Enterprise Risk Management as a Strategic Governance
Mechanism in B2B-Enabled Transnational Supply Chains
By: Vicky Arnold, Tanya S. Benford, Clark Hampton
and Steve G. Sutton
The purpose of this study was to show how enterprise
risk management (ERM), when used effectively and strategically, can increase
benefit opportunities and decrease risks associated with forming supply
chains. More specifically, this study
focused on whether or not organizations with high ERM structures were able to
develop better supply chain teams that had greater absorptive capacity and
lower levels of associated risks.
ERM is important to firms because in today’s
business environment, a firm’s competitive advantage could boil down to its
supply chain. Where, how much and how
fast a firm can get the necessary materials needed to produce a product could
make or break a firm. ERM can
effectively add some governance to a firms supply chains, leading to the supply
chain having absorptive capacity, lower partner B2B e-commerce risk and lower
global risk assessments.
For research, the authors created a theoretical
model that was based on Powers’ (2007) conceptualization of ERM, as well as a
research model, “which operationalizes the theoretical model, which includes
ERM, absorptive capacity knowledge, B2B e-commerce risk and overall business
risk associated with the supply chain partner” (Arnold, et al, 58). In addition to the two models, the authors
have 5 hypotheses:
- 1. As an organization’s ERM processes strengthen, an organization’s transnational supply chain partner’s absorptive capacity will be higher
- 2. As an organization’s ERM processes strengthen, an organization’s transnational supply chain partner’s B2B e-commerce business risk will be lower
- 3. As an organization’s transnational supply chain partner’s absorptive capacity increases, the partner’s B2B e-commerce business risk will decrease, reflecting a partial mediation of the relationship between the organization’s strength of ERM and the partner’s B2B e-commerce business risk
- 4. As an organization’s transnational supply chain partner’s B2B e-commerce business risk decreases, the global business risk associated with that supply chain relationship will also decrease
- 5. As an organization’s ERM processes strengthen, the global business risk associated with a transnational supply chain partner relationship will decrease; however, this effect will flow through supply chain partner absorptive capacity and supply chain partner B2B e-commerce risk
The authors found that ERM lowers B2B e-commerce
risk and associated overall global business risk, and it promotes absorptive
capacity. Also apparent in the results
was that absorptive capacity and B2B e-commerce are a key component for
influencing global risk with firms’ supply chain partner.
The authors talked about a few implications. For theory, the authors stated that their
findings were consistent with Power’s (2007), that ERM is a dominant strategic
management initiative, in which ERM processes impact building capacity and
lowering threat in supply chain relationships (Arnold, et al). In practice, the authors talk about how this
study shows the value of implementing ERM as a strategic management focus
(Arnold, et al).
My thoughts on ERM, are these: firms looking to gain a strategic advantage,
should look at implementing an ERM system.
This system will allow a firm to closely govern their supply chain
partners, allow a firm to lower B2B e-commerce risk and increase supply chain
performance. All of these things will
lead to more effiecency in day to day operations and should lead to more
profitablility.
Article Citation
Vicky Arnold, Tanya S.
Benford, Clark Hampton, and Steve G. Sutton (2012) Enterprise Risk Management as a Strategic
Governance Mechanism in B2B-Enabled Transnational Supply Chains. Journal of
Information Systems: Spring 2012, Vol. 26, No. 1, pp. 51-76.
One of the findings I found interesting was that ERM increases absorptive capacity, one concept I find essential to successful firm performance. When a firm has absorptive capacity, it can increase the firms ability to adapt to change in the environment and what buyers demand. This concept was also brought up in the academic article I reviewed. In my article, absorptive capacity was increased when two firms merged shared similar technological knowledge. Therefore, it is likely that two firms looking to merge with similar ERM systems would lead to a much higher absorptive capacity than two firms with different ERM systems.
ReplyDeleteIn the world of competition, the concept of Enterprise Risk Management is emerging as an important factor which adds to the success of an organization. It helps to attain better supply chain competitiveness and promote absorptive capacity; and reduces not only the associated business-to-business risk but also the risk at the global level by identifying the supply chain disruptions. No doubt, it has some limitations, but they can be reduced by efficient and effective use of Enterprise Risk Management
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