Risk can be defined in a variety of ways depending on the sector or industry to which this is ascribed. For example, in the insurance industry risk can mean economic risk which can affect a person’s or organization’s economic security. People take insurance coverage to minimize the effects of a loss (death, disability etc.) thus maintaining a sense of security for himself and his family and/or beneficiaries. On the business and investment side, risk can mean the loss of value of a stock or capital. Overall, risk is defined as the possibility of a loss, hazard or injury that can occur to a person or organization at any given time.
We can then state that risk is present in everything people do. Risks that are not properly addressed and managed can disrupt the attainment of the personal or organizational objectives. The question of what levels of risk can an organization endure so that the organizational objectives will not be unjustly modified or rendered useless is a question every stakeholder must answer. In the world of business aside from knowing the risks, what sort of strategies can be employed so that the organizational strengths can be maximized and opportunities widened.
It is in this regard that strategies must be developed and implemented properly in order to counter the ill effects of risks. Generally, a strategy is matching the organization’s internal resources with the opportunities offered by the external environment.
For example, doing business these days does not only mean interacting with customers locally or just those within the geographical limit of where the physical business is but can also mean taking the whole world as the possible market for a firm’s products and services. This is where the internet comes in which can also spell the difference between success and failure of an enterprise nowadays. A business organization not willing to accept the technological changes happening around is bound to limit its reach and potentials.
Relative to this is that marketing as a discipline must now be understood in the context of globalization. Again, the rise of the internet and the continuously evolving technology has reshaped and is still reshaping the familiar brick and mortar business model. Thus, a business strategy can now include: diversification, mergers and acquisitions, strategic alliances, cost advantage, competitive advantage, business clustering, price leadership, market dominance, reengineering, downsizing, restructuring, de-layering among others.
Yet, a common business strategy utilized by organizations and manufacturers is Porter’s Five Forces of Competition (Porter, 2008). The five forces as expounded by Michael Porter are: Rivalry, Customers, Suppliers, Entrants and Substitutes that focuses on the advantages of low cost leadership.
The first one is rivalry and this means that competitors will likely avoid going into a price war with a known company espousing a low cost strategy. If the competitor would also wage a price war in order to win the market, the likelihood is high that the low cost company will still earn profits while the new competitor will not.
The customers model on the other hand talks about the pressure end users can exert that can force manufacturing companies to produce goods and services at lower prices and later on those same companies that was forced to reduce their prices might go bankrupt leaving the more established low-cost based companies to monopolize the market.
The supplier’s model is about the relationship between the supplier and the buyer. When there are few suppliers the tendency is to ask for price increase from the buyers, this will lead again to an advantage for the low-cost based companies’ ability to absorb increase in prices without much effect on their customers.
Entrants describe a barrier to entry created by the cost leaders because of their operational efficiency reducing their product and services’ costs. And lastly, low cost leaders can attract customers because of their lower priced offerings while at the same time have the ability to develop substitutes for similarly low priced products.
Whatever strategies organizations will choose in order to win a market or create new one, it is imperative to always consider its internal strengths vis-à-vis the opportunities offered by the external environment. Much the same way, is to also consider the organization’s weaknesses relative to the threats posed by the competitors, the current political arena, economic situation and the likes.
For some, this basic strategy may be considered an old school advice yet this has been tried and tested before many times over with a high success rate. So why reinvent the wheel and destroy something that is already working. Start with the fundamentals and with the organization’s confidence growing then it can now attempt a more “advanced” and up-to-date strategies to implement suited to its needs and wants.
Porter, M.E. (2008). The five competitive forces that shape strategy. Retrieved December 7, 2012 from http://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/ar/1