Trading.com Risk Assessment Report: MBA402, Governance Module

This report presents a risk assessment of Trading.com, a fictional company, based on the provided case study and the Harvard Business Review article "How Risky is Your Company?". The assessment identifies potential risks across three key areas: growth pressure points (performance, expansion rate, ...Read More

RISK ASSESSMENT REPORT FOR TRADING.COM
I. Identifying the Potential Risks
1. Growth pressure points
The general perception associated with the growth of a business is that the firm is
performing very well. At many instances, the management fails to realize that growth can
also bring some unexpected risks in terms of expenses, quality of performance or loss of
control (Lai, 2014). Though growth is considered to be one of the major aspects of
developing a competitive advantage for an organization, it works only if all the other
parameters like quality of performance, process and employees are maintained, along
with budgeted expenses and reasonable control over the organization’s processes and
operations (Yang et al, 2018). Many organizations are unable to conduct the task of risk
assessment due to lack of resources and capabilities (Brustbauer, 2016). Risks should be
assessed based on certain parameters that exist in all the organizations and there is a need
to keep a watch on those features. Ideally, employees should be encouraged to perform
better but if that creates pressure and fear among them, it leads to unintended risk. The
same happened at Trading.Com. Excessive sales targets are given to sales employees and
they are also ranked based on their target achievement. The pay of the consultants was
purely based on their performance basis which further mounted the pressure on them.
The best performing consultants are rewarded with expensive gifts, luxury holidays and
bonuses. In one way that is motivating for the employees to perform well but the negative
part is this gives rise to ruthless competition. Employees, with average or above average
performance feel demoralized. This further leads to falsifying their true performance
which once again is an indication of risk for an organization.
So according to the risk due to performance pressure will be rated as high as 4.
The rate at which an organization expands, lead to many crucial inferences. Undoubtedly
expansion is an important strategic option for the growth of the business or firm. But that
calls for a lot of information and market research regarding the external and internal
environments of the organization, resources and capabilities, value chain analysis, SWOT
analysis. The strategic position of the organization has to be clearly defined in the
Growth-Share matrix (Harner, 2011). Thereafter, the decision of expansion is made by
the top management. In the case of Trading.Com, the company expanded rapidly
recruiting over one hundred staff with offices in four major Australian cities, within three
years of its inception. Due to a sudden upsurge in the firm’s course sales, the operations
have started expanding at a faster rate than the organization’s hiring ability. There is no
induction and training for the new staff. This calls for serious reconsideration of their so
fast-paced expansion strategies or else this again calls for high risk in the future.
Hence the factor of the rate of expansion will also be rated as high as 4.

As the firm is expanding so fast, there is no focus on hiring and retaining experienced and
qualified employees. The rapidly increasing operations require more consultants and to
fulfill the requirement, the organization is recruiting employees with almost no
experience in sales that lowers the firm’s employment standards. This lack of experience
and quality in the employees is a big red signal for the organization and indicates high
risk (Panigrahi, 2011). The regional managers also lack the capability of strategic
thinking and vision. They are occupied with their own problems and their solutions
without focusing on the organizational requirements.
The factor of inexperienced key employees will also be rated as high as 4.
Hence the total score is 4+4+4=12.
2. Cultural pressure points
Organizational culture plays a crucial role in the process of making decisions and the
formulation of strategies (Schein, 2010). Risk management, assessment and exposure are
also the important aspects of the organizational culture as well as leadership style
(Gorzen-Mitka, 2018). The organizational process works in such a way that the firm is
subjected to many risk management strategies and requirements. Such a culture
encourages entrepreneurial risk-taking as the organization is prepared to manage the risks
associated. With the evolving business landscape, the diversity of the risks associated has
also increased (Ridha and Alnaji, 2015). The major factors contributing to risks are the
external and internal environments of the organizations that include PESTLE forces
(Political, Environmental, Technological, Legal and Economic), increased competition at
the global level, knowledge management and last but not the least the internal
competition among the employees that lead to non-compliance with ethical guidelines
and principle (Berg, 2010). Due to these factors either the organizations equip themselves
with tools helping them to identify, assess or manage risks or the organizations become
risk aversive (Gates et al. 2012).
For an organization to prepare for risk management, it must encourage and reward
entrepreneurial risk-taking. The senior management should be prepared to handle
uncertainties and encourage risk-taking so as to promote innovation and develop a
competitive advantage. In this case, Jospe and his top management team are creative and
are able to take the risk, but there is a lack of coordination among them and they do not
work as a team. Hence their risk taking ability is not rewarded accordingly, instead the
new courses are not doing that well.
Hence rewards for entrepreneurial risk-taking can be rated low as 1 on a scale of one to
five.
Another important factor is the senior management’s resistance to feedback and bad
news. The bad news is important as it gives the probable indications of something wrong
happening or expected to happen. This should be taken as an opportunity to handle any

risk expected and manage the risks associated well in time (Aven, 2016). At
Trading.Com the managers are also not used to hear any kind of bad news that can
provide an opportunity to remove certain loopholes or introduce some corrective
measures. This once again indicates a high probable risk.
So executive resistance to bad news is high and it can be rated as 5 on a scale of one to
five.
Competition among the company staffs is an indispensable part of organization culture.
Employees usually compete against each other for promotions, better salary and bonuses
and recognition (Inaya and Balqiah, 2017). Internal competition motivates employees to
perform better and out-perform their counterparts. This can lead to two probable
outcomes. The employees either compete against each other to innovate that transform
this internal competition into the organization’s competitive advantage, or they take the
help of unethical means to create a short cut way to recognition and success (Huang et al,
2010). This is solely dependent on the nature and intensity of the internal competition.
When such competition creates biases among employees, creates pressure and anxiety,
the employees fail to think positively and creatively and succumb to the mounting
pressure by opting unethical ways. On the other hand the competition is perceived as a
healthy and an option to realize one’ s performance based on the expertise and skill sets,
the result is positive attitude and creativity (Allah and Nakhaie, 2011). All profitable
options are not always ethical. At Trading.Com the consultants and the regional managers
fail to realize this. Consultants are given aggressive sales targets to drive profits and
revenues. Their performance is measured based on their sales target achieved. The best
performing employees are rewarded with costly gifts and bonuses that include luxury
holidays. Such things act like as negative influencers for those are not so high performers
and this inculcates negative emotions.
Hence level of internal competition can be rated as 5 on a scale of one to five.
Hence score for the factor cultural pressure points is 1+5+5=11.
3. Information management pressure points
Managing information in a business firm is a challenging task so as to avoid any kind of
unethical situation and risk that could affect the organization adversely. The entire
business operations and processes depend on how information is managed in an
organization. Globalization and the dynamic environments lead to the tough competition
that demands effective information management that comprises of complex transactions
and their pace (Kuraesin, 2017). The quantity and velocity of the transaction also impose
a bigger challenge as it becomes difficult for the managers to scrutinize each transaction
and calculate the associated risks. In the case of Trading.Com, the company had
expanded manifold in three year period which implies there is a high volume of
transactions with high velocity. The company’s sales increased forcefully. The company
was also advertising free webinars and potential clients are offered a share investment
course for USD 10,000.

So on a risk exposure calculator transaction complexity and velocity can be rated as 4 on
a scale of one to five.
Monitoring of diagnostic performance is essential to identify the gaps between the
existing and expected outcomes in an organization. This further provides insights for
measuring the deviation from the targets or objectives. Effective monitoring of
diagnostic performance calls for monitoring real time performance, identify the factors
contributing adversely to the performance, to highlight the individual contributor’s trend
and the prospect of continued improvement (Romaniello et al, 2011). The diagnosis has
to be highly instrumental and organic where each organizational structure is clearly
visible with its roles and implementations. It should not be a one-time activity, instead
should be conducted in iterations so as to all the possible errors are removed with new
corrective measure. Such kind of process is absent in Trading.Com. The managers are not
open to any kind of feedback, they do not have the mindset to accept change. They have
no interaction with the consultants and hence there is a huge gap in monitoring and
diagnosing the performance. Managers do not have sufficient performance data. They
focus only on revenues from sales and there is no seriousness and dedication in the
preparing of performance reports and presenting them to the management.
The gaps in diagnostic performance can be rated 4 on a scale of one to four.
Decentralized decision making is encouraged so that not a single opportunity or
information is missed by the organization that could help them develop a competitive
edge in the market. The major objective of decentralized decision making is that all the
people can exercise their decision making authority in alignment with their expertise.
This leads to increased efficiency and productivity. To what extent should decision
making be decentralized depends upon factors like responsiveness, dependability,
authenticity, efficiency, compliance, association and urgency. If the focus is on
responsiveness and urgency, decentralized decision making is highly encouraged. If the
requirement calls for the other factors like dependability, authenticity, compliance and
association centralized decision making should be the choice (Vantrappen and Wirtz,
2017). At Trading.Com there is a decentralized decision making at the top level is
decentralized where a centralized and group decision making is desirable. It would have
been better if the courses were developed after brainstorming and group discussions. The
result is evident as the new courses are failing now.
This factor can be rated as high as 5.
The total score is 4+4+5= 13

II. Risk Exposure Calculator
Growth
Pressure for
performance
4
+
Rate of
expansion
4
+
Inexperience
of key
employees
4
+ 12
Culture
Rewards for
entrepreneurial
risk taking
1
+
Executive
resistance to
bad news
5
+
Level of
internal
competition
5
+ 11
Information Management
Transaction
complexity
and velocity
4
+
Gaps in
diagnostic
performance
measures
4
+
Degree of
decentralized
decision
making
5
+ 13
Total Score 36
III. Recommendations Based on Risk Exposure Calculations
The score of 36 on the risk exposure calculator is a clear indication that the organization
is in high risk and danger. It is time to save the business from disaster by adopting all the
possible necessary corrective measures. In the case of Trading.Com the following
corrective measures are recommended to prevent the disastrous future.
1. The pressure for performance should be transformed into a motivational mindset that
should encourage innovation and creativity and not just ruthless competition among
the employees.
2. Rate of expansion should be gradual after considering the external and internal
environment factors that include the competitive strategies of the other competitors,
the organization’s capabilities including human resources and other functional
activities.
3. While expanding aggressively in a short duration of time the required experience of
the newly hired employees has been overlooked. In due course of time this will affect
the organizational performance adversely. Hence it is recommended that experience
of the key employees should never be neglected just for the sake of hiring because the
impact can be fatal in the long run.
4. Rewards for entrepreneurial risk-taking should be high so that it encourages a more
entrepreneurial mindset and attitude. Entrepreneurial risk-taking is an essential

attribute for starting any new venture. It fosters innovation and generation of new
ideas. There are risk assessment techniques and tools that help estimate the cost
incurred and other impacts of the risk.
5. The management should be open to receive bad news along with good news because
the bad news provides the opportunity to take the corrective measures at the right
time and introduce any necessary changes required.
6. Level of internal competition should be such that it fosters the growth and
development of the employees and not just create a bias. Competition should be
healthy where the performance of the employees is measured based on their skill set
and not based on one single parameter. There should be healthy competition instead
of ruthless competition.
7. There should be a proper check on the transaction complexity and velocity in
alignment with the market dynamics. Right kind of management information systems
(MIS) tools and techniques should be opted and implemented for better management
of information.
8. Gaps in measuring diagnostic performance should be minimized. The target should be
to achieve the desired objectives as much as possible without much deviation.
9. Degree of decentralized decision making should be minimized as organizational
decision making should be the right mix of both centralized and decentralized
decision making depending upon the requirements. For instance for immediacy and
responsiveness, decentralized decision making is encouraged. But for reliable and
authentic decision making, a centralized process is recommended.

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