Mba402 Governance Ethics And Sustainability Assessment Answers

B. Pressure points due to culture
i) rewards for entrepreneurial risk taking
ii) executive resistance to bad news
iii) level of internal competition

C. Pressure points due to information management
i) transaction complexity and velocity
ii) gaps in diagnostic performance
iii) degree of decentralised decision making

Answers

The Risk Exposure Calculator refers to a mechanism that is utilized in gauging an organization’s probability of being surprised by breakdowns or errors which may threaten the strategy or franchise of the company. It is divided into 3 different sorts of internal pressures: pressures caused by information management, by culture, and by growth (Simons 1999; Fong & Vasicek 2011, p. 55). It defines 3 levels of risk: the danger zone, the caution zone, and the safety zone (Startien? & Remeikien? 2010, p. 890). Using the Risk Exposure Calculator, this paper provides a risk assessment report on an investments seminar company called Property Millionaires.

A. Pressure points due to growth

i) Pressure for performance

At Property Millionaires, the pressure for performance is very high. The company’s chief executive officer George Kirzner holds the company’s employees accountable for delivering strong financial performance. Through pursing strategies that give emphasis to company growth, the company’s senior management team has set aggressive sales goals for the consultants. The consultants are paid on a commission basis, meaning that they earn a percentage of the $10,000 seminar fee for every customer that they sign. The consultants who deliver and achieve high sales are rewarded by the company whereas the consultants who do not attain the expectations do not get any rewards. Since there is intense pressure for performance for consultants at Property Millionaires, this pressure point has a score of 4.  

ii) Rate of expansion

Since its establishment 3 years ago, Property Millionaires has expanded into a medium-sized company that has a workforce of more than 100 employees with offices in 4 locations including Adelaide, Brisbane, Melbourne, and Sydney. One year ago, the seminar sales for Property Millionaires rose considerably and at the moment the operations of this company are growing quicker than the capability of the company to employ and induct new employees. According to George Kirzner, who is the company’s founder and CEO, this is a great problem for Property Millionaires. At Property Millionaires, this pressure point has a score of 4. This is a rather high score since the problem is a significant one for this investments seminar company.

iii) Inexperience of key employees

Even though George Kirzner is very thrilled and delighted with the company’s growth, the regional managers of the company are not as excited. They are not as thrilled as the company’s CEO because the company has of late been hiring key people who are inexperienced. It is important to mention that the fast growing need for additional consultants at Property Millionaires has served to force this firm to lower its employment standards. As a result, the company has recently been hiring a lot of new people, particularly for the position of consultants; people who have little or no prior experience in sales. Hiring inexperienced people could be detrimental to a company (Frenkel 2016, p. 2; Whittaker 2015, p. 2131). The new employees generally lack sufficient training or skills and they may not understand their jobs at Property Millionaires fully. Thanks to this high level of inexperience amongst employees at Property Millionaires, the score for this pressure point is 4.  

B. Pressure points due to culture

i) Rewards for entrepreneurial risk taking

Consultants at Property Millionaires are paid exclusively on commission basis and every consultant is ranked by the regional managers in accordance with their sales performance. The regional managers treat the highest performing consultants like royalty. In addition, the regional managers give these consultants special treatment. Moreover, the company’s senior management team comprises a creative and risk taking group of real estate business persons. Each of these individuals develops seminar content separately and only goes back to the group after they have developed something that has considerable value. Even so, there is a growing frequency in the failure of new seminar. For this reason, the rewards for risk taking at Property Millionaires are not very significant. The score for this pressure point is 3.

ii) Executive resistance to bad news

There is a rather high level of executive resistant to bad news at Property Millionaires. This is primarily because the regional managers of the company have, in fact, surrounded themselves with yes women and men, and they do not hear much, if any, bad news. The yes women and men only give the regional managers good news. In essence, the senior executives have the tendency of resisting bad news. Clemens and Pfitzer (2010, p. 42) pointed out that top executives in successful companies usually develop a resistance to bad news. Such executives generally want to be surrounded by individuals that share their pride in the company and display confidence with regard to attaining performance goals and targets (Buehler, Freeman & Hulme 2011, p. 95; Xiaopeng, Sui & Xianbo 2014, p. 25). Individuals who speak of impending dangers, problems or hindrances are ridiculed as irritating naysayers and are considered as not being team players (Kilroy 2014, p. 10).

iii) Levels of internal competition

The company culture at Property Millionaires is very competitive to the point of ruthlessness primarily because the consultants are pitted against one another. It is worth mentioning that staff members who feel the pressures of internal competition might gamble with the company’s reputation, company assets, and potential credit losses as they seek to enhance their short-term performance (Simons 1999; Lyon & Popov 2016, p. 44). If the gamble does not succeed, the staff member might even lose her/his employment, but if it is successful, there is a positive aspect not just for the staff member, but also for the firm (Simons 1999; Kaplan & Mikes 2012, p.52). Thanks to the high level of internal competition at Property Millionaires, the appropriate score for this pressure point is 5.

C. Pressure points due to information management

i) Transaction complexity and velocity

The level of transaction complexity and velocity at Property Millionaires is rather high. Regional managers have the tendency of leaving consultants alone given that they do not understand the complex language of the consultation process. Loghry and Veach (2009, p. 31) pointed out that in the marketplace, success is usually accompanied by more and more sophisticated products, by creativity in bundling new services/products, as well as by innovations in how clients are served. Such changes could increase the complexity of transactions (Simons 2009). Since transaction complexity and velocity level is somewhat high at Property Millionaires, the score for this pressure point is 3.

ii) Gaps in diagnostic performance

Managers at Property Millionaires have limited access to performance data. In addition, they spend a significant portion of their time attempting to resolve unexpected emergencies or flare ups. From the information that they access, these managers have the tendency of focusing only on seminar figures. Furthermore, their monthly performance reports to the company’s top management are usually late or sometimes they are not submitted at all. This means that gaps in diagnostic performance at this firm are high, which warrants a high score of 4 for this pressure point. Simons (2009) reported that a high score should be given if the monthly performance reports are missing or are late, if the last time the performance data was looked at is over a month ago, and if flare-ups occur many times.

ii) Degree of decentralized decision making

Consultants at Property Millionaires are usually given aggressive sales targets which are defined by the company’s senior management team with little or with totally no input from the regional managers. This clearly implies that the level of decentralized decision-making to the company’s regional managers is low. Even so, there is a great deal of autonomy among the members of the company’s senior management team. They are allowed to develop seminar content independently of one another and only return to the group after each of them has developed something of significant value. All in all, the level of the degree of decentralized decision making to local managers at Property Millionaires is rather low. Therefore, the appropriate score for this pressure point is 3.

As illustrated in the Risk Exposure Calculator in figure 1 above, the fictional investments seminar company has a score level of 34, which falls within the caution zone. Even though Property Millionaires has a score of less than 35, which is a score from where the danger zone starts from, there is still reason for concern. This is mainly because Property Millionaires has high scores in two of the 3 risk dimensions: it has a score of 12 in the culture risk dimension and 12 also in the growth risk dimension.  

Conclusion

In conclusion, using the Risk Exposure Calculator, this report has determined that the investments seminar company Property Millionaires has a risk score of 34. This score is within the caution zone. The senior management team in this company needs to be alert for high scores in 2 of the 3 risk dimensions, namely the culture risk dimension and the growth risk dimension. On the whole, even though the firm’s total score is lower than 35, there is still reason for concern.  

References

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