Context and IntroductionBackground
The advancement in information technology along with globalization has had a lot of impacts of the corporate world (Ghofar and Islam 2015). While such revolution has had positive effects, there are several instances where globalization and technological improvement has brought about negative effects on the corporate world. For example, the advent of advanced technology has led to the creation of risk levels that are very high among businesses globally. As a result, corporations and other companies globally, are being forced to enact strategies that are aimed at risk management, as well as at the improvement of service and product delivery in order to be competitive in the present turbulent periods. For instance, in the manufacturing field, developing cost leadership strategies has been cited as the only suitable means that companies and corporations in such engagement can survive (Ivanova, Baum, Schutze and Ganss 2013). Such leadership strategies can be realized by establishing lean operation mechanisms. In order to deal with the growing competition, many organizations have resolved to adopt lean methods of production.
Research and analysis shows that companies and corporations that have employed lean methods of production have been able to deal with waste from different sections of the organizations operations in a bid to enhance production (Ghofar and Islam 2015). In spite of such success with the lean methods of production, the corporate environments are changing to an extent that such methods are no longer effective (Ivanova et al. 2013). As such, corporations and organizations are obliged to engage in better ways of managing their operations so as to be successful in the changing environments. This calls for better corporate strategies that define any organizations present and future as far as dealing with risk associated with the growth in information technology and globalization.
One way that organizations can deal with issues related to risks resulting from changing environments as a result of improved technology and globalization is to ensure that they have elaborate corporate governance. Smart and Creelman (2013) showed that good corporate governance within an organization should incorporate effective corporate strategies aimed at dealing with any uncertainties arising within the organization. Some of the best strategies to adopt in this case can include better supply chain management and project planning management practices. Considering the fact that effective corporate governance involves proper, as well as ethical business practices in the organizations operations as a means to earn the confidence of investors, this acts as conviction to businesses that effective governance focuses at increasing an organizations value. Recent research by Smart and Creelman (2013) revealed that effective governance within any organization takes into consideration several dimensions that range from being effective in the generation of required returns on any investment to the assurance that the investors funds are not misused. Thus, it is important for any organization to understand the factors that influence the structure of corporate governance and corporate strategy.
The focus of many studies on corporate governance has been on effectiveness of the corporate governance, and more specific on the establishment of the link between organizational performance and effective corporate governance (Ivanova et al. 2013). The agency theory has been used widely to provide an understanding of the relationship between the performance of any organization and the role of effective corporate governance. However, most of the studies have failed to take in to consideration the organizational and environmental contexts that can have considerable effect on the effectiveness of corporate governance in the improvement of performance within an organization and the application of corporate strategies in dealing with organizational issues such as management of risks. Due to lack of such consideration, studies conducted in the past have led to mixed results. As such, there is a need to pay attention to the context where corporate governance can be applied. Such consideration will scrutinize the organizational and environmental factors like organizational strategy and the level of competition in the market, as a means to provide explanation on organizations whose corporate governance is weak perform better than those with strong corporate governance do. This can be attributed to the fact that the use of independent directors in an organization might cause distraction to managers thus, failing to achieve set performance objectives. In addition, research and analysis show that competitive markets require managers of any given organization to be flexible, as well as responsive to any anticipated changes. Given that for effective corporate governance to thrive in an organization, organizational and environmental factors have to be in play. For this reason, there is a need for organizations to take into consideration the factors that influence corporate governance and its efficiency. As such, knowledge transfer is important for effective corporate governance.
In addition, the mixed results evident in most of the studies can also be attributed to the availability of intangible and tangible costs incurred during corporate governance. Such factors are likely to influence the level of financial performance within a given organization thereby weakening the corporate governance of any organization. Corporate governance requires transparency and disclosure, which might in the end lead to intangible costs (Ghofar and Islam 2015). This creates a scenario whereby organizations are operating with uncertainty. For this reasons, organizations are required to set up strategies that can be useful in managing risks that might arise in the course of its operation. A number of studies have been conducted in risk management in organizations. For instance, according to a study by Ghofar and Islam (2015), it is important for organizations to have risk based management practices in order to survive effectively in the current competitive environment. It is thus important for organization to understand what risk management is all about, as well as how to deal with risks within the organization.
Risk management refers to the process of identifying, assessing, and prioritizing risks, along with coordinating and applying resources economically in a bid to reduce, monitor, as well as control unforeseeable events (Smart and Creelman 2013). The primary objective of managing risk is to ensure that any uncertainties do not deter the organization from achieving their set goals and objectives. Usually, there are different sources of risks. For example, an organization can face risks in financial markets, uncertainty in failure of the organization to accomplish a given project, disasters and natural causes, accidents, credit risk, legal liabilities among others.
Problem discussionThe advent of improved technology and effects of globalization are evident in managerial operations of any organization. In the view of the current state of different organizations, it is evident that there are a lot risks within organizations resulting from the improvement in information technology and globalization. Some of these risks, if not detected early, can have detrimental effects of the state of the concerned organization. For this reason, there is a need for organizations to embrace corporate strategies that are effective in the assessment and management of risks within an organization. The application of the right strategies in risk management is likely to ensure that organizations survive the turbulent environments.
Corporate risks refer to the uncertainties that organizations experience as a result of price fluctuations. Usually, such risks are hard to evade, and have a direct or even indirect effect on an organizations value. The heightened corporate concerns dates back in the late sixties due to discontinuities in prices of various commodities, volatility in foreign exchange rates, fluctuations in interest rates, international competition, and greater deregulation. Research and analysis indicate that prior to the development of derivatives market; there were few avenues to deal with organizational risks. Thus, it was hard for management of any organization to control organizational risks. As a result, many firms decided to establish new branches abroad as a solution to the high exchange rates, while others considered natural hedging whereby the focus was to match the individual assets and liabilities to the currency structure. In the eighties and nineties, a change was experienced following the development and growth of derivatives instruments and their market. This has seen many organizations take part in derivatives markets leading to the expansion of the OTC and exchange-traded derivatives. However, even though the growth and expansion of the market for derivatives was seen as a suitable move, it did not occur without a number of active risks. For this reason, active management of risk remains to be significant part within the corporate strategy in modern setting.
Over a long period of time, there has been a common thought that risk management is not relevant in the attainment of a firms value. However, such thought were as a result of the Capital Asset Pricing Model (CAPM), as well as the Modigliani theorem. The Capital Asset Pricing Model has had a lot of effects on the corporate world. One of the most significant implications of Capital Asset Pricing Model revolves around the aspect of shareholders diversifying their interests around businesses that have a potential of taking care of any potential risks within the firm. On one hand, it would seem that management of any organization that takes care of the shareholders should have different views on evading unsystemati...
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