Introduction: Risk Management as One of the Primary Tools for Maintaining Competitive Advantage
The environment of the global economy is not only filled with exciting opportunities but also swarming with a range of risks, from financial to competition-related ones. The identified property of the global market needs to be taken into account by a company operating in the global economy; otherwise, the outcomes may be dire. Therefore, it is essential to design the risk management framework that will help keep track of the factors to which an organisation is exposed in the target area (Gil & Tether 2015).
GlaxoSmithKline is one of the companies that follow the framework for addressing the threat of a financial fraud in its risk management (RM). BP has been following the environmentalism-based strategy as the essential tool in handling the emerging issues. EasyJet, in its turn, has been applying the approach of addressing the human factor to create the RM framework that will help it remain competitive in the global market (Raydugin 2013).
As the experiences of the organisations listed above shows, the lack of an appropriate financial risk management strategy has led to a significant drop in the sustainability levels in each of the companies. As a result, the prerequisites for an overall reduction in the companies’ efficiency were created. Consequently, the current risk appetite of the organisation is comparatively high, which might not meet the capacities of the organisation.
Assessment of Risk: Facing the Threats of the Global Economy Realm
GlaxoSmithKline
According to the official statement issued by the organisation, its RM approach is nearly flawless. However, a recent overview of the dents in the framework adopted by the organisation has revealed that the corporate policy allowed for extensive bribery:
The BBC observed that if these allegations are proven, GSK may have violated both the UK Bribery Act and the US Foreign Corrupt Practices Act, which make it illegal for companies based in either country to bribe government employees abroad. (Supplier and credit risk management 2014, para. 4)
Therefore, the RM framework could not help create the sustainable environment in which the corporate values and the essentials of business ethics could become the foundation for the decision-making process (Supplier and credit risk management 2014). The risk appetite of the company is currently in accord with the capacities of the company.
BP
Having become a notorious example of a poorly thought-out RM strategy, BP also failed to prevent the instance of financial fraud. As a result, the corporation is currently viewed as entirely untrustworthy. Furthermore, the lack of an efficient RM approach seems to have been compelling the essential shareholders to leave. As a result, the company’s profits plummeted shortly after the scandal and have been on a consistent decline since then (Unnisa & Rav 2012).
Similarly to GSK, BP provides a detailed description of its RM framework, which seems quite legitimate at first glance. However, scrutinising the current approach, one will have to admit that it has the same flaws that the previous one incorporated. For instance, the lack of control over the financial transactions within the company does not allow for eliminating the threat.
EasyJet
Considering the risks faced by EasyJet, one should mention that the company has been having issues with the quality of its equipment. The identified phenomenon is quite understandable given the fact that the organisation has been focusing extensively and exceptionally on the management of human-related risks. On the one hand, the prevention of errors caused by the human factor is essential, especially in the area of air transportations. On the other hand, the shift toward the specified area created the premises for overlooking another essential aspect of a company’s operations, which is updating the equipment and maintaining it in good condition. Therefore, it is desirable that the firm should focus on investing in the purchase of new aircraft. Otherwise, the customers’ safety will be jeopardised. In addition, EasyJet should consider introducing a system of inventory management and maintenance. As long as the aircraft used by the organisation are in good shape, a range of risks associated with reimbursing the damage caused to the customers and facing lawsuits will be avoided successfully. In other words, the risk appetite of the company can be deemed as higher than EasyJet can currently afford.
Risk Response: What Tools Can Be Used to Address the Risk Exposure
GlaxoSmithKline
Seeing that the issue of maintaining ethical standards and compelling the staff members to follow them was the primary source of the company’s concern, it was only reasonable to create the program for preventing corruption in the organisation. One might argue, however, that the Anti-Bribery and Corruption (ABAC) Programme designed by the leaders of GSK was far too specific to address a wide range of ethical issues that could be faced in the context of the global economy. Indeed, the program revolved around the issues associated with bribery for the most part, as the name would suggest. Nevertheless, by advocating the anti-bribery principles in the corporate environment, the leaders contributed significantly to shaping the members’ concept of corporate values and ethics. As a result, the prerequisites for altering the staff members’ behaviour were created.
BP
To respond to the risks associated with oil spills and at the same time create premises for the restoration of its reputation in the global market, BP built an international system of intervention equipment aimed at addressing oil spills (BP in America: Our commitment to safety 2016). In other words, the organisation has been striving to not only improve its approach toward managing the upstream processes so that higher safety rates could be facilitated but also promote the concept of environmentalism on the global level by contributing to the development of new and improved tools for increasing the sustainability levels (Taylor, Artman, & Woelfer 2013).
The identified approach can be deemed as rather sensible since it helps address not one but several issues simultaneously. To be more exact, by investing in the development of new and updated equipment for oil spills, BP leaders show quite graphically that the company has been reformed and that they have altered their approach toward the use of resources. Instead of viewing natural resources as the means to an end, the new policy promotes the idea that they must be used with care and caution. In addition, the framework used by the company furthers the concept of environmental safety, not only redesigning the corporate strategy toward waste management but also promoting the idea of ecosystems preservation on a global level. It is evident that BP endeavour at not only reshaping its global image but advancing the process of increasing the global sustainability levels. Therefore, the risk management approach adopted by the organisation can be viewed as reasonable (Marks 2015).
EasyJet
EasyJet views the concept of risk management from the perspective of the human factor. In other words, the leaders of the company are inclined to believe that the stress factors are to be blamed for most of the issues occurring in the course of the company’s operations. When being under the pressure of specific circumstances or shaving personal issues, the personnel is quite prone to making mistakes, which is inadmissible in the context of an airline company.
The reason for EasyJet to put so much emphasis on the human factor as one of the primary risk sources is quite understandable. Given the fact that the company offers air transportation services, it is likely to create the situations in which people’s lives will be in danger (e.g., a plane crash). Therefore, the emphasis on the human factor as one of the primary causes of a risk is understandable. However, apart from addressing the factors that cause fatigue and alertness in pilots, as the company’s RM strategy declares, the organisation should also consider the factors such as the quality of the vehicles.
As a result, at present, the RM approach used by the EasyJet Company is aimed mostly at managing the emerging issues as opposed to creating the environment in which the risk can be minimised. For example, the crucial safety rule that the firm views as the foundation for its RM framework states that “In advance of the recommendation of EASA and the UK CAA EasyJet implemented measures to ensure at least two crew are in the cockpit at all times during a flight” (EasyJet 2016, par. 4). The presence of two people in the cockpit during the flight obviously helps manage a specific problem within a relatively short amount of time, yet it does not imply that the problem will not appear in the first place.
Risk Review: Determining the Efficacy of the Corporate Risk Management
GlaxoSmithKline
Purpose
The current purpose of GSK’s RM approach is quite transparent and easy to define. Striving to avoid the threat of financial fraud in the context of its organisational environment, the company aims at identifying every loophole in its design and manage it accordingly so that the instances of financial misconduct could not be a possibility. Granted that the strategy chosen by the organisation is supposed to detect and prevent a very specific financial crime, i.e., bribery, it, nonetheless, seems to be rather efficient (Vanecek & Kubecova 2015).
Capability
The organisation has a substantial number of resources that it can use to attain its essential goals, including the sustainable management of resources. However, when it comes to the tools that are bound to help GSK improve its operations and develop a sustainable strategy, one should mention an improvement in the communication process.
Commitment
As far as the commitment issue is concerned, the current approach seems to put far too strong an emphasis on the organisational aspects of reinforcing the policy and omitting the necessity to appeal to every single staff member on a personal level. Without making the employees recognise the necessity to follow the anti-bribery policy, the leaders of the organisation are unlikely to succeed in creating a sustainable financial strategy. Granted that the supervision process could be enhanced significantly, the staff members and the managers operating in the company will find loopholes to carry out the illegal financial transactions. Therefore, it is crucial that a change in the corporate values should occur in the environment of the company (Fishcer, Leidel, Riemann, & Alfen 2011).
Monitoring and Learning
Apart from facilitating the environment in which clarity and transparency are a possibility, GSK will also have to execute a constant supervision of the essential processes. The identified measure should not be viewed as the sign of mistrust; instead, it has to be recognised as the necessary measure against possible misunderstandings. Furthermore, the use of supervision as the means of controlling the crucial stages of the services provision will become the foundation for learning essential information retrieved from observations. A detailed analysis of the dilemmas and conflicts that employees have to resolve in the workplace will provide the basis for the further quality improvement (Holzmann & Spiegler 2011).
When assessing the model used by GSK from the perspective of the CoCo framework, one must mention that it partially meets the purpose, which is facilitating a risk-free environment (Missioura 2013). However, there is a lack of commitment among the staff members. As a result, the capabilities of the company will be restricted, and the learning process will be impaired. Therefore, a further redesign of the approach will be required. Similarly, the organisation will have to consider the construction of the monitoring devices that will help maintain control over the essential processes (Smith & Merritt 2012).
BP
Purpose
The current purpose of the framework for RM chosen by BP is twofold. The first and most obvious, the process of dealing with the financial, economic, and social threats of the global market need to be mentioned as the factor shaping the organisation’s RM policy. However, besides the specified objective, BP also strives to improve its current reputation in the target market and regain the trust of its stakeholders. Given the altruistic nature of the program in which BP is currently participating, the purpose of the organisation aligns with the goals that it pursues in the global economy realm. Furthermore, the risk communication process must be reinforced so that the staff members could recognise its significance (Hopkin 2010).
Capability
The capability of the organisation seems rather weak at present because of the efforts and resources that it had to put into the management of the recent issues related to the oil spill and the subsequent accusations. Furthermore, the issues associated with the company’s negligence of the needs of its shareholders needs to be brought up as a possible area of concern. Nevertheless, by reconsidering the approach toward the use of resources, the corporation may be able to regain its leading position in the target market. The purpose of the current RM approach adopted by the organisation concerns not only addressing the essential financial issues but also reinventing the image of the company in the global economy realm, which can be considered a giant step in the right direction. By focusing on long-term goals and grand-scale ideas, BP is likely to build the sustainable strategy for managing resources, including not only the natural ones but also the ones that the organisation has at its disposal to address the internal issues (OECD 2013).
Commitment
The levels of commitment in BP leave much to be desired at present. Even though the company leaders have recognised their mistakes as far as the self-centred approach toward resources management is concerned, the staff still lacks commitment. Therefore, it si strongly suggested that BP should alter its current system of values and focus on the needs of all stakeholders involved, including not only customers but also employees, investors, suppliers, etc.
Monitoring and Learning
The RM framework that BP is promoting in its organisational environment at present can be considered a lacking insight about the means of controlling and monitoring the corporate activities. Although establishing the set of strategies that will ostensibly lead to a better management of waste and the enhancement of the corporate morals is essential, it does not offer the tools for making sure that the crucial principles of environmentalism are followed and that the needs of the key stakeholders are met (Rodak 2013). Therefore, it is highly desirable that the tool such as regular reporting should be used as the basis for monitoring the corporate processes. Furthermore, the opportunities for the staff members to improve their competencies and acquire new ones should be provided (Kahkat, Hieronymi, & Williams 2012). Training courses based on the outcomes of the measurement processes may be used as the mean of acquiring the essential information.
The past failure of BP can be explained by the fact that, with a complete absence of any control over the choices made by the financial executives whatsoever, BP could not possibly handle the risk of being ripped apart by the fraudulent actions of its managers.
The current RM approach adopted by the organisation, when considered from the perspective of the CoCo framework, can be deemed as passable. There is a purpose for the identified framework to exist since it helps promote sustainability. As a result, it encourages the staff to commit to the corporate values. Furthermore, the capability of the company is improved with the adoption of the identified model. The monitoring process, however, could use further elaboration (Wolf & Mejri 2013).
The problems in communication were the cornerstone of the firm’s failure in the past. At present, BP focuses on improving the information management strategy and promoting a consistent conversation between the key stakeholders and the organisation. The monitoring process, though having improved significantly, needs the tools for retrieving feedback on a regular basis. For instance, daily reports could be viewed as the means of monitoring the financial activities (Hardy 2014).
EasyJet
Purpose
The approach adopted at EasyJet raises a few questions as far a sits compliance with the purposes of the company is concerned. On the one hand, the idea of promoting the analysis of the human factor and its further elimination for the framework of the company’s operations is rather sensible for the firm offering air transportation services. On the other hand, the identified approach begs the question whether the corporation is capable of handling other factors that are not caused by people. For instance, the issue of delays caused by poor communication with suppliers, the possible damage of the goods, etc. could be explored in much more detail (Rejda & McNamara 2014).
Capability
The capacities of the company currently allow it to comply with the essential provisions of the ISO standards. Therefore, it would be reasonable to focus on improving the quality standards in the organisation. Improving the capabilities by promoting a consistent acquisition of new skills among the staff members should also be viewed as an opportunity (Gertz, Guldentops, & Strous 2013).
Commitment
At present, the members of the company are quite committed to their job. Because of the emphasis on the human factor, the need to create the appropriate environment of the staff and promote an improvement of their skills is recognised and fulfilled in the company. Thus, the prerequisites for enhancing loyalty rates among the staff members and the further adoption of the CSR principles are created (Wendt 2013).
Monitoring and Learning
Although focusing on the human factor is important, EasyJet should also consider some of the other risks, such as the possibility of the equipment depreciation. Therefore, from the perspective of the CoCo framework, the current approach does not serve the purpose of the company (i.e., promoting quality improvement) well. As a result, making the staff committed to the process is going to be quite complicated. The capability of the organisation, in its turn, is not explored fully. However, the current approach allows for close monitoring (Scolobig et al. 2014).
Findings and Conclusion: Common Patterns in the Choices of Risk Management Frameworks
GSK, BP, and EasyJet used to neglect some of the essential concepts of RM. However, over the past few years, the companies have been facing problems in addressing the financial, economic, and organisational challenges that the lack of concern for the external risks has caused. Consequently, a rapid redesign of the RM frameworks was to be expected. Despite the endeavour at adapting toward the environment of the contemporary global market and promoting the concept of sustainability in their RM strategies, the companies could use the approach that would help them take the needs of all stakeholders into account, at the same time promoting a more responsible attitude among the staff members and managers. As long as the companies in question are faithful to their ethic and values, aware of the needs of the stakeholders, are capable of allocating the corporate resources adequately, a rapid improvement in their performance can be expected.
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