

In terms of ethical Implications,Toyota`s problematic accelerator pedals were a result of engineering defects in the car`s software that resulted in sticky pedals. Even after the problem became public, Toyota was slow both in terms of responding to the public and taking corrective action. The company appeared to be downplaying the magnitude of the problem. Considering that the defective pedals came at a time when Toyota was aggressively expanding to beat General Motors, it was believed that the company had abandoned its principles of continuous improvement and correcting problems at the source and was only interested in profitability. Moreover, the company was hesitant to take responsibility in the wake of the crisis. All these were ethical failures on the part of the company, and this negatively affected the company`s reputation and image.

Assessment of the Strengths, Weaknesses, Opportunities, Threats, and Industry Trends (SWOTI)

Strengths

Long-term reputation- as at the time of the crisis, Toyota was enjoying a long-term reputation as a manufacturer of safe and reliable cars in the United States. As result, the company made use of newspaper ads, letters to its customers, and social media to remind them of the company`s upstanding reputation. Similarly, the CEO accepted responsibility. Akio Toyoda made a public statement taking personal responsibility for all the accidents involving Toyota cars that were linked to the recalls. In particular, he explained Toyota`s primary philosophy with regard to quality control, what had necessitated the recalls and how the company was going to manage quality control henceforth. Similarly, Jim Lentz, the President of Toyota U.S. was featured in various television outlets where he assured the American public on the recalls, and that the company would work tirelessly to resolve all the problems. He also sent personal letters to all Toyota customers indicating the facts about the recalls to ease any worries. Moreover, Toyota placed an extension on its main website detailing all the recalled cars, their problems and solutions. This move was positive move because it indicated that the company was addressing the problems and was responding to customer quarries.

Weaknesses

            Firstly, it took too much time before Toyota responded and recall the cars. This was made worse by the widespread negative publicity. Customers and the public are always interested in seeing a company take full responsibility and empathize with the victims and their family members. Similarly, it took long for the company to respond to its global customers. As a multinational company, the company should have promptly created positive messages suitable for different cultures and languages during the crisis.

Opportunities

            Toyota could make use of automotive blogs to reduce the level of negative publicity. The company`s president in the U.S. Jim Lentz only featured in traditional media. He could also use high authority automotive blogs to reduce negative internet campaigns. As one of the leading car brands in terms of sales, the company could target the youthful population who mostly use social media and blogs to find information and reviews about cars. The strategy to getting out of the recall crisis was to appear on alternative media platforms and assure customers of the safety of Toyota cars. In addition, through social media, the company could Tweet and Facebook as a way of engaging the customers and addressing their concerns. Although the company used these platforms to admit that there was a serious problem, it could have capitalized on the same platforms to share how it was going to resolve the issues and move forward with its tradition of making safe and reliable cars.

Threats

            Toyota`s crisis was good opportunities for competitors to sell their brands. For example, General Motors, Toyota`s main competitor rolled out a campaign to give incentives to worried Toyota customers so that they could purchase a car from GM. The incentives included up to $1,000 in lease payments to Toyota customers so that they could terminate their leases with Toyota and purchase cars from GM. Similarly, buyers could receive interest free loans repayable over 60 months for purchasing GM cars, and cash buyers were given a $1,000 down-payment aid to help them acquire a GM car. Secondly, there were several viral internet campaigns. With the increased use of social media and the internet, it did not take long before the crisis at Toyota went viral. Anti-Toyota slogans spread across the globe. Toyota failed to use this as an opportunity to join the conversations and engage its buyers. Websites such as toyotausasucks.com were created, which damaged the company`s prospects of attracting new car buyers. Finally, negative media publicity on the recalls was overwhelming. This potentially caused a permanent damage on the company`s reputation and image. With many people exposed to the Toyota recall news, recalls became synonymous with Toyota, and it will take many years before the company regains its lost long-term reputation as a manufacturer of safe and quality cars.

Industry Trends

At the time when Toyota was facing the crisis, there were several industry trends. Firstly, midsize vehicles and trucks were selling more compared to hybrids and compacts because the U.S. economy was recovering from a recession. Secondly, incentives for car buyers had reduced particularly for cars from Korea, U.S. and Europe. However, car brands from Japan, which includes Toyota, were stiff offering incentives to buyers. Similarly, the prices for second hand cars were increasing. Because of the recession consumers were substituting their premium car brands for non-premium brands or were purchasing used cars instead of new ones. Because of the high demand for used cars, their prices were high. Another industry trend was the increase in customer complaints and the number of recalls. In 2010 alone, approximately 19.1 million cars were recalled in the U.S. market compared to just 13.4 million over the period 2005-2010 (Edmunds Report, 2010).

Recommendations on Ways to Ensure Management has a Clear View of Risks across the Organization

For Toyota to have a clear view of risks across the organization it must develop an organization wide risk management program and make risk management a significant component of its day-to-day business operations. For this to be achieved several strategies have to be implemented:

Integrate the program into the organization-the risk management program has to be integrated and the business has to identify all its risks by product line, subsidiaries, and suppliers. This gives the company a consistent way of evaluating its risks and provides useful information that is used in making strategic decisions.

Formulate consistent definitions of risk- the company has to define its risks both in terms of the impacts and the probability of occurrence of the risk through a criterion that is measurable. For example, the risk of recall can be defined as severe and ensure every employee understands the risk.

Establish proper data management and clear communication- whereas the support of senior management and the board are significant, a clear view of the risks can only be achieved if the risk management program is implemented. This allows every employee to understand and manage risk. The board and top management have to allocate the necessary resources to mitigate the risks. In addition, the company has to develop a process of identifying and assessing risks and work with line managers and employees in evaluating how the decisions they make are aligned to the company`s overall risk strategy (Greyser, 2009).

Clear definition of roles and responsibilities- as a car maker, the majority of job responsibilities influence the overall risk. As a result, risk ownership and responsibilities have to be defined for every job. In addition, the company has to develop a process through which it can monitor and report risks. These include procedures for escalating and resolving issues.

Identification of Risk Management Process

The leadership in any organization should have a clear understanding of the risks facing the organization, and once the risks are identified, leaders should act promptly to mitigate the risks. Policies and procedures on their own cannot manage risks effectively. It is the leader’s responsibility to manage risks.  For the case of Toyota crisis, the following risk management process can help the leaders in mitigating the risks. The first step is the identification of risks in a detailed manner to allow for effective risk mitigation. For Toyota to be ready for a recall, it must first evaluate the risks it faces. Sufficient information has to be collected from workers and managers who have information on the potential problems. The second step is linking the risks with avenues for protection (Alston, 2003). By linking the risks to the safeguards that the company already has in place, Toyota is able to identify risks areas where the company is not adequately protected. Some of the avenues for protecting against risks include insurance and indemnities. Although not every risk can be insured, knowledge of all the risks ensures that the company makes conscious decisions. For example, Toyota should determine if its insurance cover is sufficient to cover the costs recalls. The final step is that Leaders must be prepared to address smoldering crisis to prevent potential problems. For instance, the crisis at Toyota could have been addressed much earlier before it turned into a crisis because the leaders knew about the defects in the vehicles four months earlier.

Recommendations on Effective Risk Management 

To ensure the risk management process works as expected, the process has to be monitored. The risks identified have to be tracked consistently; any emerging risks have to be identified and record lessons learned to be used in the future. For this to be achieved, leaders have to set timeliness to ensure all the risks are treated and managed. The risks have to be ranked such that the most urgent ones are tackled first. Similarly, records have to be kept (Alston, 2003). Accidents and near misses have to be documented so that the company avoids similar incidences in the future.

Ways of Identifying and Managing Uncertainties in a Complex Corporate Environment

Identifying and managing uncertainties in a complex business environment is a difficult exercise. As a result, leaders must make use of the business knowledge gained to identify some of the risks and attempt to bring them under control. Through the use of accumulated risk management methods and processes organization leaders should be ready for surprises in such environments. A company`s ability to tackle complex uncertainties is closely related to its on structure and risk culture. The most important thing is resilience, which means being in apposition to effectively deal with unexpected events when they occur. In particular, a company`s continuity should be assured even in the face of a crisis. Contemporary risk management incorporates various important elements such as well-defined processes, clear responsibilities, transparency, and informed strategic decision making on the part of leaders (Winkler, 2010). All these aspects are important qualities that help leaders in responding to surprises in promptly and effectively.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

References

Alston, G. (2003). How safe is safe enough?: Leadership, safety and risk management. Aldershot, Hampshire: Ashgate.

Edmunds Report. (2010). Auto Industry Trends. Retrieved 23 March 2015, from http://www.edmunds.com/about/press/edmundscom-reports-2010-auto-industry-trends.html

Greyser, S. A. (2009). Corporate brand reputation and brand crisis management. Management
Decision, 47(4), pp.590-602

The Economist. (2010). Leaders: Accelerating into trouble; Toyota. London: Feb 13, 2010,
394(8669):p.14

Winkler, I. (2010).Contemporary leadership theories: Enhancing the Understanding of the Complexity, Subjectivity and Dynamic of Leader