Monthly Archives: November 2020

Does Organizational Culture dictate the Structure of a company?

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A term anyone in the corporate sphere is now accustomed to is “Organizational Culture.” It has become intertwined with the purpose or mission of the company and encompasses all organizational values, norms, language, traditions, and guiding principles. Organizational Culture has the power to influence decisions, change policies, and guide executive planning. Therefore, Organizational Culture certainly impacts, if not controls, the Structure of a company.

“Happy” Culture

If the company’s culture is centered only around making employees “happy,” the firm’s structure is likely more formalized and more complex. In this structure, work is defined by rules and complex processes. It is an atmosphere where, despite being formalized, employees often get off track and ignore their duties with activities such as office birthday parties and “bring your dog to work day.” While some breaks from grueling work are necessary, distracting employees from their purpose too frequently can be detrimental.

Take your dog to work day

High-Performance Culture

On the other hand, a high-performance culture would be less formalized and less complex, with fewer rules and processes, fewer hoops to jump through, and more time to engage in paid work. In dealing with Enterprise Risk, the latter proves less bureaucratic and obviously higher-performing. For example, in a higher-stakes environment (Refer to: Oxford, 2013), High-Risk Innovations are more likely to occur. This means that sudden actions taken to mitigate imminent enterprise risks in high-risk times are made possible and can flow through the proper channels efficiently.

What qualities make a good Decision Maker (in the context of ERM)?

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“Good decision making” sounds a lot like business jargon; it is. However, it is an important concept when considering situations that can have long-term impacts on a company. It should be incumbent upon all decision makers to consider the consequences their actions have on the entire company they are engaged with. I have identified five characteristics that I believe are essential when making critical decisions in an Enterprise Risk Management setting.

Profit/Goal-Driven Characteristics

    • Decision Maker is highly reliable and consistent on what the company’s risk tolerance is. As a leader and a decision maker, it is important that everyone has an idea of what amount of risk the company is comfortable with. For example, some companies are risk takers, while others are more conservative in their risk appetite.
    • Decision Maker is open-minded about solutions for messy decisions, but does not violate company or government guidelines. Also, considering different scenarios or outcomes can improve your decision.
    • Decision Maker understands that one cannot “eliminate” the messy situation, but rather must work around it and find innovative solutions. Risk can never be removed entirely; that is why insurance exists!

Colleague/People-Focused Characteristics

    • Decision Maker communicates plans/decisions well and on a regular basis with colleagues. An uninhibited flow of information and easy access to it is important to make sure everyone is on the same page.
    • Decision Maker empowers colleagues to work together and innovate together rather than just delegate duties. Facilitating discussions, or providing a “Constructive Environment,” allows all stakeholders to have a say in the process and contribute different ideas to make the best decision.
The six-stage " framework for risk management decision-making " (from... | Download Scientific Diagram

Engaging Stakeholders to make an informed decision

Proper Enterprise Risk Management could relieve Airline Industry headaches

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The COVID-19 pandemic has devastated many economic sectors, but the airline industry is a prime example. At the beginning of the pandemic, strict lockdowns and travel restrictions limited airlines in their capacity and prevented flights to certain locations altogether. As restrictions have loosened slightly, demand to travel remains low and passengers hesitant.

Bailouts are merely a quick fix.

Despite the fact that government bailouts are almost always a given, they don’t last forever. The $25B payroll assistance program passed in March expired on September 30th, as airlines continue to struggle. The program, which came with an agreement to not release any employees, is therefore no longer in effect. Upwards of 40,000 employees have been furloughed since the beginning of October. Had airlines been better prepared through Enterprise Risk Management strategies, they could be fairing better.

American Airlines planes

Enterprise Risk Management (ERM), or strategies formed to manage “dangers, hazards, and other potential disasters” that could inhibit a company’s operations (see article). ERM , although important for all businesses, is especially relevant for airlines. With small margins, oil price sensitivity, and discretionary travel being a major part of the business model, preparing for catastrophic events is critical.

Enterprise Risk Management  for airlines can be accomplished in several ways:

    • Retaining sufficient reserves: Large airline carriers typically have the means to keep large amounts of cash on the sidelines to help with short-term disruptions.
    • Insurance: Specialty insurance can be purchased to offset risk. Pandemic coverage can be included in such an insurance policy.
    • Diversification: This goes for any sector. Airlines can diversify into cargo transportation, for example.
    • Invest: Invest in technology and infrastructure that makes customers feel safe, comfortable, and encouraged to fly. Emphasize and advertize these investments. Example Below: