The company operates in a very uncertain environment on a daily basis. Both the choice and implementation of the company's strategy are influenced by various external and internal factors. Therefore, potential strategic risk factors should be seen not only in the immediate but also in the indirect environment.
Strategic risk analysis enables enterprises operating in a constantly changing environment to maintain the developed leadership position. It allows you to verify the scope of threats and their impact on the company's operations. Functioning in an uncertain environment also has positive effects - it generates all innovative ideas and solutions.
Strategic risk is related to the risk of failure to achieve the goals contained in the strategy, which takes two perspectives: internal, related to the course of the management process, and external, related to the implementation of risky strategies, and thus determined by the environment and its turbulence. It means the probability of failure in the strategic activity of the enterprise, and its size depends on the industry and sector in which a given company operates.
Strategic risk - what does it entail?
Strategic risk is related to the long-term operation of the company on the market. It is associated with its growth, dynamics of development as well as decision making and the implementation of business goals. Identifying risk factors in advance and properly reacting to threats arising from a changing, uncertain environment is an activity that supports making strategic decisions regarding the future of the enterprise.
The risk may be caused by both objective factors (real economic phenomena) and subjective factors (individual decisions of specific people). It can take many forms, such as a failure of a company takeover transaction, a failed one placing the product on the market, sudden changes in preferences and tastes of customers or the appearance of competition or new technology on the market, as a result of which the product sold so far loses its value.
Strategic risk can also be understood as activities enabling the implementation of new, risky solutions that will allow responding to emerging signals regarding new challenges (regulations, provisions, guidelines) arising from the economic and political environment.
In order to turn strategic risk into your benefit, you need to properly manage it. This means applying a specific system of methods and actions in a timely manner, tailored to the nature and scope of a given risk. Strategic risk management includes such processes as: identification, analysis and reaction to the occurrence of a specific risk. There are three types of attitudes towards risk: neutrality, love of risk and risk aversion.
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Strategic risk - examples of areas of occurrence
Strategic risk appears where there is variability and unpredictability of the environment. Each company, when deciding on the extension of its activities or the use of opportunities, must take into account the fact that there will be more or less significant external events affecting the internal environment and thus the results of the company's operations. The very decision to choose a specific type of strategy is an area of risk. Therefore, thrifty companies have a plan in mind that will allow them to implement quickly and efficiently crisis management. We can distinguish the following areas of strategic risk:
- technological, in which it is impossible to achieve the set goals due to the use of outdated technology or ineffective production lines,
- of a legislative and political nature, which results from the inability to immediately adapt to changes resulting from new legal provisions or amendments to acts,
- related to the loss of reputation (image) of the brand as a result of improper actions of the company or image crisis, which results in crisis situation,
- ecological, related to the company's failure to adapt to the new requirements regarding the level of CO2 emissions, air pollution or water consumption,
- related to the company's maintenance on the market, resulting from fluctuations in demand and the actions of the competition,
- maintaining financial liquidity, related to the possibility of repayment of receivables from financial institutions, suppliers, employees and business partners.
The key to success in strategic risk management
The development of an enterprise in a competitive market is a never-ending process. Once achieved, the leadership position does not guarantee that this state will be maintained without the ability to react to signals coming from the environment. Even well recognized target group it may, after all, change preferences over time. Therefore, in strategic management, the ability to learn, adapt as well as the ability to introduce are key to success changes in the organization.
Currently, taking into account the principle of sustainable development, in order not to be left behind, it is necessary to systematically measure and reduce the negative effects on the environment and prepare the company to meet future market requirements related to environmental protection. Failure to react to the upcoming changes, failure to adapt to new challenges and the lack of willingness to cooperate with the environment may lead to the rapid disappearance of the company from the market.
Companies that take strategic risks and are able to respond quickly to changes in the environment are more likely to be successful. On the other hand, companies that only take conservative and expectant actions may quickly lose their leadership position. Or they can be taken over by more flexible and bolder competitors.
Company management should be aware that only a comprehensive strategic risk management system can protect an organization from a devastating failure. Only the implementation of a strategic risk management system in the entire company will enable effective and continuous fulfillment of tasks included in the strategy of a given organization. The mere identification of strategic risks and preparation of the company for their operation is not enough to become a competitive entity. You should be able to convert emerging risks into far-reaching opportunities.