MBA402 Governance Ethics And Sustainability

How Risky is Your Company? HBR. May-June 1999

Introduction

Competition in business involves risk-taking (Dionne, 2013). Nonetheless, the more fast-paced and aggressive a company’s activities and leadership are, the more exposed the business is to risk factors. In this report, Trading.com Company’s risks that can potential jeopardize the firm’s productivity will be assessed. This analysis will incorporate a risk exposure calculator; which is a diagnostic technique to identify Trading.com’s points of pressure that enhance risks to a danger level. The risk exposure calculator potentially delivers scores which can be compared by managers serving different functions at various levels. From the deliverables, it is evident that Trading.com’s employees are more aware of risk exposure than managers.

Risk Exposure

The risk exposure calculator is used as an analytical tool that provides approximation of different types of pressures leading to a company’s substantial breakdowns or failures (Filipsson, Öberg & Bergbäck, 2010). As indicated in figure 1, 9 pressure themes are additive and relate to one another. When the pressure is high (denoted by a score of 5), risks of operation, impairments and competitive risks cause significant damage to Trading.com. The Trading.com is a company that offers clients with courses about share investment. The Company rapid rise to the market has been initiated by Jospe Drake (company’s CEO) who believes that any person can be successful as long as they have the right mind-set, support and education. A strategic approach of promotion and advertisements by consultants who assist clients (using one-on-one consultancy) has helped the company to grow rapidly forcing the company to seek more staff members (over 100). This status exposes the company to more risk of delivering services through new consultants who are inexperienced.

Figure 1: Risk Exposure Score

A. Pressure Due to Growth

Growth is a significant goal for many businesses (Honeysett & Metheny, 2012). However, successful achievements of Trading.com’s market-enhanced growth have potentially led to risks due to three whys and wherefores. These are:

i) Pressure for performance

Jospe’s pressure for performance is unrelenting (score: 5) due to its hallmark of strategic growth to providing share investment training in different demographics (Melbourne, Sydney, Adelaide and Brisbane). Trading.com has a high expectancy of performance for consultants expected to lead more clients to a signup process to earn a percentage of $10,000 course fee. Jospe informs the staff that results have to be delivered after holding employees accountable for any financial performance. Resultantly, bonuses and incentives have been linked to the performance of every staff member. Considering provision of incentives, it is evident that some workers feel an intense pressure to deliver results at all costs hence inviting more chances of engaging in behaviors that can potentially invite more risks (Ennals & Salomon, 2012).

ii) Rate of expansion

Trading.com’s rapid expansion in its operation scale is a reputable evidence of strategic growth. According to Kimelberg & Williams (2013), successful industries aim at globalizing to extend operations. However, extensions might potentially bring risks to the company. The business has expanded its operation to different cities hence making the company to strain in accessing resources. Apart from that, consultants and systems are forced to operate beyond normal. This pressure is high (score: 5) making Trading.com’s regional managers to negate Jospe’s aspiration to the rapid expansion rate. As a result, the pressure forces the company to recruit more consultants (by lowering its employment standards) who are inexperienced. New distributions, service facilities and production need to be delivered in line and incorporated in the entire Trading.com’s operations and handled by all workers. As a result, the company is exposed to more breakdowns and mistakes from newly and inexperienced workers.

iii) Inexperience of key employees

Having workers with less or no experience in a company might result to unintentional system errors (Hansen, 2016). Trading.com came up with a bad business choice of breaking the company’s recruiting standards hence inviting more franchise and asset diminishing risks (score: 5). Regional managers of the company were also not thrilled with the CEO’s surge of organizational growth. Due to high demand of consultants, the human resource manager was forced to employ inexperienced workers.

B. Risk Pressures due to Culture

The culture of a company is determined by the antiquity of the leadership team and how operations are carried out (Adalsteinsson & Grimsdottir, 2015). This is another core factor of risk exposure in the Trading.com Company.

i) Rewards for entrepreneurial risk taking

In many businesses, the culture of risk-taking entrepreneurship is encouraged. Employees are motivated to apply creativity in developing new market opportunities and business strategies (Wein, 2015). Trading.com offers rewards to its workers. Every month, consultants are categorized by managers in relation to their relative performance in sales, whereby high-performing workers are given bonuses like; luxury holidays and gifts. Resultantly, this leads to more internal competition as workers strive to achieve a certain target. Offering incentives is an effective way of boosting the workforce (Jacobs, 2015); but there is a high risk (score: 3) that the staff might develop means to considerably intensify strategic risks. In the Trading.com risk-taking employees’ structure, investments might be made through risky assets like; unfortunate individuals striking deals with counterparties who failed to achieve operation commitments. As a result, these risks may be difficult to fill hence damaging the brand image of the company.

ii) Executive resistance to bad news

Effective communication helps corporate companies to achieve strategic goals (Foreman & Argenti, 2005). Communication status and culture affects the willingness of workers to inform managers concerning exposed risks in the company. Delivering warnings about risks at an earlier stage is evident to individuals who work at a ground level (serving clients and analyzing competitive niches) compared to superiors. However, this form of early notification is not delivered effectively to managers at Trading.com.  Managers mistakenly consider this as ‘bad’ news to the company. Managers leave consultant to carry-out their own activities due to a misunderstanding of the complex consultation language hence creating high exposure to information barriers. As a result, constants are afraid to deliver their concerns due to fear of personal consequences and sanction. Moreover, information circulating the company tends to major of sales and company performance other than analyzing potential risks. Due to this reason, communication at Trading.com is crippled making Jospe and regional managers to be caught unaware when risks surface unpredictably and risk more (score: 5) asset breakdowns.

iii) Level of internal competition

Trading.com’s culture nurtures workers’ degree of internal competition which resultantly leads to risk issues. Jospe has knowingly fostered a sense of competition among consultants who fight for rewards, bonuses and promotions. Due to the fact that holding private strategic measure of driving sales initiates more incentives to the initiative executor, individuals in a company might safeguard their techniques jealously (Hussain, Sweeney & Mort, 2010). The tendency is intensified in the company due to consideration of advancements to be a zero-summed game. To achieve the speculated target, consultants risk more (score: 5) by attempting to gamble with the company’s assets, credit and brand image in order to achieve a short-term goal.

C. Risk Pressures Due to Information Management

The final section of risk assessment is processing of information technology. These pressures can potentially create risks in the following ways;

i) Transaction complexity and velocity

As Trading.com advances in transactions, fewer consultants may completely understand the explanation of the activities and relative measures of control. Cross-boarding contracts in transnational businesses, explaining syndicate activities and innovative transaction of client purchases are capable of cause highly intricate agreements (?ulík, 2014). With no full understanding of complex language in consultation and nature of client interaction, impairment and risks of asset increases significantly giving it a risk score of 5.

ii) Gaps in diagnostic performance

Gaps (lack of structural initial warning systems and inefficient systems of information management) are evident in the management of Trading.com. When managers are unware of potential company risks, prompt mitigating strategies cannot be undertaken to handle risks. Any form of business risk requires an appropriate diagnostic method to track-down present levels of risks that act as warning indicators. Trading.com has not design or applied any indicators of risks in determining the level of risks, which makes the company to risk its assets more (score 5). Financial risk indicators, credit and operation risk indicator provides a company with an early caution about franchise and completion risk to be avoided. The indicators require sophisticated data processing schemes that are capable of consolidating information over diversified operations.

iii) Degree of decentralized decision making

Lastly, the company’s decentralized decision-making is high (score: 5) hence leading to more risks. A greater percentage of the company’s business is centered on unique courses formulated by senior managers and risk-taking team. The course-designing team is issued a deal of autonomy hence are allowed to formulate courses independently and deliver to the staff content. The freedom provided by Trading.com, whereby fewer rules of operation are imposed by managers, evidently leads to an increased frequency in low success rate of unique courses. The team is exposed to activities that might lead to more risks without the necessity of getting approvals from regional managers.

Results: A Dangerous Triad

Individuals employed in companies to not begin with committing inconveniences. Usually, considering unconcealed scenarios of fraud and misrepresentation, people begin with minor misdeeds with increase in momentum as time goes. Soon, this stratagem develops and becomes large for workers to regulate (Ennals & Salomon, 2012). The risk factor that employees are subjected to engaging in unethical actions that expose the company to fraud, misrepresentation is enumerated in three scenarios namely, rationalization, opportunity and pressure as shown in figure 2. The three instances are necessary to consider for Trading.com risk assessment.

Figure 2: A Dangerous Triad Pressure

Pressure

The resultant 43 risk score is high due to intense pressure from regional managers posed to consultant to achieve profit strategies and goals. A combination of both intrinsic and extrinsic forces stimulates more pressure to manipulate records of accounting and mismanagement of resources by the staff for personal achievements (Hofmann & Scordis, 2018). Trading.com faces extrinsic pressure due to performance goals set by individual consultants to achieve incentives from managers. The company’s workers have been subjected to intense pressure of meeting organizational goals. However, successful achievement of these goals might lead to getting substantial bonuses and promotions.

Opportunity

Opportunity is another condition that leads to fraud and errors in a company. Although an individual might be subjected to intense pressure to break regulation to attain a certain goal or misappropriation of asset, the action can be undertaken willfully when an opportunity exists. Limiting knowledge sharing among employees might lead to workers trying to access assets or manipulating systems of performance undetected might lead to fraud (Morawski, 2013). Trading.com faces asset risks due to an opportunity given to unsupervised risk-taking team in developing course content.

Rationalization

A company’s staff (both experienced and inexperienced) is exposed to high temptation and pressure of engaging in unethical actions until rationalizations are put in place. Workers usually know the difference between rights and wrong (Valsamakis, Vivian & Du Toit, 2010). Therefore, they will never engage in activities that are against ethical standards set by the society. This pushes consultants to aim at impressing their managers to receive incentives. When employees are caught in unethical and damaging actions, they might have some justification over their actions. These include:

• The act is not intense: workers are likely to give an excuse that many other worker in different organization do the same thing and that their action is never serious to raise alarm.
• The act follows the company’s procedures: employees might reply that the action was committed based on the company’s interest. The justification might develop a sense of manipulating information and performance misinterpretation to bear a significant interest of the company

Conclusion

In conclusion, Trading.com’s risks assessment is strategized on potential failure that can be revealed. The company needs to review fail projects, over-budgeted activities and negative achievement of customer satisfaction. The risk exposure score is high hence calls for intense meeting of the management teams to discuss causal factors of potential risks and mitigating strategies to ensure risks will never be incurred. Regional managers have learned that there are activities that do not relate to their competencies; which resulted to managers being focused to specific managements and controls. According to Liel (2016), managers should act with a sense of an intensive corporate strategy to achieve a competitive advantage. There should be a defined data channel that allows the sharing of information between consultants and senior managers at Trading.com.

References

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