How to manage Strategic Risk Effectively? - 趙永祥的數位歷程檔

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How to manage Strategic Risk Effectively?

2015-03-29 12:41:10, 回應(0), 人氣(1102)

How to manage Strategic Risk Effectively?

by Dr. Chao Yuang Shiang

(Assistant professor in Dep. of finance, Nan Hua University, Taiwan)

Managing risk effectively has always been a touchstone of the most successful companies. But in today’s risk-filled business environment, it can be hard for executives to have confidence that their plans and strategies will play out as expected. A big reason is that strategic risks – those that either affect or are created by business strategy decisions – can strike more quickly than ever before, hastened along by rapid-fire business trends and technological innovations such as social media, mobile and big data. Companies that fall behind on the innovation curve may quickly fall prey to innovation’s evil twin – disruption. That is just one of the reasons managing strategic risk has become a high priority for many executives. “It used to be that if certain risks were to happen, a company could have up to a news cycle to respond,” says Phil Maxwell, Director Enterprise Risk Management, The Coca-Cola Company. “The speed of risks is so much greater now, and as a result you have to be more prepared – faster to respond than you were in the past. That’s one of the biggest differences today versus even three or four years ago.”

According to my past experiences, I will divide the risk into four types which could be considered to be broadly consistent with the way many companies think about risk.

• Strategic risks are risks

• Strategic risks are risks that affect or are created by an organization’s business strategy and strategic objectives.

• Operational risks

• Operational risks are major risks that affect an organization’s ability to execute its strategic plan.

• Financial risks

• Financial risks include areas such as financial reporting, valuation, market, liquidity, and credit risks.

• Compliance risks

• Compliance risks relate to legal and regulatory compliance.

Up to now, there're vast majority of companies (81%) are now explicitly and actively managing strategic risks – and the results were quite consistent across all regions and industries. What’s more, many companies are taking a broader view that doesn’t just focus on the risks that might cause a particular strategy to fail, but on whatever key risks could affect a company’s long-term positioning and performance. “Risk is at the forefront of everybody’s thinking.”

When we develop a strategy we think about the risks associated with it, but also what [business] risks are minimized by following that particular strategy. “When you are dealing with risks, Corporate Management should proactively focus on strategic and transversal risks and Business Units are responsible for managing the risks they own,” says Elisabeth Pacaud, Associate Vice President, Group Risk Management at Sanofi. “A strategic risk is one that directly impacts the company’s identified strategic goals whether they are diversification, innovation, or emerging countries.”

Conclusion

Managing strategic risks effectively can do more than just protect value by avoiding potential downsides; it can actually help create value by taking advantage of uncertainty and volatility to maximize gains and improve competitive positioning.

Risk is uncertainty, But we have to take risks to get to our goals, especially during changing times. So strategic risk is not just the negative impact of risk but also the sub optimization of gain. I think companies that figure out both the value protection and value creation part of risk are going to set themselves up for success.