Rationale for Choosing Enterprise Risk Management - Apple - Case Study Example

Individual Learning Project 2 Individual Learning Project 2 Introduction Apple, Inc. is a global tech giant with its HQs in Cupertino, California. The firm specializes in offering high-end gadgets in areas such as mobile technology, computing, television, portable music players and software among others (Harris, 2014). The multinational tech giant is normally involved in manufacturing, designing and marketing mobile communication, media devices, personal computers, software plus portable digital music players (Harris, 2014). Its vision and goal is to become a world-leader in specialty tech organization with a heart on both profitable and sustainable growth to give the highest possible value to their customers, shareholders, as well as other stakeholders. The firm was created by Steve Wozniak and Steve Jobs in Silicon Valley, California. These two heads started developing Apple Computers a while back in 1976 in Steve Job’s parent’s living room where Wozniak would essentially develop the computer and Jobs’ work would be to market and sell the machine. Apple, Inc. currently supplies its products to over 95 nations plus is staffed with more than 98,000 employees (Harris, 2014). As much as the firm is credited for being one of the most successful and profitable company’s world over, there are several management techniques that it is criticized for underutilizing. The underutilization of these management techniques has been cited as one reason that is holding back Apple’s growth in the market, especially considering its size as one of the largest international organizations with a large number of risks at hand (Blocher, Stout, Juras &Cokins, 2013). The aim of this article is to talk about a specific contemporary management technique, which Apple, Inc. is not aggressively utilizing at this moment, but could hugely benefit from its use. The contemporary management technique selected for Apple, Inc. is the application of enterprise risk management, abbreviated as ERM. Rationale for Choosing Enterprise Risk Management (ERM) Apple, Inc. is an overly large international organization, and, due to this fact, it is significant for international organizations to deliberate country-specific understanding of risks, and also to gain knowledge of how to manage such risks in a way, which will permit them to align these risks with their business strategy, plan a comprehensive approach to how they classify them, develop an oversight for, manage, and observe events in their corporate limits (Chen & Ann, 2014). It is factual to argue that Apple, Inc. does not acknowledge the significance of enterprise risk management. The firm does not consider ERM as critical success aspect and have selected a business model to most successfully decrease the level of risk, which comes with running an international tech company. As a specialty tech organization, the company shies away from high-risk, capital intensive research, but rather, they focus their resources on development close to the market in the late technological phases (Chen & Ann, 2014). Sadly enough, enterprise risk management is not that easy and the organization encounters a lot of risk factors, not only what they think, which is product development, country specific regulations product such as rights and financially and developmentally, currency fluctuations just to name a few (Blocher, Stout, Juras &Cokins, 2013). With these factors in mind, it is eminent that the company is exposed to great risks at almost every stage of its operations. As such, it needs to do a lot to mitigate these risks if it is to remain successful and profitable. Enterprise risk management (ERM) is a method available to assist deal with or control such high risk levels such as commodity price fluctuations, financial risks because of foreign currency changes, and fluctuations in interest rates, operating risks linked to products, customers, or workers, as well as strategic risk linked to top management rulings (Chen & Ann, 2014). After carrying out an encompassing SWOT analysis, that is an analysis of the company’s strengths, weaknesses, opportunities, and threats in the previous paper, it was discovered that the continued success of Apple, Inc. is endangered by their inadequate efforts to deal with or control risks. The analysis revealed that the company is exposing itself to a lot of risks by failing to implement a highly effective risk management program such as ERM. The company could do better and go further in terms of profitability if it considers implementing a program that seeks to mitigate the numerous risks it is exposed to. Implementing an enterprise risk management (ERM) program could aid better organization of how risk is managed maybe through better risk awareness, which leads to better operational, as well as strategic decision making (Chen & Ann, 2014). By knowing what risks a business is exposed to, it becomes easier to understand how to align the organization’s operations towards the reduction of the these risk in order to protect it from the problems that mat be brought about by those risks. Analysis of Enterprise Risk Management Enterprise risk management (ERM) refers to a method utilized by companies and organizations to control risks, which have the likelihood of affecting their dealings, both negatively or positively, changing their position in the market, and also the entire outlook of the company’s success (Blocher et al., 2013). ERM as a discipline is gaining a lot of attention and acknowledgement from 2010 because of the Consumer Protection Act and the Dodd-Frank Wall Street Reform, both which subjected businesses to greater regulations concerning taking care of consumer needs and also ensuring that they maintain the business for their stakeholders (Blocher et al., 2013). A study carried out in 2010 of nearly 1500 chief executives by Deloitte reported that nearly 85% of companies either had an enterprise risk management program or were in the process of setting up on because they had realized the importance of having such a program in as far as protecting themselves from risks is involved (Hoyt & Liebenberg, 2011). According to Moran, Harris & Moran (2011), a successful ERM program starts with developing a framework, which is as follows: (1) set objectives/strategies, (2) identify risks, (3) assess risks, (4) treat risks, (5) controls risks and (6) monitors and communicates repetition. Utilizing this framework, any company must start by defining their objectives and plan to attain those objectives visibly. When a company lacks clear objectives, then it is hard to recognize events, which might offer rise to dangers that could hinder the achievement of a specific objective or strategy (Moran et al., 2011). Once goals are set and strategy settled for, potential risks have to be acknowledged. It is significant to acknowledge that risk is normally misinterpreted as something, which takes place abruptly; when the most impeding risks are normally those that are always present of a repeated basis (Moran et al., 2011). Being in a position to recognize these frequently present risks and plainly talking about them at an earlier stage can lead to mitigated risk. There are numerous methods available for big companies to recognize these risks; such techniques, offered by Abrams et al. (2007) include: (1) event inventories and loss event data, (2) brainstorming, (3) interviews and self-assessment, (4) SWOT analysis, (5) facilitated workshops, (6) risk questionnaires and surveys, (7) use of technology and (8) scenario analysis. With any of these methods, it is important that all proposals are considered with respect and equality as not to delay progress. After likely risks have been classified, the next stage is to examine the risks and uncover their root causes (Abrams et al., 2007). Root cause analysis (RCA) can be planned using scenario analysis, which can be conducted through interviewing individuals who work in the appropriate departments and can offer great insight into a string of possible events leading to the likely risk being examined (Abrams et al., 2007). Having recognized the major causes of the identified likely risks, it is now feasible to establish the possibility of these risks taking place, as well as the level of effect they would bring to companies. In doing so, a business is basically rating their risks on an importance scale. To ease this rating, a diagram or chart can be utilized. A majority of the enterprise risk management organizations not only produce risk maps to predict impact, as well as likelihood, but to display how risks appear when placed together in one place, as well (Abrams et al., 2007). Classifying risks in level of their significance helps in determining how each and every risk should be considered. Knowing such information further assists decision makers control the risk factors pertinent to their fields and permits them to better converse and educate their workers concerning the risks (Abrams et al., 2007). Implementation Putting into practice an enterprise risk management system can be carried out in a number of ways (Blocher et al., 2013). A common method is to have a reasonable number of workers on the enterprise risk management team to run these workshops, help business units and executives comprehend their risks, gather information across the company, and aid in reporting risks upwards to CEOs, as well as the board (Blocher et al., 2013). Once a facilitation team has been erected, the process of executing the ERM process can start. Planning an effective ERM program is a vast process, which cannot be carried out in one night. The process of enterprise risk management implementation can be split into three essential stages, of which, each also comprises of three levels (Harris, 2014). Phase one of implementation is dedicated to building a foundation for risk management (Harris, 2014). In stage one, level one is about building awareness; level two concerns assessing the company’s capabilities; and level three, on the other hand, concerns aligning the business’ goals and expectation through establishing their commitment. The main objective of this first stage is to build support for the program all through the company and more significantly on the executive level (Harris, 2014). Stage two of implementation centers on each and every segment of a company and comprises of three more levels: level four concerns engaging all workers into program aiding to make sure that they fulfill their pledges to the company; level five concerns showcasing the value and worth of the risk management program and finally level six concerns making risk management functional on a segment level (Hoyt & Liebenberg, 2011). The last stage of implementation progression, on the other hand, concerns risk management on an enterprise level where the last three levels are collaborate, coordinate, as well as integrate, respectively (Hoyt & Liebenberg, 2011). The goal of the last phase is to develop the enterprise risk commitment along with accountability model through linking the segment risk commitments to reflect on cross-segment risk problems (Hoyt & Liebenberg, 2011). This basically implies that in due course, the perfect ERM program is a group where all segments are working together and promoting their integration to develop a much greater focus on risk management (Hoyt & Liebenberg, 2011). Application by Apple, Inc An enterprise risk management program is precisely what Apple, Inc. is in dire need of. Apple, Inc. currently employs less than 10 persons to deal with all of the risks and dangers that they encounter and huge concerns have been put forward by other executives (Harris, 2014). To successfully put into practice an ERM program, it might require Apple, Inc. to put up a team of not less than 20 individuals in each and every nation that they operate. Whereas other smaller companies might manage ERM with only 10 individuals, larger firms such as Apple, Inc. need to gather a team of not less than 20 members as earlier mentioned (Chen & Ann, 2014). With that being said, a company as large as Apple, Inc. and as wide spread globally as the firm is, they need to assign a group to help deal with the large scope of risks and dangers they encounter. This team then requires setting Apple, Inc.’s strategies and goals as the hub of their task (Chen & Ann, 2014). This step ought to be somewhat simple as Apple, Inc. already has a clear goal which they endlessly strive to attain. Apple, Inc.’s objective is to be a world leader in the technology industry through fast growth, as well as innovation (Chen & Ann, 2014). Apple, Inc. also has a clear plan as to how they would realize this mission, through producing high-end technological products and building long term partnerships and improved presence in growth markets grouped with late-phase technological advancement (Harris, 2014). The next step for Apple, Inc.’s enterprise risk management team should take is to identify the risks. A good place to begin with would be to hold conference calls or meeting that comprise of all high level managers and executives where brainstorming and talks of ideas can go on (Harris, 2014). A second attempt should be made through sending out questionnaires to all employees and also all over different departments to investigate what they may deem to be relative risks of effect to the company (Chen & Ann, 2014). A majority of these risks should consist of operational and commercial risk, risks linked to with economic trends, product launches, partnerships, pricing and competition, product rights protection, acquisitions, government actions, liabilities, as well as currency fluctuations, just to name a few (Chen & Ann, 2014). Once compiling of the list finalized, these risks need to be examined and ranked on their level of significance (Harris, 2014). A study of each likely risk ought to be carried out and the main causes of these risks be acknowledged. Identifying such preliminary causes will assist in settling on the likelihood of a certain risk taking place. With the risks assessed, they can then be ranked using the risk map suggested by Abrams et al. (2007); given the possibility of occurrence, as well as the level of likely impact, a number of risks ought to be considered with a higher sense of importance compared to others. The risks, which are considered to be of most significant, those in the high possibility and high effect category, ought to be acted upon through placing high controls in the relevant departments in order to help lessen any likely occurrence (Abrams et al. 2007). A model of this would be for Apple, Inc. to plan routines for communication, record and control to make sure the correct execution of the company’s business conduct rules (Harris, 2014). Another model of an effective management of risks would be for Apple, Inc. to develop a written agreement or code of conduct with every partnership they make in order to help safeguard their interests should something start to go wrong (Chen & Ann, 2014). When controls have been selected and put in place, it is vital that Apple, Inc. communicates these new guidelines all through the organizations and also makes a significant attempt to ensure everybody within the organization comprehends and agrees to the terms of such changes. (Chen & Ann, 2014) Conclusion This aim of this article was to talk about a specific contemporary management technique, which Apple, Inc. is not aggressively utilizing at this moment, but could hugely benefit from its use and the contemporary management technique selected for Apple, Inc. is the application of enterprise risk management, abbreviated as ERM. It was discovered that in order for the enterprise risk management program to be effective, Apple, Inc. has to establish great pledges from its workers. The literature used to come up with the findings of this paper discussed also multinational organizations such as P&G, Google, Inc. Samsung, Microsoft and other brands, in order to convince the reader of the significance of enterprise risk management in mitigating the risks of large organizations. Since the risks in the international economy always change and grow, enterprise risk management is an infinite journey and needs strong commitment from high-level managers and executives, as well as an effective process specially catered to each organization’s exclusive culture (Abrams et al., 2007). Apple, Inc. stands to gain a lot of benefits from the utilizing of an enterprise risk management system. Implementing an ERM program would present the company with invaluable guidance that the organizations executives can utilize to confidently recognize, study and deal with risks, whereas, at the same time, developing the company (Abrams et al., 2007). Not a lot of authors have discussed this topic of ERM, thus finding some of the sources was challenging. As a recommendation, many multinational organizations have not yet realized the significance of ERM in mitigating the risks that they face while conducting their daily, normal business activities in the global market. In order to ensure that they are safe, they should consider putting the management technique in to practice in order to reduce the challenges that they are facing. References Abrams, C., J, v. K., Pfitzmann, B., & Ruschka-Taylor, S. (2007). Optimized enterprise risk management. IBM Systems Journal, 46(2), 219-234. Blocher, E., Stout, D., Juras, P., &Cokins, G. (2013).Cost management: a strategic emphasis (6th ed.). New York: McGraw Hill. Chen, C. M., & Ann, B. Y. (2014).Efficiencies vs. importance-performance analysis for the leading smartphone brands of Apple, Samsung and HTC.Total Quality Management & Business Excellence, (2)8,1-23. Harris, L. K. (2014). Apple Computer Pricing Strategy: Key Success Factors and Profit Margin. Washington, DC: Washington University Press. Hoyt, R. E., & Liebenberg, A. P. (2011). Thevalueof enterprise risk management. Journal of Risk and Insurance, 78(4), 795. Moran, R. T., Harris, P. R., & Moran, S. V. (2011). Managing cultural differences: global leadership strategies for cross-cultural business success. New York: Routledge. Read More