Executive Summary
ERM emerges as an essential method for detecting and systematically assessing prospective events that represent threats to accomplishing specified objectives or provide chances to outperform rivals. This report is written from the perspective of a newly-hired safety professional at Abbott Laboratories. The company is currently experiencing countrywide condemnation in the United States for failing to protect its customers. The management acknowledges the failure of the compliance-based risk management technique and is now seeking new risk management strategies for the company’s future. This report recommends risk-based safety programs that provide the realization of comprehensive risk review by the company’s safety personnel. Based on the current information on Abbott’s failures, this report identifies the nature of the hazards that led to the public outcry and subsequent ‘Fly Formula’ mission by the United States military. This report proposes different methods to control that are suggested as recommendations highlighting some of the ideas for implementing the controls. The methodologies that can be used to monitor the results are proposed, primarily focusing on the food and healthcare sectors. The risk management plan and the recommendation sections highlight the overall stages of the EMP process relevant to Abbott Laboratories. Abbott’s management should consider applying the recommendations to restore the image and secure a competitive advantage in the dynamic global economy.
Introduction
Enterprise risk management (ERM) is the process of identifying and systematically recognizing potential developments that pose risks to achieving specific goals or opportunities to outperform competitors. In this report, risk management is recognized as an essential component of any organization’s strategic management and should be integrated into the business’s ongoing operations. This report intends to understand and analyze the issues involved in risk management, critically evaluate organizational imperatives for the risk management process, and examine the relationship between corporate governance, internal control, and risk management. Risk management is an important activity in most companies as it equips them with the resources required to detect and address possible hazards. Once a risk has been recognized, its mitigation is straightforward. Moreover, risk management provides a corporation with a solid foundation for making informed decisions, particularly in cases like Abbott that captured national attention.
Case Study
This report picks Abbott Laboratories as the case study considering the company’s current predicaments. Today, the company is under widespread criticism in the United States for failing to secure its clients with a stable supply of the much-needed baby formula triggering a national emergency (Khanna et al., 2022). According to the company portfolio, Abbott Laboratories is a global American medical equipment, supplies, and health care corporation headquartered in Abbott Park, Illinois, United States (Unger, 2020). The company was started by Chicago physician Wallace Calvin Abbott who created the corporation to develop well-known pharmaceuticals. Today, the company distributes medical equipment, diagnostic tools, licensed generic medicines, and nutritional supplements. Abbott is the leading maker of baby formula in the United States (Baker et al., 2021). The company has a robust international reach with its subsidiary Abbott India Limited. Abbott Laboratories products have been present in India for almost a century, and it is presently India’s leading healthcare goods manufacturer.
Despite the competitive status of the company, neglect of sanitary standards lead to contaminated foods. As a result of the recalls, empty shelves at several U.S. retailers made it difficult for families to get baby formula. Trends show that more than forty percent of infant formula was out of inventory for the week ending May 8 (Stevens et al., 2022). The supply deficit was partly caused by the shutdown of Abbott Nutrition’s production plant in Michigan, which occurred after two babies who received the formula from the company had bacterial illnesses and died. In a lawsuit filed on behalf of the FDA, the Justice Department stated that items produced at Abbott’s Sturgis plant were contaminated due to unsanitary circumstances (Khanna et al., 2022). Such a mistake could be traced to a failure in the security department that failed to protect against the contaminations in the production system.
Literature Review
In ERM, safety personnel are supposed to mitigate operational, strategic, and reputational risks by conducting thorough surveys of the company’s security systems. Similarly, the safety teams must analyze trends in the industry that are likely to adversely impact the company’s value (Aprilia et al., 2022). In properly implementing risk management processes and strategies, risk and safety managers need to collaborate to identify and control risk exposures. The managers must be well versed with the current trends in the ERM sector in their specific industries.
The Current Issues in Risk Management
In this report, Abbott Laboratories’ baby formula product is in the baby food industry, which is heavily regulated in the United States. The United States classifies foods for babies and children the same as those for adults, except for baby formulae, subject to specific criteria (Gundersen and Ziliak, 2018). Several federal entities are responsible for regulating food security in the United States, including the U.S. Food and Drug Administration (FDA) and the U.S. Department of Agriculture (USDA) (Parrott, 2018). The Environmental Protection Agency (EPA) and the Centers for Disease Control and Prevention (CDC) have considerable additional control powers (Woolhandler et al., 2021). One of the essential responsibilities of the safety personnel in the company is to ensure compliance with the relevant regulations.
Risk Management Processes and Strategies
If the correct risk management process and strategies had been implemented, the Abbott Laboratories baby formula contamination incident would have been addressed. The procedures involve identifying the risk, analyzing the risk, evaluating the risk, treating the risk, and finally monitoring and reviewing the risk. In the Abbott Laboratories case, such a vigorous process would have revealed the need for a proper supply of employee Personnel Protective Equipment (PPEs). The FDA report showed that an employee or some employees may have transferred contaminants, including deadly cronobacter, to the production site (Abrams & Duggan, 2022). Records revealed Abbott found cronobacter in a final batch of formulas that workers who handled a contaminated area before changing gloves might have been infected. There are several cases of neglect from the safety departments as crucial members of the ERM.
Importance Of Enterprise Risk Management
ERM presents a plan-based technical process in business intending to identify, assess, and prepare for all possible unexpected adverse events. As in Abbott’s case, ERM is crucial since unexpected challenges may significantly affect the financial health and image of the company (Bakos and Dumitrașcu, 2021). The technique for mitigating these risks varies based on the organization’s structure and requirements. However, total mitigation of any risks is impossible considering the dynamic incentives to risk-taking that may lead to an overloaded workforce vulnerable to fatigue.
The Traditional Barriers to Risk-Based Safety Programs
In most cases, businesses tend to fail to satisfy regulatory standards due to neglect that could be associated with complexity in managing big enterprises. Common traditional barriers to risk-based safety programs include communication, poor prioritization, poor analytics, and improper supervision (Du et al., 2020). Abbott Laboratories, for instance, operates an international business that makes it vulnerable to neglect issues such as gloves as a PPE for hygiene. As in the case study, every business pursues a predetermined strategic objective and encounters both dangers and rewards. However, the company’s growth may weaken the safety oversight causing loopholes that can be catastrophic to the profitability and image of a company.
In such a setting, the ERM teams are tasked with providing the necessary guidance to the management for sustainable growth for the company. The safety professionals must acknowledge that to thrive and maintain relevance in an increasingly volatile, disrupted economy, the business must take measured risks (Stevens & Bamber, 2007). Similarly, to acquire a competitive edge, an organization must leave its comfort zone and venture into calculated risks (Hanggraeni et al., 2019). However, the growth must be accompanied by more vigorous risk management support from safety personnel. Proper communication is, therefore, necessary for timely intervention.
Miscommunication in Companies
However, in most companies, miscommunication has been highlighted as an obstacle to Risk-Based Safety Programs, limiting timely preemptive action. One of the obstacles is the commonly adopted organizational structures that safety teams should report to the personnel department while Risk Management report to the department of finance. These reporting connections promote the development of Risk Management and Safety divisions with little communication and cooperation. In addition, conventional definitions and views of the duties of each field might act as obstacles.
Poor Prioritization
Poor prioritization of financial resource allocation limits the chances of safe operations within the company. A company culture that prioritizes commercial objectives above significant hazards is a formidable obstacle for risk management techniques (Ogutu et al., 2018). When the board underestimates the likelihood or size of risk occurrences, the ERM program is left with inadequate or improperly allocated resources. In a functioning system, key risks must be prioritized appropriately, or else the ERM program will be neglected, and the organization will be oblivious to its threats.
Insufficient Instruction and Supervision
Poor prioritization of resource allocation can lead to insufficient inspection and supervision, leading to mistakes. Proper supervision offers guidance for planning, assisting, and correcting inappropriate conduct (Yang et al., 2018). Training and supervision are also actions related to risk management and mitigation. Training assists in avoiding mistakes, while monitoring encourages performance and ensures the proper completion of tasks (Young, 2013). These interventions are expensive, necessitating more significant resource allocation. In the current economic reality, funding for training and middle management is sometimes cut for the company’s survival.
Use of Inappropriate Risk Metrics
Several risk metrics may fail to simulate the real-world case, leading to misguided ERM intervention. For instance, Value at Risk (VaR) is a standard risk indicator. Still, it can only tell us the company’s expected maximum loss at a particular degree of confidence (Živkov et al., 2021). In some settings, the daily VaR is not an accurate indicator of portfolio risk. More research needs to be done to ascertain the most effective analytics techniques that would better equip the ERMs.
Application of Theory
For Abbott Laboratories, several risk-based safety programs would address customer concerns and ensure the effective re-opening of the nutrition production plant in Michigan. The incentive to change mainly addresses the current crisis that the United States is facing with shortages in baby food. According to reports, children in Tennessee, Georgia, Wisconsin, and other states have been hospitalized due to the formula crisis (Gribble et al., 2022). Some of the items impacted by the scarcity include hypoallergenic infant formulae developed for youngsters with milk allergies and other digestive issues. Equally, the company must redeem its image as the leading supplier of quality baby foods. Such steps require applying the strategies in risk-based safety programs.
By definition, a risk-based approach investigates the potential risks of a workplace and aims to mitigate them via business policy and employees. One technique for influencing employee behavior would be to educate staff on current safety precautions and assess their understanding. There is an apparent need for employing more technical support from ergonomists.
Need for Ergonomist
Ergonomists can help the company make the necessary decisions on resource allocation, prioritizing personnel safety and training. In Abbott lab’s case, when personnel have to cope with malfunctioning equipment or systems, they squander time attempting to correct problems, resulting in lost corporate time and money. The safety teams should push for investing in facility modifications, create an ergonomic workplace, and teach staff how to safely execute their duties to set the setting for maximum production. Effective ERM would contribute to happy employees with credible corporate relations creating a safe, healthy, and stress-free workplace in such a case. Studies reveal that workers’ safety at work is a big issue (Živkov et al., 2021). When workers feel comfortable at work, they are more likely to desire to continue working for the firm, minimizing employee turnover and reducing the chances of mistakes.
The Incentive to Save Money
Fewer injuries and pollution in systems lead to fewer expenses. Happy workers contribute to less attrition and training expenditures. Fewer incidences lead to a decreased possibility of litigation, fines, or penalties from labor boards. The expenses of completing a risk assessment and investing in modifications to the workplace are small compared to the costs of not doing this. The excellent grade on earnings and dependability would build a favorable image for the firm. Avoiding unfavorable publicity is beneficial for the public image, but it also provides an opportunity for the firm. When organizations are perceived as devoted to safety, businesses and consumers will want to be connected with the brand.
RMA’s Enterprise Risk Management Framework
As such, Abbott labs has to consider instituting functional ERM programs, particularly Risk Management Assessment (RMA), that would suit the company’s current status. In ERM, RMA is a comprehensive risk management program that discovers, analyzes, and reports the material risk exposures of a business (Regmi et al., 2022). The steps consist of gaining familiarity with the company, assessing the risk management procedures, identifying and analyzing exposures, monitoring the results and providing assistance, and finally, monitoring the outcomes and providing support.
Getting to know the organization includes gathering as much information as possible to understand the company, establishing goals, and reviewing a schedule for the RMA’s completion. This report adopts Abbott Laboratories as a company that needs professional support in ERM. The company is mainly in the healthcare industry, but some of its products, including the baby food formula, are in the baby food industry. Examining risk management approaches necessitates a thorough examination of the current insurance coverage, the losses sustained, and the organization’s Total Cost of Risk (TCR) (Regmi et al., 2022). The analysis of the company’s records should reveal the existing risk management best practices.
Corporate Governance
Such sensitive steps in risk assessment and evaluation need a robust corporate governance approach to support aggressive RMA. Corporate governance defines the relationship between many actors, including shareholders and business management, to influence the success of an organization (Zaman et al., 2022). Corporate governance is concerned with developing effective methods for making strategic choices that are most beneficial to the company. It confers absolute power and accountability on the Board of Directors. In today’s market-driven economy, corporate governance is essential.
In Abbotts laboratories’ case, effective corporate governance should guarantee openness, promoting robust and balanced economic growth. Proper administration and the board levels would assure that the interests of all shareholders are protected. Functional corporate governance would equally ensure that all shareholders can fully stand up for their rights and that the corporation acknowledges their dues in full. In most settings, corporate governance encompasses social and institutional considerations that promote a dependable, moral, and ethical atmosphere.
Internal Control and Collaborative Skills
Beyond corporate governance, Internal Control and other various ERM competencies such as collaborative skills are necessary for successfully implementing the RMA. RMA requires identifying and analyzing risks and ranking them based on their severity and urgency. For Abbott Laboratories, the company’s internal controls must involve procedures designed to mitigate risk and prevent corruption (Shawver and Shawver, 2020). Good internal controls are necessary to guarantee the achievement of goals and objectives. Successful internal control gives management solid financial reporting and prevents the potential of public scandals while maintaining compliance with existing rules and regulations.
The last phase of the cycle consists primarily of monitoring the outcomes and providing assistance to the remainder of the organization. Such intervention requires team collaboration across the departments. The skills include speaking effectively, actively listening to others, accepting responsibility for errors, and valuing the variety of coworkers ++. The safety teams must give recommendations on risk-related matters and suggest measures that assist ongoing TCoR enhancement.
Developing Risk Management
Risk Management Plan
The risk management plan recommendation sections highlight the overall stages of the EMP process. Abbott Laboratories should consider applying the recommendations in the table to restore the image and secure a competitive advantage in the dynamic global economy.
Key Changes
For Abbott Laboratories, some of the fundamental changes would include better production unit surveillance, improved flow of information, improved risk management culture, and optimized employee safety. These modifications would address the company’s hazard, operational, and strategic concerns. To mitigate reputational risk, the organization must comply with a prescribed set of standards. Reputational risk encompasses hazards associated with the business’s credibility. Reputational harm may result in revenue loss or destruction of shareholder value. Equally, compliance with the regulations would guarantee that the compliance risk is addressed. Compliance risk encompasses hazards associated with infractions or nonconformance with laws, rules, regulations, prescribed practices, internal policies, procedures, or ethical standards.
Conclusion and Recommendations
ERM develops as a crucial mechanism for discovering and systematically assessing prospective events that represent threats to accomplishing specified objectives or provide chances to outperform rivals. The risk management plan recommendation sections highlight the overall stages of the EMP process. Abbott can consider applying the recommendations to restore the image and secure a competitive advantage in the dynamic global economy. One of the recommendations is to adopt risk-based safety programs. In this context, a risk-based approach would investigate the potential risks of a workplace and aims to mitigate them via business policy and employee behavior modification. One technique for influencing employee behavior would be to educate staff on current safety precautions and assess their understanding.
Abbott should redouble its efforts on risk-based models in place of Compliance-Based models. The organization requires an ergonomist who studies, creates, and assesses human labor systems intending to maximize the performance and safety of such techniques for an effective RMA. In a risk-based paradigm, compliance tasks are not neglected; instead, they are acknowledged as components of a larger purpose to address the organization’s risks. As established, the risk-based paradigm often demands an organization to concentrate on worker safety and the company’s reputation, above and above what is required by law.
This endeavor will result in the redefining of the safety professional’s position and the firm’s recovery from the losses. The safety professionals should have the knowledge and skills essential for managing, incorporating, and implementing safety programs at all organizational levels. The professionals should develop ERM strategies in conjunction with the risk managers to decrease hazard, operational, strategic, reputational, and compliance risks and support the company’s key goals and purpose.
Abbott Laboratories will have a greater chance of thriving in the contemporary corporate environment if it pursues shared risk assessment goals and overcomes obstacles. Regarding the organizational risk culture, the firm should build a comprehensive risk culture that begins with the board of directors and top executives and permeates all workforce levels. Vigilance should be increased by the thorough completion of prescribed daily tasks. These techniques facilitate the implementation of risk management by allowing trained personnel to inform the organization of any immediate hazard.
Abbott Laboratories should prioritize acquiring competitively advantageous technology, especially dependable risk assessment tools. Appropriate technology would provide crucial data for improved decision-making. In addition, technical assistance from a technology vendor ensures that the solution is cost-effective and straightforward to install, enabling companies to concentrate on expansion and regulatory compliance.
Abbott Laboratories should attain regulatory compliance at last. To overcome the typical impediments to successful risk management, the management must recognize that. Regulatory obligations must be seen as practices that contribute to overall company goals. Businesses may avoid financial fines, reputational damage, and closure by adhering to regulatory compliance in today’s dangerous environment. Successful businesses include regulatory compliance into their ERM program to reap the advantages of risk assessments and compliance requirements for risk avoidance and mitigation.
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