Using Robert Simon’s Risk Exposure Calculator To Evaluate Property Millionaires’ Internal Factors

Pressure for Performance

In today’s competitive business world, corporations focus on generating a competitive advantage over their competitors by effectively operating their business. There are various internal and external factors which resulted in adversely affect the operations of companies. In the past few years, organisations focus on effectively managing their internal problems to ensure that they address external threats and sustain their future growth in the market (Zhu, Sarkis & Lai, 2013). Robert Simons has developed a ‘risk exposure calculator’ which is used by the company in order to evaluate key internal factors which negatively reflects on the profitability of the company. This calculator evaluates three aspects which adversely affect the interest of the company which include growth, culture and information management (Simons, 1999). The corporations can get score from 1 to 5 where 1 is the lowest and 5 is the highest point. The corporations which score from 9-20 are considered as safe. The score from 21-34 considered as caution zone; the score above 35 is considered as a danger zone (Simons, 1999). This report will evaluate the case of ‘Property Millionaires’ by using the risk exposure calculator. The calculator will be used to give points to the company on different aspects in order to identify its internal factors which negatively reflect on its growth.

• Pressure for performance (5/5)

A corporation faces pressure for performance after its rapid expansion in the business. The employees and the management face pressure to meet the set revenue targets to ensure that they continue to sustain the growth of the company (Conway and Coyle-Shpiro, 2012). The performance of Property Millionaires has been good in the past few years as the company continues to attract more customers and expand its operations in new locations. George knew that the performance of the company depends on the consultants who attract new customers in seminars. These consultants are paid based on their performance, and they receive a percentage of the $10,000 seminar fees for bringing each client in the seminar. It shows that consultants are always under pressure to perform without which they cannot earn. Therefore, the pressure on the employees and the management in relation to performance is substantial.

• Rate of expansion (4/5)

Organisations focus on sustaining a rate of expansion in the business which is focused on ensuring that the financial performance of the company continues to improve. However, expansion rate should meet the company’s ability to meet the human resource requirements or else the expansion could negatively affect its operations (Gabrielsson, Gabrielsson and Seppala, 2012). Property Millionaires has expanded its operations in new locations, and its sales team is facing immense pressure to meet their targets. Consultants of the company are under pressure due to its rapid growth to ensure that they continue to attract more customers and bring them to the seminars. The corporation has more over 100 staff members; however, its ability to hire and induct new staff members did not meet up with its growth rate. George knew that this would create a bigger problem in the future since the strong financial performance of the company is caused due to staff members.

• Inexperience of key employee (4/5)

Expansion Rate and Staffing

Inexperienced employees negatively affect the profitability of the company since they are not able to cope up with the changing market conditions (Bandura and Lyons, 2014). Property Millionaires require experienced employees to ensure that they bring new customers to the seminars to sustain its growth in the future. The current HR practices of the company are not enough to hire experienced employees. There are no effective training methods implemented by the company in order to improve their performance. Although the employees have to performance at their highest capacity in order to attract more customers; however, they lack the ability to learn new things from each other since they compete with other employees. The inexperience of employees makes it difficult for the company to sustain its future growth in the market which will make it difficult for the company to address major threats in the future (Baldassarre and Campo, 2016).

• Rewards for entrepreneurial risk-taking (3/5)

Entrepreneurial risk-taking uses innovation in order to find solutions to current problems which enable corporations in sustaining their future growth in the market. With an innovative approach in the business, companies did not take calculated risks, and they are more likely to fail as soon as market changes (Huybrechts, Voordeckers and Lybaert, 2013). There is significant number of uncertainty in the business model of Property Millionaires since the company rely on customers who come to its seminars; however, there is no way of knowing how many customers will come to the seminar. Those customers who are willing to take risks in the property market are the ones who stick with the company which makes it challenging for the company to predict its future profitability. Therefore, it is important that the corporation implements a risk-taking approach in the business to ensure that it is able to sustain its growth in the uncertain market. However, it is difficult for the company to implement this approach since there is no coordination between the management of the company. The regional managers have surrounded themselves with people who only tell them good news rather than discussing major issues which could negatively affect the profitability of the company. The inexperience of employees and changing market conditions will make it difficult for the company to give a strong competition to its competitors in the future (Kreiser et al., 2013). Therefore, the culture of Property Millionaires is not focused on implementing an entrepreneurial risk-taking approach in the business based on which it is not able to acquire its rewards.

• Executive resistance to bad news (4/5)

Inexperienced Employees’ Effect on Profitability

The resistance level of senior-level executives in the company creates a positive or negative culture in which employees are either encouraged to share their feedback, or they are discouraged from contributing to the decision making (Lozano, 2013). If the executives in the company resist bad news, then it creates a negative culture, and it becomes difficult for the top level management to find out the issues which negatively affect the profitability of the corporation. The regional managers in Property Millionaires did not prefer to confront themselves with bad news. They have implemented an executive resistance culture in the company by surrounding themselves with people who always tell them good news. Due to this culture, it is difficult for the top level management to understand the key factors which negatively reflect the performance of the company since there is no support from the lower level management.  This culture will make it difficult for the company to sustain its performance in the future.

• Level of internal competition (5/5)

The internal competition is defined as the existence of overlapping or duplicate activities in the organisation which are condoned by the top level management in order to address market or technological uncertainties (Siciliano, 2015). Internal competition encourages employees to perform better than their colleagues by relying on innovation to find new ways to discharge their duties. However, excessive competition creates a hostile working culture in which the management support those employees who step on others to achieve success (Lin et al., 2014). In the case of Property Millionaires, it leads to creating a negative working environment. The employees are constantly under pressure to perform better since highest performing employees receive rewards from the management. The employees did not help each other in fulfilling their targets due to intense internal competition. Employees also bring those customers to seminars that did not have the capital to invest in the real estate market. Although this approach is working effectively for the company; however, it will make it difficult to sustain its growth in the future since most experienced employees will leave and the company will find it difficult to hire and retain talented employees.

• Transaction complexity and velocity (4/5)

Due to rapid growth in the business, the information system of the corporations often overloads. New information comes from new branches, and the management has to make sense of such details to form future strategies which are targeted on addressing major issues in the company (Fayard et al., 2012). If the information systems are not working appropriately, then the management finds it difficult to know about the threats faced by company due to which they are not able to develop strategies to sustain the growth of the company. Property Millionaires face the challenges of complex transactions due to the business model of the company. The complexity of these transactions has to be handled by the skills and expertise of the employees. The management also has to ensure that it incorporated the in-depth knowledge about the market in its transactions to meet the demand of changing market conditions. The velocity of transactions is not a major issue for Property Millionaires.

• Gaps in diagnostic performance (5/5)

Entrepreneurial Risk-taking

Effective performance of a company depends upon effectiveness of the leadership approach and high performance of teams; it is important to find the gaps in performance through diagnostic to ensure that the company is able to align its policies and expertise of employees with changing market demand (Korschun, Bhattacharya and Swain, 2014). The management of Property Millionaires only shares information regarding the sales revenue, and they avoid sharing other information which might be useful in the decision making process. There are not ways for the management to find out the key reason for the gap in the performance of consultants due to ineffectiveness of the information system. These gaps cannot be addressed by the management since they did not share the relevant information regarding the performance of the consultants. Therefore, lack of an effective information system creates challenges for Property Millionaires to ensure that its management is able to find gaps in diagnostic performance.

• Degree of decentralised decision making (5/5)

In order to deliver value in the shortest sustainable lead time, it is important that the corporations adopt decentralised decision-making approach. In this model, the authority to take decisions is distributed between a larger group, and the top and lower authorities work together to develop business strategies (Mankad, 2012). Benefits of this approach include reducing the burden from top executives, diversification, executive development, better control and supervision, efficient decision making, motivated employees and others. Its disadvantages include problem with coordination, uniform policies are not followed, conflict, require qualified personnel and others (Velasquez and Hester, 2013). Property Millionaires has not decentralised its decision making process since the senior level executives are only responsible for developing business strategies in the business. The regional managers did not get involved in the decision making, and the executives did not discuss the policies with the consultants who have insights about the customers and changes in the market. The degree of decentralised decision making in Property Millionaires is considerably low which makes it difficult for the company to quickly make effective decisions as per market changes.

				Total
Growth	Pressure for performance	Rate of expansion	Inexperience of key employee
5	4	4	13
Culture	Rewards for entrepreneurial risk-taking	Executive resistance to bad news	Level of internal competition
3	4	5	12
Information Management	Transaction complexity and velocity	Gaps in diagnostic performance	Degree of decentralised decision making
4	5	5	14
Total	39

 

Conclusion

In conclusion, Property Millionaires has received a total score of 39 in the risk exposure calculator which means that the company is in danger zone. The lack of effective information system, culture and growth plan makes it difficult for the company to sustain its growth in the future. It is important that the corporation should change its current policies to address the key challenges relating to internal control. The corporation should manage the pressure of growth by hiring highly performing and qualifies employees. The company should not blindly expand its business without first ensuring that it has enough experienced employees handle the performance pressure. The company should improve its culture by promoting innovation through collaboration between employees. Employees should receive a base salary, and they should not solely work on commission for the sales which they bring. The company should avoid intense internal competition, and it should promote healthy completion to establish a positive work culture. The pressure caused due to ineffectiveness of information system can be addressed by assessing gaps in the performance of employees to ensure that they have the skills to understand complex transactions. Lastly, the corporation should decentralise its decision making by incorporating ideas and suggestion of regional managers and consultants to improve the quality of information system. It will enable the company in improving its internal control system which will result in sustaining its future growth.

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