As a professional in business, you’ve probably already faced a fair share of the different types of strategic risk. In an effort to combat, overcome, or prevent strategic risk from causing undesirable effects, we will look at strategic risk examples and share solutions for mitigating and/or managing them.
Strategic risk are events, whether internal or external, that impact an organisation’s ability to reach their objectives and goals. As is the case with risk, it refers to probability. In this case, it’s the probability that an organisation’s strategy will fall short of goals.
As Edinburgh Business School professors Roberts, Wallace, and McClure defined the concept, strategic risk is corporate-level risk that “affects the development and implementation of an organisation’s strategy.”
Since businesses are dynamic, strategic risk may look different at various points in time, as factors outside of the company’s control can get in the way of achieving goals.
For example, if you are a bank with major market share, then competitive risk may not currently be at the top of your mind. But, if a new entrant comes into the space and starts to threaten your market share, then competitive risk becomes a focal point.
Strategic risk management will take these events into account before they happen so that you can be adequately prepared with a game plan.
Strategic risk management is the process of identifying strategic risk, analysing potential outcomes, and then choosing which path to take to manage and mitigate the risks from occurring.
As mentioned, the first step in strategic risk management is to identify strategic risks. There are also a set of following steps involved in the management process, which looks like this:
Perhaps the most difficult step in the strategic risk management process is to identify the risk. In order to do so, you’ll need to have an in-depth understanding of your organisation’s current standing. This includes details about your market sector, target audience, and the like.
You’ll also need to have a strong hold on what your organisation is looking to accomplish. This way, you can see what may stand in your business’ way of doing so.
Depending on the level and effects of each strategic risk, you may decide to accept the risk. If the consequences could be too large to overcome, then you may approach the situation in an entirely different way to avoid the risk entirely.
The entire existence of any business is filled with risk. The more you want to innovate and grow, the more risks you are likely to face.
Strategic risk management is vital to an organisation’s eventual success. This is because with a strong strategic risk management process in place, you can make more informed decisions. Regardless of if you’re starting a new business or attempting to innovate in your existing market, strategic risks exist.
To overcome and continue along your path to achieve organisational goals, strategic risk management proves essential.
Fortunately, technology has made it easier to manage strategic risk. For example, financial automation tools like SolveXia have made it simpler to adhere to compliance and regulations, secure data properly, conduct trend analysis, and provide audit trails when needed.
We’ll soon go more into depth as to how tools like SolveXia can support your company’s strategic risk management processes.
Strategic risk is commonly confused with another type of risk, operational risk. To better define strategic risk, we can expand what operational risk is to compare the two.
Operational risks are related to systems, products, and processes. They affect the day-to-day inner workings of a business, and for that reason, they are explored from the ground-level.
On the other hand, strategic risk is more broad, long-term, and affects the future of an organisation. This high-level look at risk must take into account organisational objectives in relation to decision-making.
Before we categorise strategic risk into its types, let’s touch on a few strategic risk examples. They include:
As you can see, strategic risk is often caused by events outside of a business’ internal operations. The level of uncertainty involved is what often makes dealing with strategic risk so complicated.
While you can’t know what will happen in the future for certain, you can look to historical data and trends to prepare. With technology like SolveXia that can perform data analysis, you can take advantage of evaluating strategic risks more efficiently and effectively.
Strategic risk comes in different forms, including both internal and external factors. The inherent definition of risk is that it’s the chance of something happening.
So, while you can’t always know exactly what will happen, you can be aware of what strategic risks you may face in order to be prepared (and make decisions accordingly and based on probability).
The types of strategic risk can be categorised as:
New regulations can massively disrupt your business if you’re not prepared. It can create the need for new technologies or distract business leaders from current operations.
With regulatory changes or poor company performance, your organisation’s reputation can be affected. Poor press or events can affect brand loyalty and market share.
Political volatility affects supply chain, pricing, and demand.
With poor governance and compliance in your day-to-day processes, you open the door to governance risk, which ultimately affects reputational risk, too.
Any risk that impacts the financial health of the organisation. For example, insufficient cash flow can strain your organisation from being able to produce products or bring them to market and reach its targets.
The risk that your competition innovates faster or better than you, thereby overtaking your organisation’s market share.
With digital transformation, change management is essential. By foregoing proper change management, your organisation’s employees may not be aligned to achieve organisational goals with the aid of technology on your side.
The effect of macroeconomic conditions on a company’s bottom line or investments.
The risk of having outdated business processes.
These risks are often interconnected. If you consider a regulatory risk, it will likely coincide with governance risk. Or, when facing operational risk, it typically impacts the bottom line and can expose you to financial risk.
Since the types of strategic risks are connected, it’s optimal to take an integrated approach to strategic risk management. When you see the connections between risks, it can make business decisions more straightforward.
Here’s how you can overcome or mitigate the nine types of strategic risk examples:
The strategic risk examples covered herein go to show that all organisations face strategic risks. The real difference between a successful and unsuccessful business is how you choose to manage and reduce strategic risk.
Automation solutions like SolveXia can help reduce many different types of strategic risks by providing analysis capabilities, automation, standardisation, reporting, and a high level of internal control.
Don’t hesitate to request a demo and talk to our team about how SolveXia’s solutions can help your business overcome the challenge of strategic risks.
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