Alignment of ERM with performance management: the case study of automotive industry

Abstract

This research explores the evolution of risk management practices, from traditional to enterprise risk management (ERM), in Iran’s automotive industry. It also investigates the alignment of ERM and performance management, and their mutual impact. Academic and industry studies reveal that throughout recent decades there has been an increasing interest into ERM development and its alignment with performance management. However, despite the increase in ERM adoption over recent years, ERM is still in the early stages of implementation and requires further research and development. Moreover, a literature review revealed that the literature in respect of the alignment of ERM with performance management is limited and those existing are mostly of a visionary nature and lack practical implementation. Therefore, the gap identified through the literature review led to the development of a theoretical framework within this research, exploring the main organisational elements significant to the effective alignment of ERM and performance management and its implementation, which will provide practitioners and academics with practical guideline regarding such alignment. This research was completed through two empirical stages within the context of automotive industry. The primary data were collected and analysed through a mixed methods approach: 30 semi-structured interviewees were conducted with senior managers within the automotive industry (Qualitative). In the second stage, automotive industry professionals’ responses were gathered from 101 survey questionnaires (Quantitative). The theoretical and empirical findings of this research confirm that in the recent decades, risk management has been evolving and transforming from its traditional approach to a strategic foundation, leading organisations towards competitive advantage and value creation. This research also indicates that aligning ERM with organisational performance management is critical in establishing a sustainable ERM and enhancing business performance over time. Based on the empirical findings of this research supported by theoretical findings, a lack of support from senior managers for effective ERM implementation and its alignment with performance management is considered as one of the significant challenges of sustainable ERM. In addition, a lack of ERM infrastructure and shareholders’ poor understanding of ERM remains as challenging factors in aligning ERM with performance management. To the Researcher’s best of knowledge, there is very limited literature into alignment of ERM and performance management in automotive industry. Therefore, this research’s main contribution to the body of knowledge is the development of an effective framework for automotive industry, aligning ERM with organisational performance management, along with guidance for its implementation in practice. The key limitation associated with this research is that, due to complexity of ERM and its incorporation with other management functions and various organisational elements in the developed framework (Chapter 7, Section 7-1), it might be difficult somewhat to manage at the beginning of the framework adoption. It should be emphasised that the framework has been developed for those organisations that have a good understanding of ERM principles. So, this limitation might apply to those with inadequate knowledge of ERM. In addition, the developed aligning framework addresses the challenges and concerns of automotive industry organisations in aligning ERM with performance management. Applying this research in other sectors and industries provides the opportunity to investigate the potential changes and/or collaboration of certain elements of the framework based on the business area that the organisation operates in. The Researcher recommends further investigation into intangible organisational factors, such as how critical ERM culture could be effective in alignment of ERM with performance management. Moreover, the Researcher recommends that as ERM is growing quickly, future studies should continue to reveal and correlate new factors into the current framework. It is further recommended that future researchers could attempt to measure the benefits as well as the shortcomings associated with implementation of the aligning framework. This enables management with in organisations to improve the framework’s advantage and to attempt to overcome its limitations. Research key words: ERM, Performance Management, Alignment