Streamline Training & Documentation: Managing Strategic Risks

Thursday, June 07, 2007

Managing Strategic Risks

The Spring issue of Rotman Magazine, published by the Rotman School of Management at the University of Toronto, is devoted to the subject of risk. The whole issue is worth perusing, and it's easy to do so since the magazine is posted online as a pdf file.

Among the articles I found myself reading with particular interest is the one on strategic risk by Adrian Slywotzky and John Drzik.¹ Slywotzky and Drzik identify seven types of strategic risk, each of which should be countered by appropriate management action:

Industry margin squeeze — counter by shifting your company's complete/collaborate ratio.

Technology shift — counter by "double betting" — investing in two or more versions of a technology simultaneously.

Brand erosion — counter by redefining the scope of brand investment and/or reallocating brand investment.

One-of-a-kind competitor — counter by creating a new, non-overlapping business design.

Shift in customer priorities — counter by creating and analyzing proprietery information and by conducting quick and cheap market experiments.

Failure of a new project — counter by smart sequencing of projects, developing excess options, and employing the "stepping-stone" method whereby you create a series of projects that lead from uncertainty to success.

Market stagnation — counter by generating demand innovation, "which involves redefining your market by looking at it through the lens of the customers' economics, and expanding the value you offer your customers beyond product functionality — that is, helping your customers reduce their costs and improve their profitability.

Slywotzky and Drzik close with the thought that management of strategic risk enables a company, up to a point, to reduce risk while actually increasing reward. This is due to the systematic thinking that goes into strategic risk management, thinking that can uncover ways of improving a company's future prospects.

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¹ Adrian Slywotzky is managing director of Mercer Management Consulting. John Drzik is president of Mercer Oliver Wyman, a financial services consulting firm. Note that this Rotman Magazine article is excerpted from a longer article published in the April 2005 issue of the Harvard Business Review.

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Labels: Business acumen, Decision-making, Risk management

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