Bite Size
There are a number of practices that organisations will employ to help mitigate and manage risk to reduce uncertainty. Market research, risk modelling and foreign exchange hedging are some common examples. However, one can never really tell how a new business venture will pan out until it is undertaken and without a crystal ball, when an organisation invests in a new venture it is essentially making a bet.
In this review we look at some new ways of thinking and ‘test the water’ approaches that organisations can take to minimise risk whilst still taking advantage of opportunities as they arise.
Whether organisations are willing to adopt any of these practices will depend on a number of factors but two that spring to mind include the level of Executive hubris in the organisation and the continuous push by company Boards and Executives to realise short term gains rather than invest for the long term future (given that these options come with a higher risk protection price tag up front).
Reference: “How to Hedge Your Strategic Bets” George Stalk JR and Ashish Iyer, Harvard Business Review, May 2016
There are a number of practices that organisations will employ to help mitigate and manage risk to reduce uncertainty. Market research, risk modelling and foreign exchange hedging are some common examples. However, one can never really tell how a new business venture will pan out until it is undertaken and without a crystal ball, when an organisation invests in a new venture it is essentially making a bet.
In this review we look at some new ways of thinking and ‘test the water’ approaches that organisations can take to minimise risk whilst still taking advantage of opportunities as they arise.
- Create a temporary organisation: whereby the initial staffing (especially management) is provided by contractors or consultants. The benefit of this approach is that the organisation can get started quickly and if unsuccessful there are no expensive staff layoffs required.
- Exploratory acquisitions: rather than go for a large acquisition the idea is to target a smaller acquisition. The advantage is that if the venture is unsuccessful then it will be easier to dispose of than a larger company will be.
- Disposable factories (assets): Whilst custom built factories offer many advantages in the long run they represent an enormous sunk investment if things do not pan out. A disposable factory (asset) typically is 5-10% of the capacity of permanent factory and can be built much quicker. And because the size requirement is less, more location opportunities will exist. The same philosophy applies to asset equipment – rent first and buy later.
Whether organisations are willing to adopt any of these practices will depend on a number of factors but two that spring to mind include the level of Executive hubris in the organisation and the continuous push by company Boards and Executives to realise short term gains rather than invest for the long term future (given that these options come with a higher risk protection price tag up front).
Reference: “How to Hedge Your Strategic Bets” George Stalk JR and Ashish Iyer, Harvard Business Review, May 2016