Case Analysis of Risk, Uncertainty and Managing Incentives

1916 words (8 pages) Business Assignment

11th Jun 2020 Business Assignment Reference this

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As with any business that is just starting up or has been up and running for some time, there is always going to be the existence of any risks and uncertainties that might be a factor or something needs to be considered very closely and managed. The management of these risks and uncertainties is highly important for all businesses. As it insures that the company’s resources are highly protected for the long haul. Risk may look like potential occurrence of a loss to the company, while uncertainty can refer to the lack of security of any outcome of the event. Some business actually accepts the risk because they can measure them, not like uncertainty which is not. By understanding the risk and uncertainties is critical in any business. This give those all involved a grasp of what other companies go through in those scenarios. Amazon took on the challenge to set up a second headquarters and with this brought up many risks and uncertainties. At the time the company was still managed by Jeff Bezos when they decided they needed to expand with this new headquarters and come up with a separate site for their technical employees.

If looking at market value, Amazon is the largest company, and they were ready to find the perfect home for their new headquarters. To be able to try and get ahead of any risk or uncertainty that could come up with the location of Amazon’s new headquarters, the management team decided to put together with a strategical approach and a solution for any problem that could come up. Administration decided to put in an open bidding system in place for cities that were interested in the company that is building a new office in the area. Amazon found this as very useful tool because they would receive incite from the cities from how the company would benefit from the new location and how the company would receive cooperation from the cities as well. The main purpose behind this strategy that the Amazon management team came up with was to come up with a list of requirements for the prime locations they are looking at (Gupta, 2019).

Amazon proposed to invest five billion dollars and opening fifty thousand jobs in the city. This gave Amazon a huge bargaining tool since it would not only increase the cities revenues but open up more jobs if they were to invest in them. They only worry that Amazon had with the new locations was if there was any existing technical population. This would bring in the risk of having to relocate qualified people for the job. So, to reduce this risk Amazon required an application so they can see the current population of the technologically savvy people.

By looking at the lessons we can learn from Amazon, by trying to control the risk is very important for any business. This can save them from having any unexpected loses. To make sure you have the proper risk management you need to have effective planning in place. In Amazon’s case they conducted a study in the area just to see what risk might come up in their potential spot. A good study will give you the prime data you need on any topic that you wish and will give you and the owners a real-time analysis on any proposed idea you and the owners may have.

There is also the option to use a reward system as a strategy for risk management. By using rewards this can put pressure on all parties that are involved and force them to deliver what is asked of them and help move the company towards excellence. For example, Amazon used the rewards system when they promised which every city they picked to open up in they would invest five billion dollars as well as open up as many as fifty thousand jobs for individuals in the community (Hoskisson, Chirico, Zyung, & Gambeta, 2016).

Another effective way of managing risks is have documentation of all actions. With Amazon, they had the two potential cities forward all signed proposals to the company. With this kind of documentation, it played a role as a guarantee that the cities were holding up their end of the deal. It also helps prevent any and all unwanted court cases that could have been bases on just mere promises.

The organization that I work for, we do need to come up strategical plan but there is no way that we can have any kind of risk management. The military try and can give us all the training that can give us to prepare us for any outcome that can come up. But when we are deployed you never know what kind of situation will come up and there can be no promise on a good outcome. The only thing we have to rely on is our training and our instincts when situations arise. Our commands do their best to make sure we have training for some kind of team building, communication, and leadership (Selviaridis & Norrman, 2015).

There is a need to focus on other reliable ways of measurements for employee performance. Making sure it is equal and fair is vital. Making sure you have programs for team building and having everyone participate and having everyone pass on their knowledge. By every employee sharing the knowledge this will ensure that all employees have what is required and will be able to handle certain circumstances. An employee in this scenario can, therefore, be judged on their capacity to apply learned information as opposed to having added advantages over their colleague (Ashkenas, Ulrich, Jick, & Kerr, 2002). Management should be focusing on looking for leadership traits based on different metrics as compared to the success rates on trade returns.

The company is aware that there could be an issue with the moral hazard problem on insider trading. Even though this is highly discouraged across all companies, you can’t help but have the risk and uncertainties that come with owning a business (Klein, Lambertz, & Stahl, 2016). This whole aspect of insider trading is very highly punishable and there should be some kind of safe guard established so they can me monitored (Ashkenas, Ulrich, Jick, & Kerr, 2002). The Securities and Exchange Commission (SEC) is a highly notable team and their primary job is to ensure that there is fair trading by all members (What We Do, n.d.).

All companies should understand that having moral hazard can cause risks and uncertainties to the existence of the company, their image, and their future growth. They should try and come up with incentives that can discharge any reason for them to think about going about their moral compass. If these kinds of measure were to be in place, then they could make a huge impact on any company. In a scenario such as this,  administration can get rid of the promotion system for any employee through the trading portfolios. They can start random monitoring of any trading activities and patterns to make sure the employees are using fair and legal strategies.

If companies were to get rid of these risk and uncertainties, their business would be better and safer place to work. They would grow and achieve their long-term and short-term goals. By having a straightforward strategy that would work in such a scenario companies would need to put  a risk management department in place. They would point out any risk before they would even come up and have a chance to interfere with the companies normal operations (Selviaridis & Norrman, 2015).

You need to have a good organizational structure within a business. Having the organization divided into different departments and each department should be tasked with specific duties. Some of these departments should be, administration, IT, sales, and customer service. Each department should have someone who runs every department who will be tasked to over see the day to day operations in their given department. Having a functional structure within the departments is vital to make sure that the company runs smoothly as a whole and the long-term success of the company. To be able improve the employees performance the company needs to make sure they have a functional organizational structure and the establishment or interdepartmental communication (Klein, Lambertz, & Stahl, 2016). This will give all the employees the ability to intermingle and they will have a bigger view of the company as opposed to not being able not able to mingle which often cases “tunnel vision”.

To be able to turn any organization structure into something profitable the company should encourage any new approaches to the existing solutions that they already have. These newer approaches need to be effective, efficient, and cost-effective. The company needs to find a way that they can stand out against all the other companies. One solution could be that the company invest in upgrading the technology, this would increase the efficiency and help make the operations smoother.

Another approach could be that the company could restructure the entire organization. They could affect the entire management and operation teams. Restructure could ensure that all the employees from all the different areas of the company can see what the other employees are going through. They can encourage each other to work on their specializations and their personal relations with each other. Organizational restructures also have financial advantages as some companies plan to downsize hence saving a lot on wages and other office expenses (Klein, Lambertz, & Stahl, 2016).

The last approach would be a making sure the company has a qualified workforce. This means that the company would require all the technicalities so the company can move to greater heights (Klein, Lambertz, & Stahl, 2016). Having a young, motivated and ambitious workforce is a big requirement. This is what will help the company to succeed in the long run. Having the ability to cut cost where they need to be cut and getting rid of all the unnecessary expenses and also important, this will help increase the company’s profitability.

Having companies make sure they have plan in place for risk management and any uncertainties that could possibility come up within the company. You not only want to protect you workers as long as yourself, but you want to make sure that your shareholders and investors or prospective shareholders/investors.

References

  • Ashkenas, R., Ulrich, D., Jick, T., & Kerr, S. (2002). The Boundaryless Organization: Breaking the Chains of Organizational Structure. San Francisco: John Wiley & Sons, Inc.
  • Gupta, P. S. (2019, July 8). The Fleeting, Unhappy Affair of Amazon HQ2 and New York City. Retrieved from SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3313104
  • Hoskisson, R. E., Chirico, F., Zyung, J., & Gambeta, E. (2016). Managerial Risk Taking: A Multitheoretical Review and Future Research. Journal of Management, Volume: 43, Issue: 1, pgs 137-169.
  • Klein, T. J., Lambertz, C., & Stahl, K. O. (2016). Market Transparency, Adverse Selection, and Moral Hazard. Journal of Political Economy , Vol. 124, No. 6 pp. 1677-1713.
  • Selviaridis, K., & Norrman, A. (2015). Performance-Based Contracting for Advanced Logistics Services. International Journal of Physical Distribution & Logistics Management. , Vol. 45 No. 6 pp 592-617.
  • What We Do. (n.d.). Retrieved from U..s Securities and Exchange Commission: https://www.sec.gov/Article/whatwedo.html

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