Contemporary Operational Risk Management Issues and Their Impacts on the Society - Literature review Example

Contemporary Operational Risk Management Issues and their Impacts on the society Name: Course: Tutor: Institution: Date: Introduction The concept of risk management has evolved over the years. In this case, the business community has evolved from the traditionally reactive approaches to risks. Under this system, businesses developed reactive measure to exploit of recover from a risk that had already occurred. However, due to the nature of losses caused by such risks, organisations increasingly adopted risk management systems, as proactive measures to prevent, eliminate and reduce the magnitude of risk occurrences respectively. In the process of risk management, there are a number of categories of the risks. Such risks are based on the main causes of the risks of occurrences (Chopra and Sodhi, 2012, p.13). This essay reviews the internal and external business environment contemporary issues that affect the enterprise operational risk modelling process and the type of experienced risks. In its analysis, the essay offers a specific focus and review on the nature and respective factors that influence operational risk practise, offering examples for the different influencing factors. Internal Environment Issues As Fakhrutdinova et al (2003, p, 23) noted, organisations are shifting from the traditional tangible assets to the contemporary intangible competitive edges such as culture and objectives among others. Corporate Culture One of the existing internal environment components in an organization is the corporate culture. Piaget (2013, p.83) described an organisational corporate culture as the process and system through which an organization undertakes its operations. Under an organizational culture, there are two types of cultures namely the risk taker and the risk averse cultures. On one hand, a risk taker corporate culture is one that seeks to exploit potential risks and as such develop systems that aim at exploiting the benefits of a risk occurrence. On the other hand, a risk averse culture is one poised on the need to avoid risks. Thus, such an organisational risk management system is based on reducing the possibility of risk occurrences in an organization. Thus, the existence of different corporate cultures impact on organizations operational risks management strategies and operations. On one hand, for a risk averse organization, the operational risk management systems are aimed at evaluating and developing a balance and the retention of a status quo of the organisational functions (Li, Griffin, Yue and Zhao, 2013, p.20). On the other hand, a risk taker culture organization is likely to have minimal operational risk management systems. In such a case, such organizational are willing to apply new systems and exploit the potential of a risk occurrence. Thus, the operational risk management systems in such organizations are based on exploiting the benefits of such a risk occurring in the organization, rather than preventing its occurrence. On one hand, the uncertainty avoidance cultural orientation is based on the nature and extent to which a society is willing to take risks. For instance, Kong (2013, p.576) stated that the Western culture is more inclined to risk taking than the Asian culture. Thus, in this regard, organisations in the Western culture are most likely to emerge as risk taker corporate culture organisations, willing to take operational risks with the aim of exploiting the potential indirect benefits of such risks. Similarly, the Asian society organisations are in most cases risk averse organization. Therefore, a majority of these organisations have developed respective systems to reduce overall operational risks in the market. Organisational Objectives A second internal environment issue that impacts on firms operational risk management systems is the organisational objectives ad goals in the industry. In this case, organisational goals are the fundamental pillars and guiding framework through which the operational risk management systems are developed in an organization. On one hand, the developed organisational objectives influence their perception of operational risks. In this case, the different organisational objectives influence the critical factors and elements for every organization. In this case, every organization will have its core resources (Garrett-Jones, Turpin and Diment, 2013, p.83). On one hand, an organization that seeks to gain long term market competitiveness through people development will place much emphasis in developing operational risk management practices that reduce employee risk of failure and turnover. In this case, as already noted, Taras, Steel and Kirkman (2012, p.330) argued that while as some organisations operate in cultures with a long term orientation, others operate under short term culture orientations respectively. As such, for organisations with a long term based orientation objectives, the development of operational risk management strategies is more likely to emerge than in organisations with a limited short term objectives. This is because, the short term objectives orientation allows for ease of change of systems in the vent of risks occurrences with reduces the potential for such operational risk failures. Further, under the short term orientation objectives, organisations have the ability to easily change their operational systems. As Fang (2012, p.32) stated, through the development of short term strategic goals, organisations acquire the ability to effectively change with changing market condition, and thus the limited need for operational risk management strategies. Thus, based on the above analysis on organisational objectives, it is evident that the existing organisational culture and objectives influence the operational management. In this case, the analysis indicates that organizations with a risk averse culture are inclined to adopting operational risk management strategies as opposed to the risk taker organization, hat maximize on the occurrence of risks and their potential indirect opportunities respectively Acharya, Amihud and Litov (2011, p.157). In addition, with respect to the organisational objectives, the analysis reveals that organisations with a long term objectives orientation have an increased likelihood for the development of operational risk management strategies to cater for the les operational flexibility, as opposed to the short term orientation objectives based organisations, that are increasingly flexible and can change to counter operational risks occurrences effectively. Thus, the analysis evidences that operational risk management strategies in organisations is influenced by the internal organizational elements mainly the objectives and corporate culture. External Contemporary Issues Globalization The second critical issue in organisations that influence the management of operational risk management is concept of globalization. Globalization can be described as the process through which the global nations and ventures are joined and become increasingly connected entities in the market. In this respect, globalization in the market has mainly been as a result of developing and increasing innovation and technology developments. Robertson (2012, p.198) developed a study evaluating the extent and trends in globalization. In this case, the analysis established that through increased technology innovations in the market, ventures have increasingly globalised. One of the pertinent trends in globalization is the issue of multinational organisations development. Peloza, Merz and Chen (2015, p.295) argued that on the international market, organisations have the alternatives of adopting either standardized or adoptive localized strategies. On one hand, under the standardized international operational strategies, organisations use similar and uniform management strategies and operations globally. Under this management approach, such organisations develop uniform operational risk management systems. Due to the uniformity of the operations, it is possible for the organisations to assess the operational risks and as well develop response strategies respectively. Therefore, as Kanso, Nelson and Kitchen (2015, p.497) argued, through the development of a standardized operational system, organisations develop standardized operational risk management systems respectively. In this context, as Kolk and Pinkse (2012, p.49) argued the lack of operational standardization of the operations limit the ability and nature to which such organisations can adopt strategic operational risk management strategies. Therefore, the process of globalization and the emergence of localized differing business practices have effectively reduced the ability and ease of developing strategic operational risk management strategies. Traditionally, organisations operated under limited markets and thus could develop operational risk management strategies. However, the process of localized management and operational strategies has complicated the process of strategic operational risk management in organisations. In this case, organisations with such a management structure are based on the development and adoption of different operational risk management strategies for every localized strategy (Fan, Cui, Li and Zhu, 2015, P.34). As such, through this approach, the organizations have different operational risk management strategies with as many variations as the localized strategies. The variances in operational risk management strategies in organisations are mainly caused by the perceptions of risk. In this case, different operational process in the market has different exposure to risks, thus reducing the synchronous possibility of such operational strategies Terrorism Threat A second globalization element in the market is the issue of terrorism. Terrorism has emerged and spread across the global markets in the recent past, with increased risk to both the social and economic operations globally. On one hand, terrorism has a social implication due to the cause of deaths and separation of families and the reduced peaceful coexistence globally. On the other hand, terrorism has an economic impact due to the caused destruction of property and resources in the market. Therefore, the increased global threat of terrorism has emerged as a new aspect and shaping issue of operational risk management strategies (Wernick and Von Glinow, 2012, p.734). On a small scale, the issue of terrorism has the potential of disrupting the individual organisational operations. For instance, for a global manufacturing organization, such an organization relies on global suppliers to avail raw materials as well as global distributors’ to supply its finished goods to the respective international market consumers. However, if in the event of a terrorist attack, its supplier property or distributor properties are disrupted, such organization operations are disrupted as either production is halted or there is a breakdown in availing products to the market respectively. Therefore, based on this understanding, Haddow, Bullock and Coppola (2013, p.32) stated that terrorism continues to shape and influence organisational operational risk management strategies. Terrorism is an external market macro environmental factor that an organization lacks control or influence over. However, there are alternatives and approaches through which organisations can develop operational risk strategies to mitigate this challenge. One of the approaches through which organisations manage the terrorism operational risk is through global sourcing and use of back up suppliers and partners. In this case, he back up suppliers and partners are stakeholders in the market with the potential to offer quality materials and services to the organization as and when required. In this case, such a trend involves the development and emergence of a need (Sheffi, 2001, p.7). In this case, in the vent that one of the main suppliers or distribution partners is affected in a terrorism related attack, such organisations can rely on the respective back up partners to reduce the overall market failure risks of delivery disruption. A second operational risk management approach to mitigate terrorism applied by global organisations is the concept of the elimination of single sourcing. As Burke, Carrillo and Vakharia (2008, p.319) stated, traditionally, organizations sought to develop relationships with single suppliers through the single sourcing approach as a means of developing and equipping the suppliers with the required technical and financial abilities to supply desired quality. However, in the wake of terrorism, this approach poses a major operational risk as organizations are likely to halt operations is such a single sourced supplier is affected. Therefore, a majority of the organisations have reversed to multiple suppliers sourcing on the global market. Under the multiple supplier sourcing. Organizations source similar products from different suppliers, where each supplier offers a given fraction of the total required quantity (Burke, Carrillo, and Vakharia, 2007, p.97). Through this operational risk management strategy, the organisations are able to reduce the overall impact on operations that negatively impact on the overall organisational operations. The risk of terrorism impacts negative on a society. This could be deduced form a case study of the Horn of Africa nation of Somalia, located in the Eastern Africa region. In this case, the nation has faced increased insurgency of terrorist groups, since the fall of the last formal government in the early 1990s. As a result, this created insecurity in the nation, leading to unprofitability f business ventures in the region. As a result, a majority of the multinational organisations in the nation closed down their operations or transferred them to other African nations. As a result, Pedersen (2002) noted that the social welfare in the nation deteriorated leading to low wages, and poor living standards of the entire society. ICT Adoption The third external and globalization element impacting on organisational operational systems is the issue of technology development. Over the last decade, as Sin Tan, Choy Chong, Lin and Cyril Eze (2009, p.227) noted, the global market has increasingly experienced technology development and changes, leading to the perception of the information technology industry as the most dynamic and fastest growing industry in the market. In this case, technology changes in the business world have greatly impacted operational risk management practices in such ventures. On one hand, technology changes have led to increased ICT application in business operations. As such, through systems such as enterprise resource planning and operational management systems, organisational managements’ are able to evaluate and collect operational data on a real time basis (Rajagopal, 2002, p.89). Moreover, the systems allow or the forecasting of operations. For instance, through the supplier chain management systems and the customer relationship management systems, organizations are able to evaluate the operations of the supplier and the customer demand and trends on a real time basis. Therefore, in the event of supplier challenges, the organizations are able to anticipate delays or market customer demand changes respectively. In this regard, Saunders and Cornett (2006, p.27) stated that such market changes have characterized the development and emergence of forecasting systems in operational risk management strategies. In this case, rather than relying on anticipation to develop operational risk management systems, current organisations are able to forecast with increased accuracy the expected risks potential of occurrence as well as expected impact magnitude. Therefore, this has the overall effect and impact of increasing the efficiency and effectiveness of organisational operational risk management strategies. To this end, Manuj and Mentzer (2008, p.137) noted that the development an adoption of operational risk management strategies has gained market popularity with the emergence of technology. This is mainly because, through the use of modem technology, organisations are able to evaluate and analyze the value proposition of each operational activity (Scandizzo, 2005, p.243). Thus, rather than focusing on the overall operations as a whole, the process allow for the evaluation of the value proposition of each activity as well as the potential risks for each and every stage and component in the organisational operational process. The evaluation of function and activity based operational risks has enabled the development of informed, accurate and comprehensive operational risk management strategies in the modern organisations. Finally, the emergence and spread of ICT has been a major pillar in the development of preventative and proactive operational risk management strategies. In this case, through the acquisition of real time data, organisations are able to develop proactive measures to mitigate risks. In this case, a majority of the ICT based operational risk management systems are preventative in that they seek to implement corrective measures to avert and avoid the occurrence of the anticipated risks. This is contrary to the traditional operational risk management systems. The ICT risks on business operations have a range of impacts on the society. In this case, Evans (2015) argued on the rising risks of cyber hacking and resultant bank frauds. For instance, the British banks were reported to lose over £650 million between 2014 and 2015 years. This is an indication that the risk of technology and ICT development has increased the financial and security risks in the banking industry among others in the global market. Conclusion In summary, the above essay analysis offers a review of the internal and external business issues impacting on operational risk management practices in organizations and the society.. On one hand, the analysis review established that among the internal contemporary factors influencing operational risk management systems in organisations are the organisational corporate culture and objectives respectively. In this case, the analysis established that an organisational culture could either be risk averse or a risk taking culture, which directly impact on the development of operational risk strategies. On the other hand, an orgnisationl objective determines the magnitude and regard given to the risk management strategies. In this case, the two elements are contemporary as they represent the new intangible competitive edges in modern organisations. 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