Where are They Now: Toyota Motor Corporation
Toyota Motor Corporation, established in 1937 and headquartered in Toyota, Aichi prefecture, is the largest Japanese automotive corporation as well as the world’s largest car manufacturer. The company also provides financial services and has few additional lines of business. Currently, the company occupies the eighth place in the Fortune Global 500. In order to hold its position of the world’s largest car manufacturer, Toyota has reinforced its risk culture and infrastructure by establishing the Risk Management Committee chaired by the Global CRO, and including Chief Officers, Senior Managing Officers and Local CROs among its members. It meets twice a year to identify risks that may influence business activities and implement measures to prevent them. The Committee reports on major risks in each region, confirms the current risks and reports on the status of actions that address the most serious risks (Wimmer, 2012). Since 2009, Toyota has been struggling with the effects of multiple crises by using this approach, but the strongest of them were the consequences of the earthquake in Japan in 2011, which caused an enormous damage to the entire Japanese automobile industry. The earthquake of March 11 with the magnitude of 8.9 was the most destructive in the history of the country. Following the powerful disasters, the north-east of the country was devastated by the tsunami with a height of more than ten meters, which covered a total area of 561 square kilometers. According to the reports, about 16,000 people became victims of the tragedy. About 126,000 buildings were destroyed, and 260,000 were partially damaged. The direct damage from the disaster is estimated at 25 trillion yen (about 312 billion dollars) (Bacon & Hobson, 2014).
In the terms of identification and measurement, it is possible to say that earthquakes are the main risk factor for Japanese companies. Because of the residual seismic activity, Japan is often struck by non-hazardous earthquakes of magnitude of 6.0. Therefore, most of Japanese plants, including those of Toyota are reinforced to withstand them. Moreover, after the disaster, Toyota stopped production at all it factories in Japan for three days, which allowed avoiding casualties and maintaining the positive image of the company. On the contrary, Toyota’s main competitors ignored these measures. As a result, one worker died and thirty were injured after the wall collapse at the Honda plant. In addition, two staff members were injured at the Nissan engine plant (Bacon & Hobson, 2014).
However, the mentioned safety measures also had a negative effect on the company. During the downtime, Toyota did not release about 300,000 vehicles. As a result, its operating income was cut by 110 billion yen (1.36 billion dollars). The strong yen also had a negative effect on the earnings, when net income decreased from 112 to 25 billion yen (314 million dollars). The operating profit of the company has declined by 52%, to 46 billion yen (571 million dollars), less than a half of the projected 96 billion yen (1.2 billion dollars). The company’s quarter sales have decreased by 12%, to 4.6 trillion yen (57 billion dollars) (Bunkley, 2011).
In the terms of disaster recovery planning, Toyota’s management has implemented both short and long-term recovery strategies. The company short-term recovery strategy included the steps on restoring the disrupted supply chains (one of the main reasons for downtime) as well as reallocation of certain resources (electronic equipment for vehicles) between plants in order to optimize production. Moreover, in order to provide sufficient funding for recovery and improve its financial results, the company has restored production of some models of hybrid vehicles, which are in high demand on the world market (Toyota Prius and Lexus CT200h). As a result, the production process on the plants in Aichi and Fukuoka prefectures was restored by March 28, i.e. in two weeks. Full restoration of the production has occurred by the end of 2011 (Wimmer, 2012).
As for the long-term recovery strategy, in order to increase the sales and improve its financial results after the disaster, Toyota management has implemented the strategy of Toyota New Global Architecture (TNGA). This strategy involves simultaneous development of a variety of different vehicle models and the widespread use of standardized modular components. TNGA is aimed at the reduction of the costs and the increase of the attractiveness of Toyota vehicles due to a well-functioning mechanism of modeling. According to the estimates, the new strategy will increase effectiveness of new product development by 20-30% while saved time and funds will be invested in development of new technologies, production optimization and improved design. Among other things, Toyota will use more components that meet international standards, which will have a positive impact on logistics and reduce transportation costs. Ultimately, it is planned to unify up to 80% parts in Toyota cars built on the same platform, against the current 30%. Moreover, Toyota designers will develop the new models according to the schedule of their release. According to the estimates, the new strategy will allow the company to produce sell about 10 millions of cars per year (Wimmer, 2012).
In conclusion, it is possible to say that the correct enterprise risk management (ERM) may ensure the company recovery even after a serious, force-majeure event. The actions of Toyota Motor Corporation after the Japanese earthquake of 2011 are a vivid example of the efficient ERM, and it is possible to draw the following lessons from the company experience: first of all, establishment of a special department that specializes in risk management. Second, implementation of safety measures that allow enhancing company reputation to prevent possible further fall of sales. Third, thorough analysis of the market aimed at the uncovering of additional sources of funding for recovery procedures. These disaster recovery measures have allowed Toyota to recover from the disaster and maintain its leading position on the world automotive market. Since the long-term strategy is yet to have results, it is difficult to estimate its efficiency. However, judging by the effects of a short-term recovery strategy, which was designed by a team of skilled professionals, it is possible to say that the company will achieve its goal once again and strengthen its advantage even more.