Automobile Industry & Integrated Risk Management

Steven Minsky | April 9, 2014

In the past few weeks, we’ve seen major automobile companies face huge product recalls due to safety errors, creating negative media attention and certain financial penalties. As a result, automakers are dealing with a damaged reputation and loss of customer trust. At the center of Toyota, Nissan and General Motor’s incidents are two key failures:  lack of internal communication and poor enterprise, integrated risk management.

Within an organization such as Toyota or General Motors, there are countless departments and employees who have an impact on the final products and their safety. Without proper communication and transparency across these various internal silos, key information can get lost and potential risks can go unnoticed.

Let’s look at General Motor’s recent safety recall as a case study. General Motors began to recall millions of vehicles after nearly a decade of safety and production flaws; globally sold vehicles were equipped with defective ignition switches. This tragedy has recently launched worldwide media frenzy, both Federal and internal investigations, huge fines, and public scrutiny.

The question that remains is how did this safety defect slip through the cracks and become a globally dispersed product? The answer, poor risk management and cross-silo coordination. Identifying, mitigating, and monitoring risk on a comprehensive, enterprise wide level would have opened the lines of communication necessary to avoid the blind spots that led to such a large scale safety failure.

Fox News reported the incident stating that “GM has heavily layered and highly compartmentalized management and product design structures. Problems like the ignition switch can be discovered by GM engineers—as the result of customer complaints or tragic accidents—but go unnoticed by other units and senior leadership.”

Engaging leadership, managers and users across departments and levels is a critical feature of integrated risk management software. Without communication between an engineer, a health and safety manager, and the key departmental senior management at various stages of the risk management process, crucial information gets lost between these highly compartmentalized silos. An ignition switch defect is a quality issue to engineering, but poses much larger risks to customer safety that must be communicated and escalated appropriately.

As a result of unsuccessfully managing risks; General Motors and these other car-makers are now facing a range of negative consequences – adverse reputational impact, consumer skepticism, financial loss and legal liabilities. Applying an ERM framework that integrates business areas is the first step at ensuring risk is communicated effectively.

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