Toyota v GM: Resilience in a Volatile World

Why did Toyota suffer losses while General Motors sailed through the after effects of the tsunami in Japan in March 2011?

And how is our understanding of resilience changing?

Harvard Business Review asked these questions of Andrew Zolli, following the publication of his new book: Resilience: Why Things Bounce Back.

We think this is one of the very few “must-read” books for anyone in business continuity management.

Andrew Zolli explains himself briefly here:

 

And Toyota v GM?  Because we love this one, we’ve done something we never usually do and copied a few paragraphs of the straight interview – because we couldn’t write it any better than Zolli said it:

“There’s a couple things that are important to say about defining what we mean by resilience before we answer the question. Because the reality is lots of different fields use the term resilience. And they use it to mean different things.

Business people mean often, continuity in the face of a natural disaster. Do you have all of your data backed up in the cloud. Social psychologists mean, is a person, an individual, resilient in the face of a traumatic, or potentially traumatic event. Ecologists, what they mean when they mean resilience, is the ability of an ecosystem to resist being pushed past a critical threshold irrevocably.

And so, all of these definitions, they either rest on one of two different aspects of resilience, which is the ability to either maintain core purpose, or to restore core purpose in the face of a disruption. It’s either continuity or restoration. And one of the challenges with the resilience narrative is that there aren’t seven Rs of resilience. If there were seven habits of highly resilient people that book had been written already. Resilience is very context specific.

But there are some, you might think there’s a pattern language of resilient systems, and resilient people, that emerges, if you look in lots of different contexts. So for example, diversity is a hugely important aspect of resilient systems. Now the challenge to diversity is that diversity of strategies, covering more than one base, and more than one possibility at a time, imposes a real cost on a system. It’s actually expensive to do more than one thing at a time. And it’s hard to do it well.

We need systems that have lots of diversity. We also need systems that have fire breaks. So that, what we call modularity, they need to have systems where a fire in one compartment, or a problem in one compartment, can be isolated, islanded, and segregated from the rest of the system.

One of the most important things about that pattern language of systems is the ability for organizations to reorganize themselves in the face of a disruption to maintain their core purpose. So that means reconfigurability is really important. Being able to dynamically reallocate resources in a supply chain is enormously important. And you could actually see this in a perfect example with what happened with Toyota after Fukushima.

Toyota had a perfectly efficient supply chain. The Toyota way, the legendary Toyota way, was a fantastic, lean manufacturing platform. And interestingly, in a contemporary vehicle, like a Toyota vehicle, or any 2012 vehicle that you’re driving, in a contemporary automobile the value of the silicon, the computer chips that actually ensure the safe driving and safe and efficient operation of the motor, are actually now worth more than the steel that’s in the car. They’re the most expensive components.

And the biggest of those manufacturers in Japan is a company called Renesas. And Renesas makes about 40% of the chip controllers that actually power a contemporary automobile. When the tsunami, and the compound disaster hit Japan, Toyota was affected, but not decimated.

But Renesas was really affected. And Renesas had a just in time delivery mechanism with Toyota, where they could deliver chips to the Toyota supply chain with a six minute gap. If they ran out of chips they could come up with new chips in six minutes.

But they only made them in one factory in Japan. And when that factory was decimated, all manufacturing for Toyota shut down immediately all over the world. And in fact, the people who were shopping for Priuses in the month after the tsunami in Japan, in places like North Carolina, found themselves being asked to pay over sticker price because there was continued high demand for those vehicles, but not enough supply. Because they literally couldn’t get their hands on these computer processing chips.

Now if you compare that to say GM, GM had a similar kind of exposure, but was able to radically reconfigure its global supply chain network. It had sufficient redundancy in the system, and the ability to dynamically reconfigure its supplies, and value network, such that they were able to ensure the manufacture of the most profitable vehicles in their line.

And as a result, GM’s CEO, in the third and fourth quarter, was able to say that the terrible disaster in Japan would have no impact on their earnings, even though they had roughly the same exposure, in terms of supply chain risk. Whereas Toyota, actually, it cost them their position as the world’s largest automobile maker. And it’s that ability to reconfigure in the face of disruption that is a huge part of the resilience narrative.” 

You can read the full transcript of the Andrew Zolli interview here on the Harvard Business Review website.  You can also buy the book on Amazon.

 

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