The promotion of strong and proactive risk culture is one of the major challenges that Orpic faces today as it needs to find a way to respond to existing threats and capture new opportunities more effectively. The lack of an integrated approach currently threatens the company’s employee and stakeholder safety, as well as its ability to complete different projects, avoid high costs and financial losses, attain strategic objectives, and continue to grow. Considering this, the present report will detail how the implementation of a holistic Enterprise Risk Management (ERM) strategy, which has a purpose to influence organizational behaviors and processes and ultimately impact the value and performance of a firm, and promotion of risk culture will affect distinct aspects of Orpics’s processes and organizational behaviors. It can be argued that this solution will help the company to prevent crises, sustain the business, and grow.
People
It is valid to say that organizational risk management is directly interrelated with employee motivation. In accordance with Herzberg’s theory of motivation, occupational safety can be viewed as one of the core hygienic factors that either cause or minimize job dissatisfaction (Damij et al., 2015). Even though unlike intrinsic motivating factors, hygienic factors do not affect employee motivation as such, they influence workers’ attitudes and commitment to the organization. As noted by Jalagat Jr (2016), satisfied employees tend to have a feeling of belonging to the organization, whereas the dissatisfied ones are associated with higher rates of resignation and absenteeism. Higher job satisfaction may also be correlated with better employee performance, productivity, and the overall willingness to contribute to the company (Jalagat Jr 2016). Moreover, job satisfaction can be regarded as part of individual thriving at work, which “consists of energy involving positive emotion and eagerness to involve in particular task” and which can motivate a worker “to go beyond the job responsibilities and think creatively” (Riaz, Xu & Hussain 2018, p. 3). In this way, effective risk and safety management can help Orpic to reduce costs linked to poor performance and absenteeism and maximize the benefits associated with organizational creativity and innovation.
On the other hand, the degree of overall employee motivation may impact the way risk management practices and policies are implemented in the company and the degree to which they adopt the values of proactive risk culture. For instance, according to Shangareev (2018), “employees’ incompetence and lack of motivation are the sources of 93-97% of cases of injuries related to the negative impact of the so-called “human factor:” improper organization of work performance and preparation of workstations, violation of safety regulations when using tools, machines, and mechanisms, a departure from duty regulations and operating procedures, and other reasons” (p. 3). Therefore, it is essential for Orpic’s management to employ the right motivation system and provide a sufficient level of support to workers. In this regard, it is pivotal to undertake an appropriate leadership approach and style that would engage employees in the creation of a safe work environment and also engage in risk-taking behaviors inducive to greater profits and innovation.
It is worth noticing that a wide range of organizational behaviors can be facilitated through the company’s setup and encouragement or, in other words, through culture and certain value-promoting activities. Considering this and that Orpic’s main concern is the development of strong risk culture, it can be argued that its managers and leaders must apply the elements of transformational leadership. Transformational leadership aims to affect the emotional aspect of human behavior by appealing to employees’ interests and to stimulate the desired attitudes and greater workers’ engagement by aligning their needs with corporate goals and objectives (Biner 2015). Transformational leadership involves such activities as creation and communication of vision and values, and it functions to foster greater stakeholder accountability, employee empowerment, development, and use of supportive mechanisms, such as rewards and recognition (Biner 2015). Therefore, transformational leaders can play a major role in the creation of risk culture and, thus, can have a positive influence on the implementation of well-balanced risk management across the company by stimulating compliance with safety standards and helping employees comprehend the importance and value of risk awareness and risk-taking.
Financial Aspect
Such basic risk assessment paradigms as cost-benefit analysis allow identifying which approach should be undertaken to deal with different uncertainties and risks depending on the volume of potential gains and losses that specific risk can induce. Therefore, the use of this analytical model of financial risk management as part of a comprehensive ERM strategy can help Orpic to capture new revenue possibilities and avoid substantial losses. Moreover, since the major purpose of ERM is the protection of organizational assets, its implementation can contribute to more substantial financial performance and is also positively correlated with an increase in a firm’s value and shareholders’ wealth (Olayinka et al. 2017).
It is worth noticing that in order to maximize gains associated with capturing risks and opportunities, the corporate risk culture should promote risk-taking behaviors in employees while also maintaining a good balance between risk appetite and risk accountability. The latter term refers to sufficient control of overall potential risks and uncertainties, whereas risk appetite means a deliberate pursuit of risks that can result in significant advantages in the long run (Jackson 2018). The attainment of a proper ratio between the two is possible only when the firm uses effective governance and risk management structures, which allow evaluating a wider range of both financial and non-financial risks and benefits. Since ERM implies such a comprehensive approach, it can help Orpic improve its financial performance through better risk culture and risk-taking, in particular.
Marketing
Product
Risk management practices included in the ERM address the issues of product quality and new product development. For instance, to ensure a high quality of its petroleum and other products, Orpic needs to make sure that it operates advanced oil and gas treatment technologies and upgrades its systems, equipment, and plants to meets a high production standard. In addition, it needs to employ skilled and competent personnel and provide necessary training to minimize the incidence of any human errors that could compromise the quality of products (Das et al., 2014). These production aspects – talents and technological support – affect the technical performance of product development practices as well. Moreover, since risk management involves thorough environmental analyses aimed at the identification of market uncertainties, complexity, and other factors, it can help improve costs and schedule of product development and production (Oehmen et al., 2014). As a result, the implementation of ERM strategy can help Orpic attain greater product success.
Price
Risk management can affect Orpic’s product pricing in two ways: by reducing costs and enhancing product quality. As the fuel refining costs decrease, Orpic’s final product price may decrease as well. On the other hand, as the quality of petroleum rises, the company may increase the final product price without compromising the rate demand because consumers regard quality as an essential value and are usually willing to pay more for it (Zeithaml 1988). At the same time, it is valid to say that the demand for lower-priced fuel of optimal quality will always be high. Therefore, whatever approach Orpic may choose to change product pricing after the ERM is implemented, it is likely to result in greater profits and cost savings.
Place and Promotion
Since risk management relies on extensive environmental analysis, it can help Orpic to choose an appropriate product placement and promotional practices. Quality and safety assurance can become key points in its promotional messages and, as far as the company will manage to deliver these values as a result of successful risk management, customer trust and loyalty may increase considerably due to such a promotion approach (Marakanon & Panjakajornsak 2017). It can not only help to maintain the existing customer base but also expand it (Marakanon & Panjakajornsak 2017). Along with this, by adding more values to its products, Orpic will increase the number of placing opportunities and gain greater chances to partner with more diverse distributors who value safety, stakeholder accountability, and sustainability.
Strategy: PESTEL
The application of the ERM strategy involves the conduct of regular, comprehensive analysis of business contexts and markets. Thus, the PESTEL framework, which focuses on the assessment of six different types of macro-environmental factors, can be of great use since it allows locating a plethora of threats and uncertainties and finding links between them, the company, and specific challenges it faces. The consideration of different kinds of risks that PESTEL serves to evaluate will guide Orpic when choosing the right strategic orientations, striving to grow and remain profitable, managing costs effectively, and increasing competitiveness.
Political
Natural resources in Oman are controlled by the government, and, moreover, Orpic is itself a governmentally owned enterprise. Thus, the government is one of the key organizational stakeholders, and any changes in the country’s political sphere inherently induce uncertainty that can substantially affect the way the business is conducted. In addition to domestic political risks, such as “untested succession plan” and the sultan’s health (The Economist 2019, para. 1), the company must pay greater attention to escalating conflicts in the region that may negatively impact Orpic’s international affairs because they threaten Oman’s neutral position (Goldsmith 2018).
Economic
Existing economic risks can largely affect financial performance and influence various investment decisions. It is observed that economic growth at the global level has been decreasing along with the volumes of foreign direct investment, whereas public and private debts have been rising due to strict monetary policies and trade tensions (Li 2019). Moreover, crude oil prices have always been extremely volatile. Therefore, it is pivotal to analyze economic risks to understand how they may affect Orpic’s product demand and select appropriate risk mitigation techniques.
Social
Quality, affordability, and safety of products are among the core consumer interests worldwide. As consumers are growing more informed, they require businesses to be more transparent and accountable for various stakeholder needs and interests (Pitatzis 2016). The consideration of social factors and trends is important in order to maximize consumer values and improve products in a way that stimulates greater demand.
Technological
Modern technologies are continually evolving and provide multiple opportunities to increase firms’ competitive advantages. The major technological trends nowadays are automation, lasers, and robotics, and their integration in the oil refining business allows increasing production efficiency considerably (Pitatzis 2016). At the same time, it is observed that the use of electronic vehicles is becoming more widespread, which threatens the demand for petroleum products (Dudley 2018). However, Orpic may use this information to make adjustments in its product and investment portfolio and, in this way, adapt to social-cultural trends successfully.
Environmental
The oil and gas industry is considered to be one of the primary sources of all global gas emissions. At the same time, more and more individuals and organizations have become increasingly concerned with the issue of global warming. As the risk of environmental deterioration will likely continue to rise in the future, the overall Orpic’s existence may be under threat since it currently works merely with fossil fuels. The further investigation of environmental risks as part of Orpic’s ERM strategy will help it to find the right strategic decision and make substantial systematic changes in a timely manner.
Legal
The main laws that should be considered by Orpic during risk management are related to occupational safety, environmental sustainability, intellectual property, fair hiring practices, financial accounting, and many more. In fact, almost every area of performance is regulated by specific domestic policies and international standards that should be taken into account when devising organizational practices and structures. Changes in all these laws should be monitored to ensure corporate excellence, protect Orpic’s reputation and image, and stimulate stakeholders’ support.
Operations Management
The types of risks and environmental factors identified in the PESTEL framework affect not only strategic decisions but also operational management practices. As noted by Giunipero and Eltantawy (2004), political tensions, technological changes, financial instability, and other possible problems in the business context in which the corporate strategy is created can either decrease product demand or/and ability to supply products. In addition, supply chain managers must consider such a factor as the distance from the source since it “adds uncertainty to supply continuity through longer lead times and potential transportation disruptions” (Giunipero & Eltantawy 2004, p. 700).
Moreover, it is essential to evaluate supplier/partner capacity constraints and their financial stability because these factors are interrelated with Orpic’s ability to deliver products in time, avoid financial losses and reputational damage, and ensure that the high quality of products is maintained until the point of final purchase. Therefore, an essential part of Orpic’s ERM should be focused not just on internal production and distribution channels but also on a thorough evaluation and selection of partners. Overall, the main objective of risk management in terms of supply chain operations is to make sure that their performance is informed by the analysis of market trends and internal capabilities to satisfy those trends.
When applied to the organizational procurement strategy, risk management can help reduce costs, optimize the use of assets, and establish appropriate contractual arrangements for the completion of different tasks and projects. Besides that, the creation of the risk culture can allow increasing Orpic’s competitiveness and innovation through various procurement operations. Innovation-oriented procurement can be defined as a purchase or a placement of an order for a product, service, or system that is either unconventional or even currently non-existent but which could be soon developed and, when applied in the company, could provide multiple benefits (Kalvet & Lember 2010). Although all innovation endeavors are inherently risky, when based on extensive research evidence and risk awareness, they serve to increase competitiveness and sustain economic development in the long run (Kalvet & Lember 2010). In this way, the alignment of risk management with procurement management can help Orpic improve its performance in terms of profitability, brand quality, and prevention of business insolvency.
Project Management: Cultural Change and Integration of ERM
Development of the risk culture requires substantial changes in the company, and this change process can be handled through various management models. Kotter’s model is one of the strongest and most detailed nowadays, and it comprises eight steps. The first one is establishing a sense of urgency, which requires carrying out environmental analysis and identify potential risks (Brisson-Banks 2010). As it was discussed previously in the report, the lack of a strong risk management strategy and culture can threaten Orpic’s resilience, competitiveness, and profitability. Thus, in order to create a sense of urgency, the management must convey information about existing threats and needs for change to all employees. The second step in Kotter’s model is the formation of a guiding coalition that would lead the change process (Brisson-Banks 2010). Since the ERM strategy is comprehensive and captures multiple areas of performance, it is essential to make sure that representatives of all key departments are involved in the change management efforts. Clearly, a single person will not be able to take into account all organizational risks, whereas a collaborative, interprofessional team can do it with greater creativity and greater chances for success.
The third step is the creation of a vision, which includes the alignment of overall corporate and strategic objectives with the needs for better risk management and risk culture. An ideal vision guides firms during the evaluation of resources needed for its realization and, thus, allows designing optimal strategies for attaining the desired state of being (Brisson-Banks 2010). Communication of a vision is the fourth step in the selected change management model, and it helps to inspire stakeholders for action and to reduce their resistance to change (Brisson-Banks 2010). This step requires the implementation of an appropriate leadership approach, and, as it was previously discussed, the use of transformational leadership features can allow Orpic to achieve better visual communication outcomes. Similarly to communication, the fifth step, employee empowerment, serves to remove barriers to change (Brisson-Banks 2010). It implies that Orpic should develop supportive systems, adopt safety standards, enforce policies, launch training programs, and perform other activities that can result in needed behavioral changes.
The next step in Kotter’s model is the creation of short-term wins. Overall, to do so, Orpic will need to articulate interim objectives clearly and make sure that employees grasp them well. Additionally, it should implement a reward and recognition system that would encourage workers to attain those objectives. The seventh step is the consolidation of positive results, and it is achieved through the application of additional policies and standards, further employee development, and initiation of new projects (Brisson-Banks 2010). Lastly, the institutionalization of new approaches must take place, and this step requires the evaluation of results and articulation of their links to adopted practices (Brisson-Banks 2010). Overall, the ultimate goal of this last step is the incorporation of values of all conducted and effective change practices into the culture, and this outcome is directly correlated with Orpic’s present needs for the establishment of risk culture. Therefore, it is valid to say that Kotter’s eight-step model can be utilized to address the challenge that Orpic is currently facing. By following it, the company will be able to minimize the risk of failure during the change process and target the problem in a systematic manner.
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