Background of the organization
Strategic management plays a very important role in the success of the organization as it helps in identifying and managing the internal factors with the external factors of the company. The present study is related to Facebook Inc., an international company along with the evaluation of strategic risk management of the company. In this study, the theories related to the risk such as agency theory, cultural theory, and behavioural theory also been described. Along with this, the impact of all the above theory on the organization is evaluated.
The study revolves around the present risk framework approach of the Facebook Inc., in early 2018, the major scandal such as Facebook-Cambridge Analytical data scandal is also analysed. The reason behind the scandal and response of the company to the same is described in the given study. The recommendation for the prevention of further issues and the proper risk management system is also given in the present study.
Facebook is the American based multinational company which provides services related with the online social media. The headquarters of the company is located in Menlo Park, California, United States. The company was introduced in 2004, by Mark Zuckerberg and from then the company holds the leading position in the market through the innovative and attractive techniques. The company established its offices in many countries such as Dubai, London, Sydney, and Amsterdam and so on, and around 33, 606 employees are presently working at Facebook Inc. Moreover, around 1.49 Billion people are the active user of Facebook in a day, and 2.27 Billion people are on an average monthly basis are the active user of Facebook. The data suggest that a significant population of the world is engaged in online social sites such as Facebook.
The Facebook was established with the main objective to bring the people closer. Facebook assist the people to stay and associated with the family, relatives and friends. It also helps people to get information regarding what is going in the whole world. Along with this the person can share and express their view on any matter. This leads to creating the open culture in the world, which also permits people to solve the problems of other. Overall this creates the power community in the world. The company created an environment in which the appreciation is given to the problem solving and fast decision making.
The user of the Facebook operates it from many numbers of devices such as desktop, laptop, smartphones, and tablet only by having internet connectivity. After registration of the account with the Facebook, the user can send the messages, call any other person, exchange and express any article, share the photos and videos and many other things. Along with this, the user can join the group in which they are interested such as business group, educational group, community group and so on. Overall Facebook provides the platform to the people of the overall world to remain close and connected by which the powerful society can emerge.
Risk Theories
Strategic management refers to the framework which assists in balancing the internal capabilities of the organization with the external demands on the environment in which the company is carrying out its operation. It includes the identification and evaluation of the plans by which the goals and objectives of the company can be achieved. It is the continuous process. Further, the strategic risk management is an important part of the strategic management which deals with the identification of the significant risk which impacts the operations of the organization. There are two elements of the strategic risk management which are as follows –
- The risk is evaluated as an integral part of the strategic management planning process and at each step of planning such as analysis of the goals and objective of the company, internal environment analysis, external environment analysis, creation of the strategies, and selection of the strategies.
- The management, analysis or the risk connected with the specific strategies and the execution of the strategies.
Risk management is related with the identification of the possible risk in advance and make the proper strategies and plan to eliminate and remove them. There are some risk theories which are defined as below –
- Agency theory – The agency describes the relationships exists between the principal and the agents of the business. Agency theory is related to the identifying and analysing the problem that is occurred in the agency relationship. The problem may arise from the undefined goal or different risk taking capacity. In a corporate organization, the shareholders are the actual owner of the company and the board of directors are considered as the agent of the company as they are managing the business on behalf of the shareholders of the company. Sometimes the shareholders are not aware with the operations which are carried out by the board of directors of the company, or they are prohibited from obtaining the information of the company, which leads to the dispute between the principal and agent of the company.
- Cultural theory – Cultural theory of risk is related to the difference in culture such as in language, traditions, consumer priority, regulations and so on. It is a very important theory of risk management framework as it focuses on the risk factors related to the social and cultural aspect. In the current scenario, the cultural theory is generally applied to addressing the policy-making conflicts.
- Behavioural theory – This theory is related to the identifying and evaluating the risk factors related to the organizational behaviour such as the interaction between the workers and organization and psychology of the organization and the industry. This framework is implemented on the workers of the organization and on the organization which leads to the elimination of the adverse impact from the inappropriate behaviour. The negative behaviour in the organization make a significant impact on the efficiency and effectiveness of the workers, along with this they feel uncomfortable and stressed. Moreover the due to negative behaviour the organization can lose its profit and also the productivity. Therefore behavioural theory assists in making the common ground which leads to effective communication and also the negative behaviour can be eliminated.
Risk theories play a very significant role in making the strategies and plan to be implemented in the company for addressing the uncertainty in the organization. The agency theory assists the organization to establish a balance in the managers and the shareholders. Facebook Inc. is a large company, and it possesses the number of shareholders. Therefore any action or activity affect the people significantly. The management should make the policies and work towards the best interest of the shareholders of the company. Though it is good to make the long-term succession planning of the company, the management should also consider the short-term profitability of the shareholders. Overall by implementing the agency theory, Facebook Inc. make the stability in the requirement of the shareholders and the board of directors of the company.
Further the Facebook Inc. by implementing the behavioural theory in the company; make the environment in which the employee of the company can interact with each other in a better way. This theory leads to the more efficient working of the employees. The risk and the probable losses from the behavioural factors can be identified and evaluated by the company.
Apart from the agency theory and behavioural theory the cultural theory also plays a very important role in managing and identifying the risk arises from the difference in culture or the diversification workforce in the company. The Facebook Inc., possess the workforce who may belong to different countries, different area, different culture, therefore the cultural risk theory assist the organization to analyse the risk which may arise due to the differentiation.
The main objective of Facebook is to provide the platform to the people by this they can share information and build the world more transparent and connected. Since all the information on the Facebook can be shared publically, therefore it is very important for the company to take the reasonable steps which lead to the mitigation of risk that can arise from the online social media.
With this regards, the spreading of false news on public media is a major risk for the company. The company for prevention of the spreading the false news, work together with the other industries to find new ideas which leads address this problem. The company also through its innovative techniques and solution; build the new product by which the false information can be captured.
Implication of theories on the organization
Further, the targeted data collection is another major risk for the company because in this the hacker can gain access to the personal and private data information of the user. Facebook has a focus for protection of the personal information of users. For mitigating this risk, the company provides customized security and privacy functions to the users, in which they can set their setting of the account as per their own wish. The company also provides the notification system to the user if any hacker attempts to gain the information. Further, the company is also working with the government bodies for the protection of the data of users.
The Facebook Inc. for addressing the risk of the company established the Audit and Risk Oversight Committee. The main objective of the establishment of the risk committee is to improve in the quality of risk reporting and also to identify the risk for the management as well as the board. This framework leads to the management to focus on the large areas of the risk. This committee also makes the support and help the managers who are having the responsibilities of managing the risk of the company. Along with this, it also assists the company to allocate the proper resources for management of the risk.
The audit and risk committee supervise the process implemented in the company for accounting and financial reporting along with an audit of the financial statement of the company. Along with this, the internal audit function of the company also monitored by this committee, by which any loophole in the internal audit function can be addressed, and risk can be mitigated. Further, the company for identifying the risk or certain area also give the responsibility to the audit and risk committee to observe and evaluate the impact on the operations of the company, which leads to the proper strategic planning and procedures for reducing the risk to an acceptable level. Along with all the above, the audit and risk committee identify the legal and regulatory compliance in the organization by which the risk of financial loss in terms of penalty can be reduced. Company for the protection of the data of the user taken the several steps and also comply with all the regulatory norms related with the protection of the private information of users.
By the setting of the audit and review committee, the company has taken the major steps for reducing the risk. This committee reviews the related party transaction, whether the company entered into the transaction with the related party in the normal course of business. Further, the committee from time to time makes the discussion with the management about the risk exposure of the company.
On the basis of the above analysis, it has been observed that the company has adopted many steps for the mitigation of the risk.
The company in early 2018 faced a significant political issue which is known as Facebook-Cambridge Analytical data scandal. The Cambridge analytical Ltd is the British company engaged in the political consulting which included data analysis, data mining, with the strategical communication at the time of the electoral process. In the year 2018, it was exposed that the company Cambridge analytical Ltd, had collected the personal information of the several users of the Facebook through their profile without their permission and consultation and the gathered information used by the company for the political purpose.
Existing risk framework in the organization
Earlier in the year 2015, it was exposed that the Cambridge analytical Ltd was working for the United States in the political matter and at that time the company also collected the information of the people from the Facebook. But Facebook Inc. did not take the matter seriously and replied that the matter is under the investigation.
The scandal happened in 2018, leads to the significant decrease in the share price of the Facebook in the market, which leads to the reduction in the revenue and requirement of the strict regulation from the protection of the public data arise. The company also suffered from many penalties for fails to protect the information of the public, such as the Information commissioner office of the United Kingdom announced its intention to levy £ 500000 as a fine on Facebook for the infringement of law related with the protection of public information.
The founder of Facebook Mark Zuckerberg made the apology from the public and referred to this scandal as a breach of trust, mistake or problem. The company making the changes in the structures by which a similar mistake in the future can be prevented. Along with this, after this scandal, the company implement General Data Protection Regulation related with the EU law, not only on the EU public but in the all areas of the activities, which leads to the strict compliance for the protection of the information of users.
On the basis of the above analysis, it has been observed that although the company has taken several steps for the risk management, also it fails to protect the private information of the public, which is reflected through the Facebook-Cambridge Analytical data scandal. It is recommended that the company should implement better risk management techniques for the protection of the data. The company should establish the risk assessment team, who will engage in the identification and the evaluation of the risk emerging from the internal as well as the external environment. Further, the team must consist of experts in the related field so that they can advise the company to take action for addressing the risk. The team must be work along with the major stakeholders so that the company can get the knowledge about the risk from communications, policy and for the viewpoints regarding the safety. Therefore by establishing the above approach, the company can mitigate the risk and ensure the safety of the valuable information related to the public.
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