Strategic Risk

Companies deal with a number of risks – competitor risks, regulatory risk, commodity risk (if you deal with commodities), foreign exchange risk (if you do significant business in foreign locales), credit risk, etc. However one that is re-emerging to the forefront is strategic risk. It’s always been there but when the credit and capital markets were in upheaval, strategic risk took a backseat (like the last seat in a van not a sedan!) to those and related risks. According to the CFO.com article, Risks for Retailers: A New Trend, ‘Indeed, strategic risks are more of a worry for executives across industries these days, according to research firm Corporate Executive Board. Says CEB executive director Michael Griffin: “Sixty-nine percent of the risks that cause the most significant harm to corporations are strategic risks. Only 31% are legal, compliance, or operational risks.” ‘

Below is a charted summary of the risks as expressed by retailers:

 

Top 10 Retail Risks

From the chart above you can see that strategic risk has risen to re-join the top 10 after barely making the top 20 in the previous two years. According to the article, “The CEB has been recommending that companies put strategic risk at the top of their priority lists”.

Now that some of the short-term risks that could take your company out quickly have abated, it’s time to renew your focus on your long-term strategy. What are the assaults to that strategy? Are there market or competitive indicators that components of your strategy are growing obsolete?

I read an article in the Wall Street Journal about Kodak questioning the company’s long term viability. Whereas Xerox began switching to software-based solutions and re-branded itself as a document management company, Kodak held on to its film and film-related products as long as it could. Xerox and Kodak both encountered significant strategic risks brought on by market changes. One weathered the changes, the other is still caught in the storm. Where are you now? Where will you be in 3-5 years?