The Creation of a Corporate Security Management Strategy: Organizational Survival - Research Paper Example

 1.1. Introduction 1.2. Objective and Aim The main objective of this paper is to explore the emerging risks and security management strategies in the 21st century, in the context of globalization, which has resulted to the increased interconnectedness and interrelatedness of states due to the openness of national frontiers. The aim of exploring the emerging risks and security management strategies in the 21st century is to provide the framework that decision-makers, especially senior management officers in multi-national corporations, can follow in establishing a unified corporate security management capability. This study proceeds from the premise that having an in-depth knowledge of potential risks and the prevailing security management strategies in use in the 21st century is crucial starting point in the process of establishing a unified corporate security management strategy. 1.3. Research Methodology This paper will follow the qualitative research methodology, drawing on qualitative research methods such as library research to generate data regarding our present study, to understand the emerging risks and security management strategies in the 21st century. 1.4. Scope of review To achieve its aim and the objective, this paper will conduct a systemic review of all previous research concerning the shifting global security environment because of globalization in general, but will narrow down to a meta-analysis of the specific sources highlighting the emerging security risks and corporate responses in the 21st century. Numerous business security risks have existed in the past but for the purpose of this present study, our investigation will only focus on the new risks that never existed before and/or those that probably existed but were not much of a threat to business as they are today. 1.5. Rationale of study In the wake of the 21st century, the world has witnessed new and challenging security issues for all multi-national enterprises and governments alike (Strzelecki, M 2008), from the hugely damaging windstorms and flooding in Europe and the ice storms witnessed in Canada, to the new breeds of diseases for both humans and animals (OECD 2003). Apart from that, the 21st century has also been vile with a host of security threats and disasters in harrowing magnitudes, including terrorist attacks such as the September 11 attack on the US in 2001, and other major breakdowns of critical infrastructures due to cyber-attacks or technical failures making news headlines all over the world (Lehto, M 2013). Over the past 20 years, many scholars have been interested in examining the continuously shifting global security environment because of globalization in general, but very little research has been dedicated to the emerging security risks threatening business in the 21st century and the prevailing corporate security management strategies (Goldin, Ian 2010). However, over the past five years following the collapse of financial markets during the 2008 financial crisis, the concept of systemic risk (the type of threat that spreads rapidly across countries and organizations) has gripped public attention attracting a vast volume of research. Nonetheless, the prevailing research in the field of systemic risk is not exhaustive, particularly because of numerous shortcomings in the empirical measures and/or methodology used in previous studies namely the “Too Big To Fail” (TBTF) and the “Too Interconnected To Fail” tests. Additionally, much of this research is biased and limited in concept because it tends to think of systemic risk only in terms of financial institutions such as banks. However, the elimination of intermediaries today implies that multi-national corporations can now access funds from the capital market without going through the banks or all other intermediary-institutions. This creates the need for research to focus on financial markets and their relationship with institutions, a gap that this present study seeks to fill; for businesses to survive in the current global financial markets, they need to understand the emerging risks in the 21st century and the prevailing security management strategies. This research is not only relevant but also important because it will provide a fundamental framework for the creation of a corporate security management strategy, which is crucial for organizational survival, especially given the volatility of the global business environment in the 21st century. 2.0. Theoretical debates Insofar as systemic risk in the financial sector is concerned, Freixas, Parigi & Rochet (2000) argue that if one bank collapses, its fall can be catastrophic to other banks since it may potentially lead to a chain reaction on the rest of the system, consequently propelling the fall of other banks. Furthermore, their argument goes on that the central bank can and should provide adequate protection to prevent the possibility of a systemic risk spilling over to other institutions through appropriate coordination, in the event of a systemic risk of that magnitude. Taking the argument even further, Acharya, V. V., (2009) posits that systemic risk is the endogenously chosen correlation of returns on assets held by banks while the bank’s limited liability and presence of external threats in the form of one bank’s negative impact on the stability of others give rise to systemic risk shifting incentive. The systemic risk-shifting phenomenon entails all banks undertaking correlated investments thus increasing the likelihood of the market-sweeping aggregate risk occurring endangering business for all players in the market accordingly. Acharya, V., et al. (2010), through their simplified model of systemic risk, claim that the manner in which an individual financial institution contributes to systemic risk (denoted as Systemic Expected Shortfall) can be measured and priced. According to them, institutions have a high propensity to be undercapitalized when the whole system is undercapitalized and this inevitably increases their advantage, volatility, correlation, as well as tail-dependence. In the same line of thought, De Bandt & Hartmann (2000) argue that a broad concept of systemic risk should incorporate systemic events in the banking and financial markets as well as in the connected payment and settlement systems; these two content that contagion effects and various forms of external effects that often underscore systemic risk. Consistent with the other perspectives, Scharcz Steven (2008) observes that systemic risk emanates from type of calamity of the financial markets, in which market players have scarce inducements, and lack regulation, to control risk taking, which will contain the systemic danger by preventing it from spilling over to others. 3.0. Emerging risks in the 21st century 3.1. Economic/financial risks According to Braun, M., et al. (2008), one of the greatest risks associated with the 21st century due to globalization forces is the economic and financial risk; consistent with their assertion is the illustration by Kose, Prasad & Terrones (2005) that the global economic crisis that led to the collapse of financial markets was the hallmark of financial risk today. Furthermore, Goldin, Ian (2010) argues that the financial crisis has led to a decline in the availability of credit from banks and other financial institutions, reducing the level of credit available to corporations thereby constraining their investment potential. Pandemic risk Goldin, Ian (2010) further highlights the global pandemic risk in the 21st century that can be attributed to the openness of national frontiers, which continuously increases exposure to a wider range of pathogens and parasites. In connection to this, the “Severe Acute Respiratory Syndrome” (2003), proposes that the increased global interconnectedness has created the conditions that promise to propel pandemics across the globe, thus, endangering business operations. The impact of pandemics to business include the direct impact on human resources who may fall sick or be quarantined or be stranded due to the collapse of transport services as service personnel become sick or quarantined as well. Illness, transport restrictions and the resulting fear of pandemics inevitably affects customers and markets as individuals become sensitive to their choices; for instance, Goldin, Ian (2010) points out that an outbreak of foot and mouth disease results to a reduction of UK beef exports and sales. 3.2. Infrastructure risk In addition, Leckey (1995) proposes that supply chains have become more complex in the 21st century than ever before, and this puts pressure on global business infrastructures; consistent with this argument, Goldin, Ian (2010) posits that infrastructure is the foundation of the proper functioning of global economies and the safety of individuals across the world. They both highlight that critical infrastructure such as energy supply, transport and communications, as well as financial systems, among others, must be in proper condition for business to thrive. The growth of global populations puts enormous strain on all infrastructures, yet corporate as well as national competitiveness depends on the efficiency and effectiveness of infrastructure. In connection to the infrastructure risk, Roy S & Sivakumar K (2007) propose that because of the increasing pressure on infrastructure assets as well as the accompanying increase in network dependencies, multinational corporations are highly susceptible to supply chain failures resulting from poor infrastructure. For instance, systemic failures in any of these vital infrastructure networks, from information communications to transportation, to energy supply, and the rest could potentially lead to a breakdown of services thereby causing catastrophic delays in the corporate supply chains. In as much as the internet has revolutionized infrastructure control systems by providing a cheap and efficient form of networking, Reynolds, S (2012) contents that the Information Technology (IT) infrastructure has increasingly become vulnerable to cyber-attacks, which leads the pack of increasing deliberate assaults on the global infrastructure networks. 3.3. Supply Chain risk Leckey (1995) posits that the massive broadening of supply chains with their increased complexity over the decades due to rapid emergence of new global opportunities for production and sales of goods and products across national frontiers has resulted to the supply chain risk. In line with Leckey’s perspective, Roy S & Sivakumar K (2007) highlight the significance for organizations to be properly adjusted for them to deal effectively with market pressures in order to survive competition in these extensive and complex global supply chains. They postulate that to achieve the right muscle to withstand competition, corporations must not only aim to respond fast, but also keep fewer inventories to reduce operational costs while adding value, and remaining focused all the time. The extensive supply chains increase the levels of risk associated with the increasing interconnectedness of global markets in the 21st century, especially because businesses may not have any control over their extensive and complex supply chains. As Goldin, Ian (2010) puts it, sharp shifts in exchange rates along the global supply chains are a common risk that multinational corporations always run, thereby leading to currency losses; furthermore, a globalized supply chain makes it hard to rectify disruptions in the Just-In-time business model corporations. 3.4. Food shortage risk Food shortage is yet a crucial emerging risk in the 21st century, according to Goldin Ian (2010), who argues that the rapidly increasing populations coupled with the rising incomes has led to an increased demand for food in the world today, besides transforming the nature of foods under demand. As Leckey (1995) noted, increased interconnectedness of global supply chains has also increased diversity of food supply, which has given consumers access to foods that are sourced from all over the world; however, consumers discriminatory criteria and demand for particular foods even when they are out of season leads to shortage risk. Goldin Ian (2010) points out that consumer attitude regarding genetically modified foods (GMOs) also constrain food supplies further aggravating the risk to the future security of food to an ever-growing population across the world, while also limiting the amount of food that commercial agribusiness can produce profitably. Geo-political risk Ward (2010) highlights geo-political risk, whose nature has transformed greatly since the conventional military events between nations have reduced with the new power relations that emerged in the Post-Cold War era. New geo-political risks such as terror attacks as well as bio-terrorism have emerged and escalated over the previous decades creating more challenging security concerns for both governments and businesses alike. Consistent with Ward’s findings, Goldin, Ian (2010) observes that the potential piracy threat contributes to the escalating costs of businesses due to ransom fees and the rise in average insurance premiums on voyages, especially through the Gulf, further aggravating the geopolitical risk of our century. Terrorism activities also have greatly threatened the modern public security machinery as in the case of 7/7 attacks in London; terror threats are increasingly making global markets volatile thereby affecting business operations accordingly. Nonetheless, regional political instability in various volatile markets across the world inevitably affects businesses that have tentacles in those areas because of the interconnectedness of global markets. 4.0. Security Management Strategies 4.1. Systemic risk evaluation According to Byrne, Patrick (2002), organizations must “reengineer their security” to establish an optimal security model for them to be profitable; to that end, firms must first conduct a systemic risk evaluation, to assess the level of an organization’s vulnerability to system risks, and the level of risk-response preparedness. Goldin, Ian (2010) contents that systemic failures can be triggered by the breakdown in systemic infrastructure, which the firm may not be in a position to counteract effectively; the starting point for a systemic risk audit would be the review of crucial episodes of corporate transformation over a period of about ten years. Critical points that should be thoroughly examined include all previous alterations and redesigns of the manufacturing system, supply chain deconstruction, or rationalization, as well as outsourcing or off shoring; nevertheless, if the firm has previously expanded its market or adopted new technologies, these too should be considered in evaluating risk exposure. 4.2. Explore potential future scenarios Blades, Marleah (2011) argues that as the global business environment changes, security leaders must also be prepared to change with it, which underscores the need to explore the diversity of future scenarios. In support of this assertion, Goldin, Ian (2010) contents that exploring the future scenarios will allow the organization to plan and prepare effectively for the likelihood of low-scale events that can trigger huge impacts and financial costs for the business. Businesses need to assess whether these eventualities can be contained or uncontrollable by degenerating into catastrophic outcomes that are extremely damaging; adequate planning and preparation for low-probability events increases businesses level of preparedness in managing the particular risks in the event that they suddenly occur. The purpose of low-probability scenario work is not really to improve internal procedures and systems by lining up resources and systemic support dedicated towards dealing with similar risks, but to enhance corporate capacity at managing the risks. Hyde (2002) notes that in the event of systemic failures, corporations come under thorough scrutiny which could harm their reputation, and their ability to respond effectively to crisis depends on whether or not they have an established framework that evaluates the often conflicting or technical data that emerges in the initial stages of crisis conditions. Furthermore, organizations are only capable of making good decisions in the event of crisis if they have built networks with external experts who may be well grounded in the respective market area that the business operates. 4.3. Observe industry codes of conduct The third step in a corporate security management strategy is to examine all industry codes of conduct, which supply the coordination mechanism that enables businesses to observe a set of safety rules in their operations. In the words of Hazari, Sunil (2002), security is about managing risks and McAdams (2004) emphasizes that risk management is inevitably an organizational function; industry codes highlight the various situations in the global corporate world, and increase organizational capacity to detect and spot risks before they can occur leading to catastrophic events that destabilize business operations. Generally, the guidelines for Multinational corporations include a set of voluntary principles and standards for responsible business conduct in the global market system; for instance, these operational guidelines prescribe the acceptable ethical for practice concerning a host of issues including, but not limited to hiring local personnel, human rights protection, environmental conservation, information disclosure, and consumer protection. Goldin, Ian (2010) argues that because multi-national enterprises maintain a diverse workforce population in complex and multi-dimensional business as well as social contexts, these operational guidelines enable them to define the universal set of acceptable and unacceptable actions that employees must abide by in their dealings within the organizations. By abiding to these industry codes of conduct, multi-national corporations enhance their capacity to manage systemic risks that may undermine their survival and profitability in the complex global business environment. 4.4. Corporate-Government collaborations The fourth step in developing a security management strategy is to work with the government; according to Tse-Kang (2005), interaction with the government helps to raise their awareness of the emerging and potentially damaging systemic risks facing businesses in the highly complex and dynamic global corporate environment in the 21st century. McAdams (2004) argues that organizations must learn to manage risk as a normal business routine; in this respect, they should influence governments in the establishment of global capacities to assess systemic risks affecting firms today. Besides that, businesses should collaborate with government agencies to ensure that the global regulatory and planning environment takes into account the various systemic risks associated with trading in the 21st century. Further advantages that can accrue to businesses because of their cooperation with the government include more funding for research on systemic risks and the enlightenment of societies concerning these risks and the entry points of each member of the society in helping to reduce the risks. 5.0. Conclusion Ultimately, the literature reviewed underscores the point that the 21st century has indeed witnessed the emergence of a new breed of complex and challenging systemic risks because of globalization forces, which have led to the increased interconnectedness of global zones and openness of national frontiers. The literature reviewed highlights that the emerging corporate risks that result from the increased global interdependence and interconnectedness have imposed new strains on corporations since they are tasked with the challenge of conceptualizing these new risks for the purpose of planning and preparing to respond to them. A meta-analysis of the literature reviewed revels that insofar as businesses in the highly complex and dynamic global corporate world are concerned, financial, pandemic, infrastructure, supply chain, resource, and the geo-political risks are the main emerging challenges in the 21st century. The remarkable feature of systemic risks facing organizations in the 21st century is that they are wide-ranging and ever changing; whereas businesses may continuously benefit from the continued global integration and growth of markets beyond national frontiers, the risks associated with this increasing interconnectedness and interdependence will continue to increase. 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