Enterprise risk management is an important aspect to assist organizations in identifying, prioritizing, and planning for the strategic risks that could impair performance. This paper explains the gaps identifiable in the risk framework of Boeing Company and how the company could remediate them by implementing Committee of Sponsoring Organizations of the Treadway Commission (COSO) principles. COSO is an initiative that provides thoughtful insights into leadership traits by developing comprehensive frameworks and guidance on enterprise risk management (Hirth and Chesley 1). The initiative is guided by principles that aid in influencing and aligning strategy and performance across departments.
Boeing’s Material Risks
The aviation industry faces skyrocketing passenger traffic in the modern world of increased globalization. In this regard, Boeing’s major challenge is addressing volatility in the economic and geopolitical environment (Cope n.pg). Having a global footprint, Boeing is vulnerable to external factors, including economic conjunctures and political tension. Such crisis triggers wars and insecurity tensions, which are a significant threat to the company due to vulnerability to attacks. Besides, economic slowdowns in the key markets prompt extreme volatility in the currency, commodity, credit markets, low liquidity, and tightening in the credit markets. In this regard, proper strategies are necessary for the long-term growth of the company.
Reviewing and revising the COSO principle would aid in such situations. In cases of political instabilities in the key markets such as China, Europe, and America, the management should review the company’s policies and revise them per the markets’ government rules (Hemmerdinger, Wolfsteller and Reim, n.pg). In other words, such cases prompt the need to implement changes that accommodate the situations while considering the intensiveness of such instabilities. Besides, pilots and aeroplane crews’ protection should be a primary focus, especially on the planes traveling to at-risk regions. On this note, the company’s policies should be flexible to accommodate such crises.
Managing and Retaining Talent in the Company
The influx of new processes and technologies imposes a relentless focus on minimizing the costs of operations. Such imposes the need to hire and retain a highly talented, specialized, and engaged workforce. However, the company experiences a shortage of such a workforce which is a great challenge. Lack of diversity, ineffective succession planning, and limited options are the significant challenges in retaining the highly skilled labor force (Hemmerdinger, Wolfsteller and Reim, n.pg). Such creates a burden in developing an effective and high-performing team for increased productivity. In other words, the complexity involved in this industry attracts a labor shortage; hence the company is made to struggle in attracting new talents that can drive innovation in the dynamic world (Tang, Joshua and James 80). Among the company’s goals is to expand its operation capacities, which would increase the number of airplanes. Such depicts the increase in the workload to the company’s mechanics and the skill sets to support the expanding fleet. The skyrocketing demand for aircraft services imposes new challenges for maintenance in general. Besides, data from Boeing projects an increase in the fleet that outpaces the supply of maintenance technicians, which is due to the aging workforce.
Information, Communication, and Reporting
The company should implement the information, communication, and reporting strategy outlined by the COSO to address this challenge. This principle instills the need to continuously obtain and share the necessary information from external and internal sources (Hirth and Chesley 10). As the company invests in this effective communication, it will be easier to spread its missions and goals to the public and attract the relevant personnel. Such communication entails developing robust social media platforms where information sharing is made to reach out to the world while gathering consumer needs and insights on available talents.
Managing Internal Conflicts
As companies strive to achieve their goals, conflicts typically present themselves and ought to be resolved. Such conflicts pose a threat in meeting consumer needs, developing a positive brand image, and competing effectively. Such is the case in the Boeing company, which is said to experience an absence of strategy and leadership and an inability to communicate. According to Goldstein, the 2019 737 MAX crash that killed 157 passengers was linked to misunderstandings among the senior leaders (Goldstein n.pg). In essence, Boeing wanted to change its design by removing a thin layer of copper foil to protect carbon-fiber aircraft and the fuel tanks from a lighting strike from the Dreamliner’s wings (Goldstein n.pg). However, the local FAA office that certifies Boeing designs supposedly refused to sign it off, which led the company to appeal hence acquiring the certification (Goldstein n.pg). Such implied a cozy relationship between the regulated and the regulators, which depicts communication issues.
Governance and Culture
In resolving this issue, governance and culture principles could be sufficient. Governance allows the company to set its tone and reinforce the value of establishing oversight responsibilities to manage the company (Hirth and Chesley 10). In other words, effective governance would enable the company to implement stable rules and regulations to guide both the senior and junior staff in their lines of duties to minimize operation conflicts. Culture, on the other side, describes the desired code of ethics and behaviors that guide the company. With a clear understanding of the guiding principles, the FAA office would be possible to explain the reasons for deterring from signing the company’s request documents and hence avoid misunderstandings. Therefore, good governance and influential culture are essential aspects to ensure the smooth running of the company.
Outsourcing and Offshoring Strategy
Boeing remains the world’s largest aeroscope company by revenue. In addition to its focus on quality and high profitability, the company gazes to minimize production costs. However, the company made critical errors in its offshoring and outsourcing activities. While the company enthusiastically embraced outsourcing to minimize costs and accelerate development, the outcome was disastrous. The company intended to reduce the development of the 787 models from $10 to $6 billion and six to four years—however, the project escalated in costs and time with three more years’ schedule.
In this respect, strategy and objective-setting COSO principle would aid to address the challenge. The principle requires prior identification of risks by aligning business objectives with strategy (Hirth and Chesley 10). In other words, calculating the risks associated with this change initiative was quite essential. Such include the impacts on profitability by assessing the costs of research and development.
Benefits of ERM principles
Developing ERM initiatives benefits the company in several ways. Firstly, it helps to create a more risk focused culture. This ensures that discusision of risk is carried out at all levels and hence integration of skills and talents leading to better decisions. in this case, risk is considered in an open manner which culminates to critical benefits. This would enable Boeing staff to consult with each other while making company decisions regarding risk management. Further, ERMs lead to enhanced focus and perspective on risk. Effective implementation of ERM initiatives helps to detect potential risk events prompting timely warnings. Key metrics of risk enhance the value of analysis and reporting to influence potential alerts to the organization’s risk profile.
Conclusion
Retrospectively, enterprise risk management is a vital tool for organizational performance. The concept allows organizations to assess potential risk before implementing vital strategies. The paper focused on the Boeing aeroscope company, its gaps in the risk framework, and how they could be bridged using the COSO principles. The major gaps identified relate to outsourcing and offshoring strategies, managing internal conflicts, retaining a top-notch workforce, and addressing volatility in the economic and geopolitical environment.
Works Cited
Aylmer Fenton. “Traditional ERM practices.” 2021. Lecture Notes.
Cope, Marian. “How a strong(er) SRM program could have helped Boeing.”Risk Management Monitor, 2019. https://www.riskmanagementmonitor.com/tag/boeing/
Goldstein, Michael. “In 2020, have Boeing’s problems just began?” Forbes, 2020. https://www.forbes.com/sites/michaelgoldstein/2020/01/05/in-2020-have-boeings-problems-just-begun/?sh=6cfa46c8745a
Hemmerdinger, Jonathan, Wolfsteller, Pilar, and Reim, Garret. “Why Boeing faces ‘worst crisis’ in its history.” DVV Media International Limited, 2019. https://www.flightglobal.com/analysis/why-boeing-faces-worst-crisis-in-its-history/135000.article
Hirth, Robert, B., and Chesley Dennis, L. “Enterprise risk management; integrating with strategy and performance.” Committee of Sponsoring Organizations of
the Treadway Commission, 2017, pp.1-10.
Tang, Christopher S., Joshua, Zimmerman, D., and James, Nelson. I. “Managing new product development and supply chain risks: The Boeing 787 case.” Supply Chain Forum: An International Journal, vol. 10, no. 2, 2009, pp. 76-84. https://www.tandfonline.com/doi/abs/10.1080/16258312.2009.11517219