Connection of Risk and Reputation in a Global Environment in Retailco - Research Paper Example

Section A – Risk and reputation in a global environment Introduction Risk encompasses the possibility of loss and the hope of gain although managers are more concerned about the loss rather than the gain (Khan & Burnes, 2007). Risk has been defined as the potential for unwanted negative consequences that may arise from an event or an activity. Reputation has been defined as how an organization is perceived by a variety of people (Honey, 2009 p1). If reputation has value, then anything that reduces this value represents risk (Honey, 2009 p13). This implies that the managers’ concern about the loss rather than gain, as stated by Khan and Burnes, is justified. Risk to reputation is also mostly associated with a ‘tarnished’ image but reverse risk may occur when the reputation is improved. This then suggests that risk can be an opportunity as well. Efficient management entails aligning values to reduce risk because risk to reputation occurs when there is a misalignment of values (p15). At Retailco their organizational values were to deliver leading edge service and value to their customers but their practices and strategies were not aligned towards achieving these values, leading to loss of reputation. Situation analysis at Retailco Retailco has been suffering reputational damage because of the confectionery contamination. Leading international markets requires effective leadership. The organization was also not thorough in its quality control and management of suppliers in the Asia market. The executive board is based in the UK and has little knowledge of the China business environment and the market. This indicates cultural barrier within the organization. They are trying to impose the UK system of functioning in China which is not acceptable to the staff in China, leading to conflicts and loss of reputation. Their strategy for recruitment has resulted in low sales and unsuccessful product launches. This is because they are not focusing regionally to attract talent. They are unable to protect their reputation. Their organizational values includes Global Connectivity but they are unable to deliver local service because if their ineffective recruitment strategy. They claim to innovate and invest in their staff as partners but their strategy and the outcome does not reflect their values. Managing Reputation Reputation protection must become a part of the culture of the organization practised by all employees. All the employees have to be made conscious of their responsibility in protecting the reputation risk and the onus should not solely rest with the board members. However, managers get too focused on some particular event and in the process fail to recognize the bigger picture. At Retailco, the responsibility was entrusted with the board which resulted in cultural barrier. The board members based in the UK were unable to see the bigger picture in China. It should be a holistic approach where the culture to protect the reputation of the organization should be the responsibility of all the stakeholders, including the suppliers, the customers and the employees. Besides, the cultural barriers do not permit the executive board to develop the China strategy effectively and its impact is felt on the share price and the inability to raise funds from investors. A multi-stake holder measurement approach is necessary to manage corporate reputation. This reputation stakeholder matrix in the figure below displays the primary stakeholder groups (Resnick, 2004). Risks to reputation have to be managed in the same manner as they manage potential risks in the manufacturing or the financial arena. Regular monitoring of reputation is required at the forefront of this discipline. Areas of reputational risk have to be identified through internal management discussions and media analyses but the executive board at Retailco is unable to develop a sustainability strategy and understand what is required to rebuild the organization. Source: Resnick (2004). Role of NEDs in managing reputation The Higgs review of corporate governance suggested a more independent and active role for the non-executive directors (NED) who should be appointed as guardians for the corporation (Murray, 2004). Retailco has been handling the issue of reputation within the boardroom without involving any of the stakeholders. Reputational risk is the single greatest threat to businesses, and when it is not being effectively managed, it becomes a weakness. While they do have several NEDs, only the executive board members appear to be responsible for managing corporate affairs. This strategy has proved to be detrimental to growth and development. Cultural change is necessary to ensure continued growth. Leadership and organizational culture Introduction Leadership and culture are interlinked especially in the process of change because only through leadership is it possible to develop and nurture a culture that is adaptive to change. Transformational leadership is associated with organizational culture particularly through the process of articulating a vision (Sarros, Cooper & Santora, 2008). Cultures are deep-seated and they pertain to the actions, procedures and protocols of organizational commerce and discourse. Organizational culture is the source of competitive advantage for businesses. Culture change needs enormous energy and commitment and this can only come through transformational leadership. The top management must articulate the changes because their behaviors become the symbols for the organization’s new culture. Organizational structure at Retailco The organizational structure at Retailco comprises of a country head for each business segment, which is usually trained and sent by the headquarters. However, such senior executives are unable to cope with cultural differences as all other staff is recruited regionally. Retailco is trying to impose the UK culture in its China operations but this strategy has proved to be unsuccessful. They are unable to retain middle managers and find it difficult to recruit senior managers. China is a high-power distance society as per Hofstede’s dimensions of culture. In such cultures, the top management behavior becomes the symbols for the organization’s new culture as a result of which they find it difficult to retain middle managers. Their organizational values also include commitment towards employees but they have been criticized for the local pay and conditions of service in the UK. Consumer confidence has also dented across UK and Europe which also demonstrates their commitment towards their vision “customer first”. The new CEO could not effectively manage the damage to the reputation and this inefficiency is what trickles down to the other members of the organization. All organizations contain all three cultural facets – bureaucratic, innovative and supportive cultures. Transactional leaders are task-oriented while transformational leaders are relationship-oriented. Taormina (2008) found that leader behaviors are more controlled-oriented in bureaucratic cultures while they are flexible-oriented in innovative cultures. In supportive cultures also they tend to be controlled-oriented. Retailco demonstrates a bureaucratic culture as they try to impose from their headquarters. The UK based board imposes policies which the senior managers in China find unacceptable. Worker representatives are taken onto senior teams but the elected staff representatives are reluctant to nominate. Even if they do, they are reluctant to contribute to strategic planning meetings. Information flow is poor and the local managers are not consulted for policy decisions. Leadership and organizational culture at Retailco The UK based board obviously lacks the understanding of the local culture. This is also the reason for high staff turnover as UK cultural dominance has been cited as one of the reasons during exit interviews. Merely offering high remuneration packages is not sufficient; they need to focus on a regionally focused talent management strategy. The CEOs at Retailco are unable to promote market culture where market culture is defined as how the culture of the business focuses on markets (Brown, Gallgher & Brown, 2008). It also pertains to the skills that the business uses to create value for its customers. It is also based on the belief that the ultimate purpose of the business is to create superior customer value. Retailco had this vision but deviated from their stand as they did not practice market culture. The 6Cs market culture model where the role of the CEO is important has been shown in the figure below. An organization must be able to achieve high ratings on six dimensions of corporate beliefs and behaviors including customer insight, competitor awareness, collaborative approach, criteria for decisions, CEO leadership, and a deep organizational commitment and contributions of all functions aimed at creating superior customer value. At Retailco deep organizational commitment is lacking as they tend to impose the UK culture in all their functions and operations. Retailco could not develop the market culture primarily because the new CEO is not fully conversant with leading international markets. They also appear to lack a collaborative approach as they try to impose decisions and strategy from the UK. Thus, leadership shapes the organizational culture and for strategies to be successful transformational leadership is essential. Bureaucratic leadership cannot work specially when functioning across different markets and people from different cultures. Apart from professional efficiency, leadership requires the ability to foresee situations and take suitable actions. Alignment of the corporate culture with the external environment is also essential by the CEO at which Retailco has failed, as they tried to impose the UK in international operations. To lead change vision and strategy have to be effectively communicated which would help secure trust and commitment of all stakeholders. Part B Leadership, Management and Performance Difference between leadership and management Management includes four different functions such as planning, staffing, organizing and controlling and has been defined as the “mental and physical effort to coordinate diverse activities to achieve desired results” (PEC, 2004). Leadership has been defined as the “natural and learned ability, skill and personal characteristics to conduct interpersonal relations, which influence people to take desired actions”. Thus leadership involves direction, alignment, inspiring and change. Leadership theories Trait theory There are several leadership theories each having its own strengths and limitations. According to the Trait Theory a leader must possess some definite traits such as emotional stability, intelligence, common sense, dominance and extroversion, among others. However, these are more applicable to a manager because leadership requires dynamism. Behavioral Theory Of the Behavioral Theory which comprise of McGregor’s Theory X and Theory Y, Theory X pertains to management traits whereas Theory Y encompasses leadership qualities such as being able to encourage people to be creative. A manager would use punishments and threats to control behavior which falls under Theory X. According to Blake and Mouton - Managerial Grid, leader’s behavior is influenced by two variables – concern for production and concern for people. Concern for people denotes leadership while concern for processes is a management trait. As Pejza states, you lead people (focuses on people) and you manage things (focus on processes). Both these behavioral theories focus on performance management but there prevails potential for inequality. Situational Theory The Tells and Sells style in the Tannenbaum and Schmidt continuum pertain to managerial qualities because the leader merely passes on solutions and instructions to the subordinates. In the consults and joins styles the leader actually works in cohesion with the subordinates, encourages active participation and involvement. In the situational leadership model of Hersey and Blanchard, all the four leadership styles pertain to a manager because there is little active participation. Again, it is more of task-oriented relationship. Transformational leadership Transformational leadership is the most appropriate from of leadership that actually can bring about transformation in individuals as well as organizational performance. Such leaders create visions, take risks and are innovative. They are confident and inspire through emotional appeals. Management entails following instructions and controlling behavior while leadership helps the individual to develop integrity and commitment. Leaders are innovators while managers are administrators; leaders develop, managers maintain. Leaders have long-term strategies and vision while the managers reach for short-term benefits. Leaders challenged the status quo and hence they are called innovators but managers replicate what has been done and do not have the skills to accept challenges. Leadership and management practices are all aimed at maximizing performance but the above discussions demonstrate that leadership alone can lead to enhanced performance because it is concerned with people. Performance management is a process which contributes to the effective management of individuals and teams in order to achieve high levels of organisational performance. Key elements of performance management Aims of performance management Performance management is aimed at motivating superior performance and motivation can be achieved through translating the organizational goals to individual goals (Kelland, n.d,). Therefore it requires an understanding of the organizational goals. The manager must have shared expectations of how employee can contribute. Employees must possess the skills and ability to meet expectations. Individuals must be fully committed to the aims of the organization. Performance cycle According to CIPD 2011, performance management includes performance improvement, development, and managing behavior. The performance cycle comprises of setting of goals, accountability duties and responsibilities jointly by the manager and the employee. Once these are set, both parties must agree on the measures. Managers are responsible for conducting annual appraisals but also ensuring that ongoing training is provided and a proper feedback system is in place. Importance of performance standards Performance standards need to be set so that employees are motivated to achieve superior performance. Standards encourage employees to adapt behavior to achieve goals. Alignment of organizational goals with individual goals serves as great motivators. The performance management roles are usually conducted by the line managers or leaders. Performance management benefits the leaders, the employees as well as the organization. It enables the organization to plan the HR needs and standardize information about all the employees. The leaders gain as they develop better understanding of the employees and it helps them develop transparent relationship with the employees. The employees learn to prioritize and receive an opportunity to discuss issues objectively. Performance appraisal Performance appraisal is a tool to manage performance and is normally conducted yearly by the line manager. It is a platform to exchange views, review past performance against the set goals and plan for the future. Its objective is to monitor individual performance, assess training needs, encourage two-way communication among other benefits. It forms the basis for pay increases and helps in succession planning. The key elements of performance appraisal are measurement, feedback, and most importantly it provides a positive reinforcement. Destructive leadership Destructive leadership behavior has been defined as the systematic and repeated behavior by a leader, supervisor or a manager that violates the interests of the organization’s goals, tasks, resources and effectiveness, which affects the motivation and the well-being or job satisfaction of the subordinates (Einarsen, Aasland & Skogstad, 2007). Categories of destructive leadership Einarsen et al identify three categories of destructive leadership in the proposed model - tyrannical, derailed, and supportive–disloyal leadership behavior. Destructive leaders can be abusive, counterproductive, deviant, and even resort to corruption and theft. However, the same leaders may display destructive as well as constructive behaviors simultaneously. Behaviors such as tyranny can undermine motivation without actually affecting the organizational goals. A destructive leader can be manipulative and humiliating as well. Leaders become derailed when they engage in harassment and bullying the subordinates while also trying to conduct fraud and theft within the organization. When they are supportive-disloyal, they demonstrate their support for the subordinates but work against the organization. Such leaders are also destructive because it adversely impacts the organization. Thus, destructive leadership can either be pre- or anti-subordinate or it can be pro- or anti-organization. Even good and fairly good leaders can play destructive behaviors. As leadership and emotions are interlocked, a leader can be good and bad simultaneously. The negative consequences result from the confluence of destructive leaders, susceptible followers and conducive environments, known as the toxic triangle (Padilla, Hogan & Kaiser, 2007). The leader subordinate relationship involves four key emotions – recognition, frustration, violence and uncertainty. While recognition is pro-subordinate motion, the other three are anti-subordinate but may not necessarily be pro-organization. If leadership is a positive force, then Adolf Hitler was not a leader because he failed to create lasting opportunities for the pursuit of happiness. Destructive leaders do manage to have followers simply because these followers crave for security, group membership, security and predictability in an uncertain world. These followers are conformers while the colluders use the destructive leaders as ladders to rise up in their mission. Conducive environments also promote destructive leaders. For instance, instability, perceived threats, cultural values and absence of checks and balances promote destructive behavior. Once an individual achieves the power of being a leader, the balance between organizational good and personal interests become blurred. They are unable to resist the temptation or the “seductive feeling” to do something that one knows is best to avoid (Kakabadse, Kakabadse & Lee-Davies, 2007). Desires within leaders lead to temptations to act against the will, thereby causing leaders to become destructive leaders. Thus destructive leaders become so because of their own free will, when they are unable to resist the temptation for wrongful acts. They receive further support from conformers and colluders who pursue the path of corruption and deceit for their vested interests. Ethics & leadership Ethics is a part of the culture of the individual business that sets norms of behavior by which people in the business will abide because they have some moral authority as well as it is convenient (Torrington et al, 2005:719). Theoretical perspectives of ethical leadership Several theoretical perspectives on ethics are available of which deontology and utilitarianism are the two most applicable in organizations. Deontology emphasizes that people should be treated with respect not just as a means to an end. It also clarifies that self-interest actions are immoral and moral rules should be universally applied. Utilitarianism judges an action by its consequence and is based on the Greatest Happiness principle. The action should bring happiness to the greatest number of people and such an action is ethical. Corporate leadership at companies such as Worldcom and Enron has made the societies worse off by their unscrupulous practices. This is because leadership does not always result in positive outcomes (Reed, 2012). This was based on self-interest and failed to bring greatest happiness to the greatest number of people. Close and distant position Ethical stand taken by the leader can be close or distant depending upon the relations to actions. When actions taken are directly in control of the leader, it is known as ‘close’ position where as when the ethical responsibility extends beyond direct relationships to include global, social and environmental responsibilities, it is said to be distant ethical position (Western, 2008). Leaders in the socio-political arena Leaders are now required to become responsible and active actors in the socio-political arena. The ethical leaders are expected to work towards environmental protection. Corporate social responsibility and ethics are intertwined and leaders need to be concerned about climate change, management of waste and procurement of sustainable raw materials. However, very often, despite leaders have close proximity and in a position to take direct action, they tend to ignore ethical concerns under the pretense of focusing on organizational goals. At the same time, they feel that issues such as child slavery and environmental control are not in proximity and hence they are unable to take suitable action. The leaders must maintain transparency at all levels and have a long-term approach. The ethical and sustainable leaders must be proactive, passionate, authentic, inspirational and innovative (Ashby, 2012). References Ashby, A. (2012). Leadership and Sustainability. Brown, L., Gallgher, S.M., & Brown, C. (2008). How CEOs can promote a strong market culture. 36 (5), 28-33 Einarsen, S., Aasland, M.S., & Skogstad, A. (2007). Destructive leadership behaviour: A definition and conceptual model. The Leadership Quarterly, 18, 207–216 Honey, G. (2009). A Short Guide to Reputation Risk. http://books.google.co.in/books/about/A_Short_Guide_to_Reputation_Risk.html?id=rjuBTqZPS_EC&redir_esc=y Kakabadse, A.P., Kakabadse, N.K., & Lee-Davies, L. (2007). Three temptations of leaders. Leadership & Organization Development Journal, 28 (3), 196 - 208 Khan, O., & Burnes. (2007). Risk and supply chain management: creating a research agenda. The International Journal of Logistics Management, 18 (2), 197 - 216 Kelland, J. (n.d.). Performance Management. Murray, K. (2004). Reputation - Managing the single greatest risk facing business today. Journal of Communication Management, 8 (2), 142 - 149 Padilla, A., Hogan, R., & Kaiser, R.B. (2007). The toxic triangle: Destructive leaders, susceptible followers, and conducive environments. The Leadership Quarterly, 18 176–194 PEC. (2004). School Leadership. Handbook For Excellence. Introduction: Leadership for Excellence. http://www.pa.ash.org.au/pecnsw/Leader_Excel.html Reed, G.E. (2012). Leading questions: Leadership, ethics, and administrative evil. Leadership, 8, 187 Resnick, J.T. (2004). Corporate reputation: Managing corporate reputation - applying rigorous measures to a key asset. Journal of Business Strategy, 25 (6), 30-38 Sarros, J.C., Cooper, B.K., & Santora, J. C. (2008). Building a Climate for Innovation Through Transformational Leadership and Organizational Culture. Journal of Leadership & Organizational Studies, 15, 145 Svensson, G., & Wood, G. (2007). Sustainable leadership ethics: a continuous and iterative process. Leadership & Organization Development Journal, 28 (3), 251 - 268 Taormina, R.J. (2008). Interrelating leadership behaviors, organizational socialization, and organizational culture. Leadership & Organization Development Journal, 29 (1), 85-102 Torrington, D., Hall, L., & Taylor, S. (2005). Sixth Edition. Human Resource Management. Prentice hall: Harrow. Western, S. (2008). Leadership a critical Text, Sage: London Table of Contents Section A Risk and reputation in a global environment Introduction 1 Situation analysis at Retailco 2 Managing Reputation 2 Role of NEDs in managing reputation 3 Leadership and organizational culture Introduction 3 Organizational structure at Retailco 4 Leadership and organizational culture at Retailco 5 Section B Leadership, Management and Performance Difference between leadership and management 6 Leadership theories Trait theory 7 Behavioral Theory 7 Situational Theory 7 Transformational leadership 8 Key elements of performance management Aims of performance management 8 Performance cycle 9 Importance of performance standards 9 Performance appraisal 9 Destructive leadership 10 Categories of destructive leadership 10 Ethics & leadership 12 Theoretical perspectives of ethical leadership 12 Close and distant position 12 Leaders in the socio-political arena 13 Summary Section A Risk to reputation is also mostly associated with a ‘tarnished’ image and Retailco suffered from a tarnished image because of misalignment of organizational values. The organization could not consider the cultural barrier as they imposed instructions and policies from the UK. The UK executives were unaware of the ground realities in China which also affected their recruitment strategy, their financial performance and new product launches. They claim to innovate and invest in their staff as partners but their strategy and the outcome does not reflect their values. Risks to reputation have to be managed in the same manner as they manage potential risks in the manufacturing or the financial arena. Reputational risk is the single greatest threat to businesses, and when it is not being effectively managed, it becomes a weakness. To manage risks requires effective leadership which again is influenced by the organizational structure. Leadership and culture are interlinked especially in the process of change. Retailco is trying to impose the UK culture in its China operations but this strategy has proved to be unsuccessful. The leadership at Retailco is more control-oriented and they are unable to practice market culture. Deep organizational commitment is lacking as they tend to impose the UK culture in all their functions and operations. Summary Section B Management and Leadership differ as management focuses on managing processes while leadership focuses on managing people. There are several leadership theories each having its own strengths and limitations. The Trait theory, the Theory X of McGregor and Tells and Sells style in the Tannenbaum and Schmidt continuum pertain to managerial qualities. These do not encompass the qualities essential to be a leader. In the consults and joins styles the leader actually works in cohesion with the subordinates, encourages active participation and involvement. Transformational leadership is the most appropriate from of leadership that actually can bring about transformation in individuals as well as organizational performance. Performance management is aimed at motivating superior performance. Performance management includes performance improvement, development, and managing behavior. Ongoing training and annual appraisals are essential to sustain the standards. Performance management benefits the leaders, the employees as well as the organization. Destructive leadership behavior violates the interest of the organization and affects the motivation and the well-being or job satisfaction of the subordinates. Destructive leaders can be tyrannical, derailed or display supportive-disloyal leadership behavior. This implies that the same leader can be good or bad - he can support the subordinates but work against the organization or the situation could be reversed also. Ethics is a part of the culture of the individual business that sets norms of behavior. Several theoretical perspectives on ethics are available of which deontology and utilitarianism are the two most applicable in organizations. Ethical stand taken by the leader can be close or distant depending upon the relations to actions. The leaders must maintain transparency at all levels and have a long-term approach. Read More