25.8 Strategic Risk Management Research to Date
25.8.1 Miller
Remark.
Our definition of risk is closer to Miller’s definition of uncertainty
- Our definition of strategic risk (unpredictable impacts of strategies), is what Miller refers to as strategic uncertainty
25.8.2 Baird and Thomas
Remark.
Baird and Thomas point out that the above lack clarity
When making strategic decisions, the planners rarely know all the possible consequences or their probabilities
\(\therefore\) the definition above does not capture strategic risk
- Lack of knowing consequences or probabilities would be called uncertainty by theorists
Definition 25.15 (Strategic Risk - Baird and Thomas) Corporate strategic moves which cause returns to vary
Which involve venturing into the unknown
Which may result in corporate ruin
Where outcomes and probabilities maybe only be partially known, and
- Where hard to define goals may not be met
Elements of strategic risk
Voluntariness of exposure
(Choose risk because potential benefits are larger than consequences)
Controllability of consequences
(Outcomes can be contained)
Discounting in time
(Ability to delay consequences)
Discounting in space
(Ability to shift risks to competitors)
Knowledge of risky situation
Magnitude of impact
Group/individual factors
(Is the leader of the group in favor of risk acceptance)
25.8.3 Slywotzky and Drzik
| Risk | Examples | Magnitude | Comments |
|---|---|---|---|
| Industry | Capital Intensive; Overcapacity; Accommodation | Very High | |
| Technology | Shift; Patents; Obsolescence | Low | Possibly innovation in distn |
| Brand | Erosion; Collapse | Moderate | Reputation for fair claims handling |
| Competitor | Global Rivals; Unique Competitors | Moderate | Predatory pricing from competitors |
| Customer | Priority Shift; Power; Concentration | Moderate | Bigger issue for large commercial insurance |
| Project | Failure of R&D; IT; Business Development; M&A | High | Insurers has long history of failed mergers; Low investment in IT |
| Stagnation | Flat or declining volume; Price declines | High | Highly correlated to the cycle; Companies will keep writing business to cover fixed expenses |
25.8.4 Hertz and Thomas
Remark. Strategic risk analysis vs strategy formulation
No distinction is drawn between strategic risk analysis and strategy formulation
- Both are viewed as part of a iterative, adaptive and flexible policy dialogue process
Definition above focus on how to make better strategy decisions and is close to the strategic error concept