One of the fundamental concepts in risk management is understanding how forces lead to events that change the business conditions. This is a fundamental step to understanding and identifying anticipated events, and changes in condition, that represent opportunities, threats or requirements to an organization.
I have watched the auto industry closely for the last year and see this industry is a great example of this concept.
Many of you are already familiar with the issues Volkswagen (VW) is facing with device defeat software it loaded onto more than 11 million vehicles, as a way to trick the emissions testing showing these VW autos met the emissions guidelines; when in fact they emitted up to 40x the amount of nitrous oxide as allowed by law. We now are learning Fiat may have done a similar thing.
Each major car company has experienced major recalls, costing hundreds of millions, if not billions of dollars. Automobile stocks seem to be stuck at low levels, even while quarterly sales numbers are rising. One reason likely is investors are concerned the car companies will have to “give back” much of their profits in fines, penalties, or product recalls. The VW case has already cost an initial $7 billion write-down, with an additional $11 billion recently, and pending litigation that could be an additional $30-$50 billion dollars. Where this will end, we do not yet know.
Some other things to consider.
Traditionally we think of the auto industry comprising traditional car companies. When most people think about car companies they think: Toyota, General Motors, Volkswagen, Ford, Fiat/Chrysler, Hyundai, etc…; but what about Google, Apple, or Tesla?
As forces continue to change, making technological advances possible may change the industry completely. Driver-less cars, electric vehicles, which once seemed like something of science fiction are now a reality. Google and Apple are working on driver-less cars, and where will the war go between the current gasoline engines versus electric powered, hydrogen or natural gas?
Tesla took in almost $10 billion worth of pre-orders for 276,000 units of its newest car, the Model 3, in just two days, according to the company’s chief executive Elon Musk per a report by The Guardian. Tesla now has close to 400,000 pre-orders for this car. A car that won’t even be available for some time.
Last year, the Toyota Camry was the best selling car in the U.S., with 429,355 vehicles sold. The Toyota Corolla was second-best selling vehicle with 363,332 shipped. The #1 selling car in the world last year was the Toyota Corolla with 1.3 million units, and #10 was the Toyota Rav4 with almost 700,000 units. That gives you a little perspective as to how large of an event it is for Tesla to sell almost 400,000 units before production has even started.
It also means Teslas has taken in almost $400 million in cash deposits, to fund future operations without the need of going to the debt or equity market. Talk about a revolutionary event in the auto industry.
The forces are definitely awakening in the auto industry, and I am not talking about Luke Skywalker, Han Solo, Rey, or the billion dollar movie from Disney.
I am talking about an industry with billions to gain for those organizations that practice Principled Performance: the reliable achievement of objectives while addressing uncertainty and acting with integrity; and, billions to lose for those that do not. Organizations that practice Principled Performance, have a much better chance of navigating through the forces, events, and changes to condition.
To be successful in today’s quickly changing context, organizations must practice Principled Performance and do a much better job of assessing forces, events and changes in conditions.
If you read this article thinking, “Whew, I’m glad I not in the auto industry” don’t relax too soon. It’s time to grab your lightsaber and prepare for what is coming.
The forces are awakening in every industry and for every organization.
If you would like to learn more about Principled Performance, please download a free copy of the OCEG GRC Capability Model from: www.oceg.org
If you would like to learn more about how to better identify the forces, events, and conditions in your industry, attend one of my upcoming GRC Professional training courses at www.meffordassociates.com/events or check out the on-demand trainings at cRisk Academy.