The Relationship Between Risk and Strategy

This assignment explores the relationship between risk and strategy in organizations. It discusses the implications of strategy, the possibility of strategy not aligning with the organization's mission and vision, and the importance of adaptation for strategic objectives. Real examples and strategies for risk mitigation are provided.

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Risk Management Spectrum

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Contents
Introduction.................................................................................................................................................3
The relationship between risk and strategy..................................................................................................4
The implications of the strategy..................................................................................................................7
The possibility of strategy not aligning.......................................................................................................8
Due diligence and strategy reviews.............................................................................................................8
Adaptation of the organization for strategic objectives even having risks...................................................9
Conclusion.................................................................................................................................................11
References.................................................................................................................................................12

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Introduction
The risk management source for sustainable enlargement and a key to sustainable viable benefit
is an organization's risk management. It permits organizations to focus on their intangible
assets in order to improve organizational performance; on the other hand, the knowledge-based
economy of higher education institutions has a significant role to play in the economic
development of nations. Hence, this study endeavors to investigate the relationship between risk
and strategy of the organization. The risk is the notion that inherent to any business activity, but
the establishment of formalized functions of risk in organizations is a recent phenomenon.
There are many corporate governance frameworks that service to develop structures in order to
facilitate management accountability in a world features by a separation of divorce of
ownership from control, but such control pretends so far to have unable to stem the repetition of
corporate scandals across the globe.
The main focus of this assignment is to focus on the relationship between the risk and strategy
in which the various examples will be drawn. Along with the explanation regarding how
adaptation can enable an organization to achieve its strategic objectives and win despite the
risks, it may face will be made. It would facilitate to bring understanding regarding various
concepts of risk management and strategies for risk mitigation. With the support of real
examples, the research on topic will justify the involvement of different companies on the same
topic.

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The relationship between risk and strategy
The risk in the term of the business can be depicted as the possibility for the company to have
lower than assumed advantages or experiences rather than taking a profit. It is an essential to
process of any kind of business because, without risk, the business cannot move beyond its
capabilities. Business risk is attracted by a number of aspects, involving sales volume, costs of
input, government regulations and entire economic climate. On the other hand, strategy in the
business is helpful for the company to attain the strategic objectives, in order to achieve its
goals and meet the expectations of its customers. Cost leadership, differentiation and focus are
major examples of business strategies that are helpful in developing the growth of the company
(Yazdanpanaha and Saharkhiz, 2015).
There is a huge relationship between risk and strategy that contributes to the success of the
company. Risk and strategy are integrally related- and they always have been. Certainly, most
strategy-selection processes do consider risk (Sadgrove, 2016). Majorly, however, those risks
are focused in term to their future effect on the ability to initiate the strategy. There are times
when risks found in implementation become so vital that they intimidate the strategy itself. The
risk moving towards the strategy, which are vital enough that the board must focus on revisiting
the strategy. Risk can affect the objectives of the company through which the set target can be
hampered but with the help of effective strategies, the risk can be mitigated and opportunities
can be increased (Rostami, Sommerville, Wong and Lee, 2015).

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Source: https://centralbank.ie/docs/default-source/publications/discussion-paper-4/risk-
management-international---response-to-risk-appetite-discussion-paper.pdf?sfvrsn=2
The alignment is attained by the company by operationalizing the risks between risk and
strategy. Reaching a purpose as a Long Term Purpose and developing those strategic initiatives
and objectives which are needed to achieve it. The relationship between strategy and risk is
developed when the main focus of the company is on understanding the hurdles that can stop
them towards achieving the set goals. After that setting objective and getting balance alignment
to contribute to making effective relationship between risk and strategy. Compliance with laws
and regulations is necessary for the organization to identify the risk and apply the strategy for
mitigation.
According to Pollanen, Abdel-Maksoud, Elbanna and Mahama, (2017), the relationship between
risk and strategy is enormous. The organizations identify the risk within the operation through
risk identification steps and the strategies are being produced by the manager to mitigate the

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risk. Hence, the development of risk within the organization is the major reason behind
producing strategy, which shows the relationship of risk with strategy. There are various
applications that require risk management such as minimizing crises, reducing unexpected
problems and issues and increase as well as decrease rate of success and failures. An effective
strategy of the business is helpful in organizations to cleverly evaluate the execution of their
strategies in order to increase the realization of the strategy of the foundation. Through a
strategic performance management system, the companies will be capable to investigate the
executions of the strategies and other programs of health care for the realization of strategic
outcomes. With the help of effective strategies within the business, the management of the
organization is able to mitigate the current and potential risks (Farmer, 2017).
In the context of cyber-risk, before data breaches turned out to be commonplace, there was a
risk of cyber-risk that became the threat for IT departments and they had to manage it. Now,
cyber-risk is considered as the boardroom issue, by taking consideration of 2015 Annual
Corporate Directors Survey, most of the directors stated that they wanted to discuss the IT risk,
entailing cyber-risk security. It was the belief of them to keep focus on specific issues by
putting more attention on strategic planning. There is an example of those companies that
involve in the “internet of things” (IoT), including Fortune 500 auto-makers and industrial
giants, each know their strategy could not be succeed if they do not get enough knowledge
regarding influences of cyber risk. That is why; the main aim of them is on developments, ready
to transform strategic directions as the cyber-risk environment amendments. Those are the
threat to carry out the strategy, seen during the eyes of strategy.

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The implications of the strategy
It shall be noted that every potential strategy has a risk profile, a set of risks that originate from
the strategy- it can be referred to as the implications from the strategy (Kranz, 2016). It is
necessary for the management and boards of directors to keep the focus on how each alternative
strategy maps to the risk appetite of organization and how each substitute will drive the
company to set business aims develop coherently and allocate resources (Olson, Slater, Hult and
Olson, 2018). Only in such case, the management and boards should opt and approve the
strategy from among choices.
There is an example of mass market fashion in which the new entrant can refer a number of
strategies. Two can include, for instance, a rapid growth expansion in emerging markets, and a
high-turnover approach for hustling designs for increasing sales. Each of those strategies has
entailed great risk to implement because; the success of the strategy is dependent upon the
understanding of the risks behind them by the management (Booth, 2015). The first strategy
asks whether the involvement of brand in an emerging market in order to develop customer
loyalty and whether the company can handle treasury risks. The second strategy elevates
questions regarding whether designs will be remaining in trend always or designs can be made
and went through the supply chain. Both strategies are feasible but, each has entailed different
risk on different anticipation.
In such cases, it is vital for the board and management to focus on these anticipations- the
allegation from the strategy-before they handle the strategy. It demonstrates that the section of
the strategy is dependent on the risk categorization because it is not possible that every strategy
can be applied for any kind of risks within the organization.

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The possibility of strategy not aligning
The mission, vision and core values are different from each company that elaborates its
purposes, what it is endeavoring to attain and how it desires to conduct business. It is quite
necessary for the organization to choose strategy after analysing the support of them towards the
mission and vision of the company. Misalignment can be definite, for instance, the maker of
tobacco can enter the holistic health and wellness market, or it could be slight. There is another
example of the hospital; it can save lives by developing medical tourism business. In case of
having the different mission of the hospital is to service the community’s disadvantaged, and
then the medical tourism service is misaligned with the vision and mission of the organization.
The reputation of the hospital could be hampered if a foreigner patient were provided special
treatment over a needy senior from the neighborhood. It is an example of the risk of strategy not
aligning (Awadallah and Allam, 2015).
Due diligence and strategy reviews
The huge sources of value destruction are entrenched in the initiation from the strategy and the
possibility of strategy not linking with vision and mission. The role of the dimensions put a
highlight on getting the right strategy in the first place, instead of implementation.
Dimensions put the emphasis on getting the right strategy in the first place, rather than on
execution (Fan and Stevenson, 2018). A centric approach of risk is due to diligence in selecting
a strategy. It cannot be enough to strain proposed strategy of test management, as number of
board deliberations cover today. The profiles for the risk can be produced for each kind of
alternative and matched against the capabilities of organization and risk appetite. It is required
that each alternative must make sense in the opposition of the mission and vision of the
organization. After evaluation of the risk-centric assessment of alternatives, a strategy can opt.

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However, the selection of the strategy is taken around three to five years but the strategy is also
evaluated annually (Cheng, Humphreys and Zhang, 2018). In this way, knowing which risks to
the strategy to keep an eye on is crucial. Otherwise, a wrong interpretation of the strategy can
lead the organization into a hazardous situation.
Adaptation of the organization for strategic objectives even having risks
The selection of the right strategy has great importance in the company in order to perform in a
well efficient manner. Every organization has different kinds of risks but it can be reduced by
applying the right mitigation strategy. Alternation of the strategy can help the organization to
reduce risks (Mayer, 2016). Throughout most of modern business history, companies have
attempted to unlock value by comparing their structures to their strategies. There is a number of
companies that have developed huge economies of scale by focusing on key functions such as
sales, operation, and finance. A few decades later, as organizations diversified providing and
enthused into developed regions. There is an example of General Motors and DuPont that has
developed business units structured around products and geographic market even having risks
of nor successful in the competitive market. These companies have selected the right strategies
for covering the targeted market instead of having a risk of failure. There are many smaller
business units around the world that sacrifice some economies of scale but they have the
capability of adapting to local conditions. General Motors Company has main focused on the
organizational structure to support managerial decisions (Kaplan and Norton, 2006). The
company modernizes the business by activities flowing through its effective corporate structure.
The structure of the organization is the design that includes the composition and arrangement of
business components, like offices or departments. In the case of General Motors, the
organizational structure pays attention to the regional markets. For instance, the operation team

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of the company is in North America. As consequences, the corporate structure provides as a
means for executing strategies specific to conditions of the regional market. There is a risk with
the company to get a failure in terms of not getting proper attention to the local market due to
expansion. As a key player in the global automotive industry, General Motors should support
the features of the organizational structure with the needs of the business capabilities, which are
partly relied on the structure characteristics of the organization. General Motors can make
effective use of its capabilities and performance in the worldwide market.
A flexible structure and diffusion of decisions rights are powerful factors for amplifying
adaptability (Kranz, 2016). Classically, adaptive companies have transformed activities and
functions with modular units that freely interact and reassemble as per the situation at hand. To
foster this framework, it is facilitated to have competing or weak power structures and a culture
of positive conflict and dissent. There is an example of a Cisco Company that has developed
this transformation. Early on, it helped on a hierarchical, customer-centric organization to
develop into leader in the market for complex switches and routers. John Chambers is the CEO
of the company that has developed a novel management structure of councils of cross-
functional and boards to help converts to improve countries (Reeves and Deimler, 2011).
Developing decentralized, solution, and even competing organizational structure spoils the big
benefit of inflexible hierarchy. It cannot be expected by an adaptive organization to succeed
unless it develops people with some replacement for that certainty. There is an example of
Netflix that value nine major behaviors and skills such as communication, curiosity, courage,
selflessness, courage and innovation. The executives of the company believe that an effective
workplace is full of “stunning colleagues”who represent these qualities, hence the model of
Netflix is to “develop employee freedom as the company grow, sooner than limit it, to carry on

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attract and nurture innovative people, so the company has a better option of long-term continued
success”. In order to prevent risks, Netflix has two kinds of rules like those designed to stop
irrevocable disaster and those framed to protect ethical and moral issues. It has no policy of
vacation and does no tracking of time; the main focus of the company is on what requires to get
completed (Pwc, 2017).
Conclusion
It has been concluded from the above discussion that the relationship between risk and strategy
in the business has noteworthy value. It helps business to enhance the productivity of the workers
to attaining a common goal. This paper has elaborated about the applications of risk through
which the strategy is required to mitigate them. Along with that, it has been found that it is
necessary for the management and boards of directors to keep an eye on the process of each
alternative strategy maps to the risk appetite of the organization. It has been analyzed that the
organization should strategy after analysing the support of them towards the mission of the
company. The relationship between risk and strategy has been mentioned under this assignment
in order to analyse the situation of the company. It has been showed that the fragment of the
approach is dependent relative on the risk classification as it is not possible that every strategy
can be applied for any kind of risks within the organization. The justification has been given by
providing examples of different companies which would be helpful in getting knowledge
regarding how companies can achieve strategic objectives, even having risks within the
business.

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References
Awadallah, E.A. and Allam, A., 2015. A critique of the balanced scorecard as a performance
measurement tool. International Journal of Business and Social Science, 6(7), pp.91-99.
Booth, S.A., 2015. Crisis management strategy: Competition and change in modern enterprises.
Routledge.
Cheng, M.M., Humphreys, K.A. and Zhang, Y.Y., 2018. The interplay between strategic risk
profiles and presentation format on managers' strategic judgments using the balanced
scorecard. Accounting, Organizations and Society, 70, pp.92-105.
Fan, Y. and Stevenson, M., 2018. A review of supply chain risk management: definition, theory,
and research agenda. International Journal of Physical Distribution & Logistics
Management, 48(3), pp.205-230.
Farmer, N., 2017. The invisible organization: How informal networks can lead organizational
change. Routledge.
Kaplan, R. S. and Norton, D. P. 2006. How to Implement a New Strategy Without Disrupting
Your Organization. Available [online] https://hbr.org/2006/03/how-to-implement-a-new-
strategy-without-disrupting-your-organization Accessed on 10th April 2019.
Kranz, M., 2016. Building the Internet of Things: Implement New Business Models, Disrupt
Competitors, Transform Your Industry. John Wiley & Sons.
Mayer, A., 2016. Risk and benefits in a fracking boom: Evidence from Colorado. The Extractive
Industries and Society, 3(3), pp.744-753.

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Olson, E.M., Slater, S.F., Hult, G.T.M. and Olson, K.M., 2018. The application of human
resource management policies within the marketing organization: The impact on business and
marketing strategy implementation. Industrial Marketing Management, 69, pp.62-73.
Pollanen, R., Abdel-Maksoud, A., Elbanna, S. and Mahama, H., 2017. Relationships between
strategic performance measures, strategic decision-making, and organizational performance:
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pp.725-746.
Pwc, 2017. Risk through the eyes of strategy. Available [online]
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strategy-in-the-coso-erm-framework.html Accessed on 10th April 2019.
Reeves, M. and Deimler, M. 2011. Adptability: The New Advantages. Available [online]
https://hbr.org/2011/07/adaptability-the-new-competitive-advantage Accessed on 10th April
2019.
Rostami, A., Sommerville, J., Wong, I.L. and Lee, C., 2015. Risk management implementation
in small and medium enterprises in the UK construction industry. Engineering, Construction and
Architectural Management, 22(1), pp.91-107.
Sadgrove, K., 2016. The complete guide to business risk management. Routledge.
Yazdanpanaha, A. A., and Saharkhiz, F. S., 2015. The relationship between risk management
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Management 2(11) pp. 1-9.

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