Manage Tomorrow's Surprises Today

Steven Minsky

ERM Report: The Automobile Industry & Integrated Risk Management

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[Editor's Note: Organizations have become myopic with GRC solutions, and they can no longer see the forest through the trees. Our new series, brought to you by the LogicManager Analyst Team, will keep you up to date with real world examples of risk management failures, and how ERM could have prevented them.]

 

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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 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 element of enterprise risk management. 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 carmakers 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.

Learn more about how to increase inter-silo communication with ERM by downloading our eBook, "How to Integrate Governance Areas."

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In this blog, risk expert Steven Minsky highlights the differences between traditional risk management and true enterprise risk management, which is about helping things happen rather than preventing them from happening. Manage Tomorrow's Surprises Today is designed to help you think about risk in new ways and learn how to benefit practically from this rapidly evolving field.

Steven Minsky

Steven Minsky is the CEO and Founder of LogicManager. the recognized leader of enterprise risk management solutions and is also the developer of the RIMS Risk Maturity Model for Enterprise Risk Management™. LogicManager provides a common, intuitive software-as-a-service platform of scientifically validated enterprise risk management decision and diagnostic tools for more effective corporate governance, risk and compliance.

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