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Corporate Risk Management

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1. Introduction

Corporate risk management is a method by which a company reduces the chances of financial loss. Along with the financial loss, a company also evaluate the prevailing external and internal threat to the organisation and provide a resistant environment to mitigate those chances. Thus, this corporate risk management is a necessary procedure which influences on the sustainability and competitive advantage of a company in a specific market. Sometimes, it can be noticed that by incorporating coherent approaches in order to lower the chances risk, a business organisation might take certain decision which impacts on the financial assets and fluctuation in the financial market. In the current report, the three leading British Brands such as HSBC, British Airways, and Tesco have been incorporated in order to analyse their strategic measures to minimise corporate risk and achieve the market sustainability along with competitive advantages. In order to get a competitive advantage, these companies have developed certain strategic planning to leading, administration and directing those organisation in a stable manner. On the other hand, besides these strategies, the government of the UK has also incorporated codes and legislation in order to provide a common process of risk management for all business sectors which have been also discussed in the current report.

2. Risk assessment

In case of an e-commerce or a bank, the security in the financial sector is the most necessary measure. In case of Tesco Bank, they have had a financial risk due to massive cyber attack. Similarly, for Tesco Bank, the breaching of financial profiles of customers provides the company a major risk in the market. Almost 20,000 bank accounts have been hacked by another bank of the UK and about 9,000 customers' accounts have been theft by 2.5 million euro (theregister.co, 2017). According to Bessis (2015), financial security to the customer is the main aim of a banking sector and the downfall of this can harm the reputation. Hillson and Murray-Webster (2017) supported and commented that, in case of the EU and the UK, a high rate of online financial fraudulent activities can be noticed which needs to be monitored. Thus, this is the most significant risk management factors which might be the most significant concern of the bank. However, after this massive cyber attack, Tesco has enlisted their name in the National Cyber Security Centre (NCSC) and they have noticed the credential stuffing of 136,000 current accounts and a very poor login option (theregister.co, 2017). As opined by McNeil et al. (2017) a strong login option consist a unique username and miscellaneous character containing pin password. This was totally absent in the Tesco online banking which has been evaluated by chief executive of cyber-security service (ECSC) Ian Mann.

On the other hand, in case of HSBC bank, the issue is quite different than Tesco in which the bank has engaged in being a conduit. Along with this king pinning and dealing with drugs has also observed which provide a reputational and operational risk to the company. According to Titman et al. (2017), in case of a financial service sector especially in case of a bank, it is necessary to evaluate the profile of people and to monitor the transaction of the customers. Adam et al. (2015) supported and commented that, in order to notice the antisocial activities of people, the reputed and big firms can provide effective monitoring procedure on the customers and users. However, in case of the HSBC bank, the main issue has occurred due to the massive rogue transaction among 32 countries (theregister.co, 2017). Thus, both the reputation and ethical practice have been fall in case of HSBC for becoming the money launder to the antisocial people. As argued by Bakke et al. (2015) that in order to spot these activities of antisocial monetary transactions the government has incorporated certain measures to eradicate this dealing. Thus, HSBC has to pay about 2 billion euro for failing to stop the criminal activities and antisocial transactions (bbc.com, 2017). Bromiley et al. (2015) stated that the high amount of transaction can be evaluated due to the probability of antisocial activities. Similar, in case of HSBC, the high profile clients are involved in trafficking of drugs, cheques of bulk traveller with a million dollar along with the company lack of reluctance in closing this high profile account with suspicious activities (Stanhope et al., 2015).

As per the Risk Management Matrix, the British Airways is having a massive operational risk due to their faulty IT system. As opined by Calomiris and Carlson (2016), the IT system of an airline company is needed to be strong in order to maintain the operational works and reduce the risk of accident. About 5 times crashing of the system in a year, the sixth time crash has influenced all British Airline Flight on a global scale and the reputation of the company disrupted (techcrunch.com, 2017). The company has claimed that there is not any cyber attack that had taken place whereas, some of the staffs also claimed for the occurrence of cyber attack. Thus, this issue made the passengers unsatisfied which flooded the twitter account of BA with negative comments. Elshandidy and Neri (2015) argued that, this negative publicity impacts on the reputation and future operational process of a company and slower the sustainability

3. Response to risk

Tesco has taken appropriate risk response to the crisis of their financial risk management by enlisting their name in the NCSC. According to Elshandidy et al. (2015), the most significant aspect of a risk management is to search for the probable factors and eradicate the probable issue from the company. As per the Model risk and Regulatory Scrutiny, by evaluating the value at risk limit, the company has strategically changed the online payment method. The default email usernames have been changed by the company and they have asked their clients to provide their unique multi character pin based pass codes. However, due to the breaching of the EU protocol of General Data Protection Protocol, Tesco had to pay a large amount of monetary penalty which is of 2 billion euro under GDPR rules (theregister.co, 2017). On the other hand Gatzert and Martin (2015) argued that, in case of a breaching of financial data of customers, a company might incorporate the strategy remodel in the internal management and IT system in order to mitigate the risk of fraudulent activities.  Thus, the management of the company has changed the existing transaction methods and focused on the branding. According to Gendron et al. (2016) branding is the correct option to regain the reputation of the company. Thus, by the social media, direct contact with customers and newspaper the company had initiated to regain their reputation [Refer to appendix 2].

On the contrary, the HSBC bank has also taken measures in order to lower the antisocial transaction of drug dealers. As opined by Hoang and Ruckes (2017), in case of a financial service sector especially in case of a bank it is necessary to evaluate the profile of people and to monitor the transaction of the customers. The bank has restructured their rules of transaction above a certain amount which impacts on a large number of monetary exchanges. In case of the countries where this risk is highest are segregated and has incorporated special rules for them. Among the countries of Iran, Burma, North Korea, Mexico, and the US are the most threatening countries where the high profile clients were pursuing high transaction (bbc.com, 2017). On the other hand, Kang and Pflueger (2015) argued that, in case of fraudulent activities such as transaction of black money and antisocial activities, a company needs to evaluate the previous documents of high level of transaction. Thus, in order to analyse the previous suspicious report, the bank has evaluated the transaction details in various countries since 2001 to 2007. In this report, the bank has found 28,000 undisclosed transactions worth of 19.7 billion dollars (bbc.com, 2017).

In case of the British Airlines, the serious level of risk has been observed due to the crash of IT system of the company. As for this reason, the company had to dismiss each and every flight from Heathrow to Gatwick. Thus, the company has faced a massive negative feedback from the customers and passengers. According to Li et al. (2018), a sudden negative feedback from the user lower the competitive advantage and the rival companies provide a tremendous market rivalry to the concerned company. Thus, the company has looked after the regaining of customers attention by promoting strategic planning of branding. As opined by Ott and Theunissen (2015), the IT system of an airline company is needed to be strong in order to maintain the operational works and reduce the risk of accident. About 5 times crashing of the system in a year, the sixth time crash has influenced all British Airline Flight in a global scale and the reputation of the company disrupted (Bodnar et al., 2014). In the branding process, the company has advertised for the low price international travel option in both economy and business class. Along with this, the company has also provided the customers a free food facility and gained a large number of potential new customers.

4. Risk review

Managing of risk in the corporate sector is a multidimensional work which is the most significant process in the strategic business management. According to Rampini et al. (2014), there are two major processes in the risk management which are the communication channels and setting entire risk defence framework. In case of the Tesco Company, the customer's or the liability of the company has lot a significant amount of money due to the cyber security issue thus, in order to maintain the security in the online banking and online transaction, the company needs to provide effective strategic plan about the generation of password and username. On the other hand, Salter (2014) argued that, in case of any online transaction and payment method, the company needs to incorporate special security question in case of each transaction and changing of pass codes. Bessis (2015) supported and commented that along with the security question generation of one-time password (OTP) is necessary in order to make a variety. Tesco has a short length of password with only the access of bank. This method is not a good choice as not much possible combinations can be generated from this. However, Hillson and Murray-Webster (2017) opposed that banks need to provide customer passwords according to the customer preferences and it can be of a good strength.

Critically it can be stated that the HSBC is most ignorant about their high amount of transaction. Being a global bank with branches in 40 countries, it is easy for the customers to conduct the overseas transactions. Thus, the bank has promoted a mass transaction method to their customers and this factor widens the scope of antisocial transaction and a system to launder money for drug. According to Elshandidy and Neri (2015), this drug dealing is a serious offense which the bank could possibly monitor and take effective measures for them. However, the bank has failed to take appropriate action and in spite of seizing the account of criminals, HSBC has allowed their heavy amount of transactions. The HSBC bank has also taken measures in order to lower the antisocial transaction of drug dealers. As opined by Kang and Pflueger (2015), in case of a financial service sector especially in case of a bank it is necessary to evaluate the profile of people and to monitor the transaction of the customers. Thus, in order to get effective risk obstructing strategy, the company might incorporate effective rules and regulation and put a limit on the amount of transaction. Along with this, HSBC Mexico (HSMX) might regulate the payee such as the Mexican Drug Baron which has received almost 7 billion dollars in 2007 to 2008 (bbc.com, 2017).

The operational risk management is comparatively smoother process which can be conducted by the British Airlines company. According to Gendron et al. (2016), up gradation of technology in a company, especially in case of a service provider companies like airlines, is necessary. However, Elshandidy and Neri (2015) argued that, besides the up gradation of technology, the risk management in the software system is needed in order to maintain the quality of service. Thus, BN needs to build a security among their software and servicing portal. In spite of having continuous 5-time crash in their software, the company did not effectively analyse the reason for the crash. Thus, this has influenced on the sixth time massive attack which was suspected as a cyber hacking. On the contrary, Hillson and Murray-Webster (2017) argued that a repetitive software crash is always indicating the issues of cyber hacking. Thus, this disaster is reflecting the inability of the management to provide an uninterrupted service and the mismanagement of risk.

5. Risk communications

After having the issue, Tesco has communicated with their main stakeholders and shareholders. The main stakeholders are the customers, employees, and government. Along with this, the company has also involved NCSC which is the main cybercrime monitoring organisation of the UK. The company has also taken help from the government and the policies such as Fraud act 2006 in order to mitigate the risk (theregister.co, 2017). According to Ott and Theunissen (2015), in case of a financial company, the customer can be informed about any issue regarding their financial status. In this communication process, the company has involved the social media and direct mailing process in order to reach to the individual customers. As opined by Salter (2014), the direct communication in a B2B business model impacts on the retention of the customers. On the contrary, Li et al. (2018) argued that along with the communication with customers the employees of any organisation need to clear about the issue and risk. Thus, Tesco needs to involve their customers in managing the risks in order to eradicate the further chances of risk and fraudulent activities.

On the other hand, in case of the HSBC the company is quite liable to make their offense. This, the employees can be in a trouble due to the unethical practice in the company. The HSBC is most ignorant about their high amount of transaction. Being a global bank with branches in 40 countries, it is easy for the customers to conduct the overseas transactions. Thus, the bank has promoted a mass transaction method to their customers and this factor widens the scope of an antisocial transaction and a system to launder money for the drug. According to Elshandidy and Neri (2015), this drug dealing is a serious offense which the bank could possibly monitor and take effective measures for them. Thus, the company has taken the strategy to put a barrier in a high amount of money transfer above 5000 dollars (bbc.com, 2017). On the contrary, the HSBC bank has also taken measures in order to lower the antisocial transaction of drug dealers. As opined by Hoang and Ruckes (2017), in case of a financial service sector especially in case of a bank it is necessary to evaluate the profile of people and to monitor the transaction of the customers [Refer to appendix 3]..

The global IT failure has a tremendous impact on customer outcome of British Airways. Along with the cancellation of a fight, the ongoing flights had also created trouble for the customers.  In this case, the company has failed to provide good communication to the customers and has lost their potential customers. According to Ott and Theunissen (2015), the communication with employee and management is necessary in order to mitigate the chances of misconception. However, as for this reason, some of the staff members spread the rumour to the passengers about cyber hacking in the software system of BA (techcrunch.com, 2017). Thus, this impacts on the customer outcome as they thought the company does not possess effective strategic management in order to mitigate this issue. This issue impacts on the loss of market sustainability and competitive advantages in the market. In the branding process, the company has advertised for the low price international travel option in both economy and business class. Along with this, the company has also provided the customers a free food facility and gained a large number of potential new customers. Thus, this communication has reinforced the retention of potential customers in the company.

6. Findings and conclusions

Thus, there is a similarity between the three case has been noticed which are prevailing to provide corporate risk. This factor is the lack of strategic management among these companies. In case of Tesco, the company has not taken effective measures such as unique passwords, username, security questions and multi-character one time passwords. As for this reason, the company has faced the trouble of account fraud. On the other hand, in case of the HSBC bank, the lack of strategy has led the company to mark as a launder of antisocial money. If the company implement a proper monitoring strategy, the company might avoid this risk. Along with this, the company should incorporate strategic plan to provide a limit to the account transaction. In case of British Airways, after 5 times software crash, the company must take the additional backup system in order to smooth their customer service.

Henceforth, it can be concluded the operational management strategy in these companies are disputed. As for this reason, certain risks have occurred and the companies have faced severe issues in order to mitigate the risks. Sometimes, it can be noticed that by incorporating coherent approaches in order to lower the chances risk, a business organisation might take a certain decision which impacts on the financial assets and fluctuation in the financial market. Thus, along with the management of these companies might incorporate strategic plans in order to achieve competitive advantage and financial stability.

Reference List

Bessis, J., (2015). Risk management in banking. John Wiley & Sons.

Hillson, D. and Murray-Webster, R., (2017). Understanding and managing risk attitude. Routledge: London

McNeil, A.J., Frey, R. and Embrechts, P., (2015). Quantitative risk management: Concepts, techniques and tools. Princeton university press.

Titman, S., Keown, A.J. and Martin, J.D., (2017). Financial management: Principles and applications. Pearson.

Adam, T.R., Fernando, C.S. and Golubeva, E., (2015). Managerial overconfidence and corporate risk management. Journal of Banking & Finance60, pp.195-208.

Bakke, T.E., Mahmudi, H., Fernando, C.S. and Salas, J.M., (2015). The causal effect of option pay on corporate risk management. 3, pp.17-21.

Bromiley, P., McShane, M., Nair, A. and Rustambekov, E., (2015). Enterprise risk management: Review, critique, and research directions. Long range planning48(4), pp.265-276.

Calomiris, C.W. and Carlson, M., (2016). Corporate governance and risk management at unprotected banks: National banks in the 1890s. Journal of Financial Economics119(3), pp.512-532.

Elshandidy, T. and Neri, L., (2015). Corporate governance, risk disclosure practices, and market liquidity: comparative evidence from the UK and Italy. Corporate Governance: An International Review23(4), pp.331-356.

Elshandidy, T., Fraser, I. and Hussainey, K., (2015). What drives mandatory and voluntary risk reporting variations across Germany, UK and US?. The British Accounting Review47(4), pp.376-394.

Gatzert, N. and Martin, M., (2015). Determinants and value of enterprise risk management: empirical evidence from the literature. Risk Management and Insurance Review18(1), pp.29-53.

Gendron, Y., Brivot, M. and Guénin-Paracini, H., (2016). The construction of risk management credibility within corporate boardrooms. European Accounting Review25(3), pp.549-578.

Hoang, D. and Ruckes, M., (2017). Corporate risk management, product market competition, and disclosure. Journal of Financial Intermediation30, pp.107-121.

Kang, J. and Pflueger, C.E., (2015). Inflation risk in corporate bonds. The Journal of Finance70(1), pp.115-162.

Li, L., Monroe, G.S. and Coulton, J., (2018). Managerial Litigation Risk and Corporate Investment Efficiency: Evidence from Derivative Lawsuits.

Ott, L. and Theunissen, P., (2015). Reputations at risk: Engagement during social media crises. Public Relations Review41(1), pp.97-102.

Rampini, A.A., Sufi, A. and Viswanathan, S., (2014). Dynamic risk management. Journal of Financial Economics111(2), pp.271-296.

Salter, M., (2014). Corporate Risk Management. Corporate Financing in Practice: Opportunities and Decisions on the Hungarian Market. Budapest: Alinea, pp.225-238.

Bodnar, G., Giambona, E., Graham, J. and Harvey, C., (2014). A Guide to Corporate Risk Management. [Online] 56(3),   p.43.  Available   from: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2479483 [Accessed on 8/4/18]

Stanhope, K.L., Medici, V., Bremer, A.A., Lee, V., Lam, H.D., Nunez, M.V., Chen, G.X., Keim, N.L. and Havel, P.J., (2015). A dose-response study of consuming high-fructose corn syrup–sweetened beverages on lipid/lipoprotein risk factors for cardiovascular disease in young adults–. The American journal of clinical nutrition [Online] 101(6), pp.1144-1154. Available   from: https://academic.oup.com/ajcn/article/101/6/1144/4564534 [Accessed on 8/4/18]

bbc.com (2017) HSBC money laundering report: Key findings. Viewed on 8/4/18. http://www.bbc.com/news/business-18880269

techcrunch.com (2017) Chaos as global IT failure takes out all British Airways flights out of London. Viewed on 8/4/18. https://techcrunch.com/2017/05/27/chaos-as-global-it-failure-takes-out-all-british-airways-flights-out-of-london/

theregister.co (2017) What went wrong at Tesco Bank. Viewed on 8/4/18. https://www.theregister.co.uk/2016/11/10/tesco_bank_breach_analysis/

 

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