How To Avoid Strategic Risk 

Every company, regardless of its structure, fears facing strategic risk at some point. No company can expect to become successful if they do not create strategies that help them mitigate strategic risk. It is important to design a separate set of strategies that can help cover the loss of strategic risk. It can be a part of company policy and should be given as a reminder to all departments so the occurrence of strategic risk never takes place. All businesses repeatedly use different strategies to get their vision recognized. So, it is equally important for them to have concrete strategies that help them handle instances of strategic risk as well. 

Before we learn about the implications of strategic risk, let’s understand what the term means.


What Is Strategic Risk? 

Every company is founded on a certain list of aims and objectives. Plans and guides are made to fulfill those goals within a specific amount of time. Managers and HR put in a lot of effort creating policies and frameworks that show how company practices are supposed to be carried out. 

Simply put, failure to comply with those expectations leads to the reality of strategic risk. It is not a reminder, but a clear warning for a company to check what they are missing when evaluating tasks. The responsibility for encountering a strategic risk falls on every single employee working within a company. 

One cannot just go forward with a strategy because it is popular. Companies need to review and research many factors before deciding what strategy the department should use. Mindlessly following trends or cues can result in facing strategic risk. 

This is why a one-dimensional thought process is not suitable. And companies must adopt a mindset that helps them be customer and task specific. That will help them cover loopholes that they otherwise avoid. 

Before we delve deeper, we need to understand how strategic risk is different from operational risk. 

Strategic Risk Vs. Operational Risk

A lot of people confuse strategic risk with operational risk. However, they are two completely different categories. Operational risk stems from internal failures within a company. It reflects that the company is unable to understand how there are gaps while they perform operations. For example, being unable to choose the right way to carry out business processes comes under operational risk. 

Failure to choose software for cybersecurity or not double-checking orders before sending them out only to get a refund is a setback in terms of deciding on the right sequence of operations. Errors within company software that hinder record keeping or building a comprehensive record are also common examples of operational risk. 

The good thing about operational risk is that it can be fixed within some time. It is part of a company’s internal control. Hence, they can make the required changes. On the other hand, strategic risk has long-term effects that can be challenging to understand and solve.

Strategic Risk Vs. Operational Risk (Source: Reciprocity)

Types of Strategic Risks

There are a number of strategic risks that a company can face. Let’s see what the major ones are. 

Competitive Risk 

Every single company wishes to stay ahead of their competitors. The inability to do so leads to the possibility of facing strategic risk. Team heads need to stay ahead of competition and that can only be done if they are alert when their competitors introduce a new product or service. It is important to study the new services that are being offered. 

But it is even more crucial to study the way audiences receive it. A lot of companies offer services to a similar target audience. Audiences will only vouch for the ones that offer them more variety. Plus, they will connect with brands that bring ease in their customer journey. Competitive risk stems from the possibility of a company’s competitor doing so well that it diminishes their growth and success. 

Change Risk

Change comes with fear because the transition can become overwhelming. We live in a digital world that provides us with multiple updates daily. Businesses can either choose to carry out practices that are outdated or face issues ultimately. Or they can strategically include updates to their systems that boost their sales and efficiency. 

Of course, every new update requires all teams to train to use it first. That does take time and effort, but it will eventually only benefit the company. 

Company owners must be brave enough to take the leap so that advancements in technology can provide them with long term support. It will only add to the employees’ skill set, and they will be thankful for their workplace later. 

The idea of every progressive company is to introduce programs that can train their employees to improve their performance. If not, then it will lead to the company facing change risk, which will require double the effort to overcome. 

Regulatory Risk 

Every small and large business needs to conform to some specific rules in order to be registered. That does not mean regulations implemented on companies are a one time instance. Stakeholders and owners can adopt new regulations. Or, companies might need to implement control measures in order to get a license. 

The problem with such drastic changes is that they can disturb the way a company operates. New policies and practices can leave employees feeling confused. It can also lead to feeling incompetent. Not getting the hang of new systems can frustrate teams, and it will directly impact their willingness to work. 

The inability to fix errors and adjust to the new work model can finally convince an employee to either switch job roles or companies. That is why regulatory risks are very difficult to deal with. 

Reputational Risk 

Everything rests on the way a company aims to build its reputation in the business world. A company enjoying an excellent reputation does not only mean introducing new marketing techniques. A company can expect to have a good reputation if it is willing to improve and enhance all its practices. For example, a progressive company will introduce an inclusive culture. 

New age audience members will only align with a company’s vision if they treat their employees right. Standing by a brand or company means that a person is telling the world that they connect with what the brand stands for. 

It reflects their own thought process. Gen Z is entering the workforce and becoming the new generation of audience members. They sift through every piece of information before choosing to work for the company or avail themselves of its services. So, companies should work towards targeting their preferences so that they can get the Gen Z approval stamp. 

Social Risk 

The ESG movement is the new way forward for companies to tackle the situation of strategic risk. It is an extension of building a better reputation. Not complying with the ESG movement will only make things difficult in the future. The movement stands for companies introducing policies that connect with the importance of environmental, social, and governance justice.

The way audiences react to a company that introduces ESG policies is always positive. 

It means that the company is working towards making its practices sustainable and environmentally friendly. That could include making products from recycled materials. Doing so can reduce their carbon footprint. And that looks great for perception and reputation purposes. Secondly, being socially conscious is a progressive move. 

It is also a tactic to gain more new audience members and clients. The consumer base keeps changing based on their age bracket. Younger generations make conscious choices, and taking their choices into consideration is the only way out of social risk. 

How to Tackle All Sorts of Strategic Risks?

Bring Structure

It is better for business owners to take matters into their own hands rather than offloading them on their employees. The point is to make structural reforms that will bring long-term benefits. Changes can include revamping the hierarchy. 

Creating a transparent working culture is the need of the hour. Bosses need to reimagine their roles and change to become leaders. Being a boss has a negative connotation nowadays. It deems the boss someone who cannot be reached out to. Bosses should assume the role of mentors who can guide employees on how to perform better. 

Listening to their concerns and providing guidance on how to overcome them is what employees expect from their seniors. It inspires them to mimic their behaviors so that they can also become accessible to people when they reach that stage. 

Revamping Company Image 

A company must look at what they can do rather than what is out of their control when they face strategic risks. A good way to find a solution is to immediately work on changing the company’s image. Unfortunately, we live in an age where people are too quick to  permanently connect a negative aspect with a company’s image. They will not let it go if they do not witness the company actively trying to change its image. 

Companies should use social media platforms to let their audiences know that they take complete responsibility for any sort of mistake they have made. This will at least inform the audience that the company is responsible enough to identify that they have ignored some loopholes. 

The acceptance is a statement in itself. Many companies do not even consider doing that. A company that does will always be remembered as one that takes complete ownership of the good and bad. 

Steps in Risk Management Process (Source: Corporate Finance Institute)

Indicators Of Strategic Risks

There are always indicators for strategic risks. Let’s take a look at some important ones. 

Unable to Provide Customer Satisfaction

We all know that a company has no relevance if it does not invest in providing stellar customer service. A responsible customer service department is the foundation for achieving customer satisfaction. But companies must remember that the customer service department should be created with a focus on their audiences. Risks become apparent when businesses only implement strategies that focus on their own benefit and not on what their customers expect. The reality, however, is different. 

Customers are super aware and research a company’s customer satisfaction rate and practices before choosing to connect with the company’s vision. Not having a satisfying customer experience can directly lead to an instance of strategic risk. A lot of resources and time go into making campaigns. 

But, they fail to resonate if they are not made while focusing on customer preferences. Audiences do not shy away from bidding farewell to such companies because they identify that the company’s thinking is one dimensional. 

Employee Turnover 

The biggest fear for a company is when they face unexpected employee turnover. The decline is unpredictable, and there is next to nothing that can be done about it. Every employee has the right to leave their workplace, given the fact that they have a better opportunity offered to them. 

That alone is a solid justification for leaving the workplace. But the problem with an important employee leaving is that their department does not feel like sticking around. After all, connections are made, and certain bonds are developed that are not easy to let go of. 

Departments with a team form a culture that all existing and new employees learn from. A senior employee leaving affects the entire culture. It has a psychological impact because people only stay in workplaces where like minded employees choose to stay. 

Employee turnover has a chain effect, as many employees look at it as a reminder to explore more options. Nothing can be done about it because such a strategic risk should already have a set of solutions. Asking employees to stick around will not be sufficient. 

Negative Workplace Culture 

Strategic risks are a byproduct of a toxic and backward working culture. The responsibility rests with senior management to let such a culture perpetuate itself. It is always in the hands of executives to stop a toxic culture from spreading. But some companies only wish to extract work from employees and disregard the importance of their mental well being. Employees do not take a second to quit companies that keep abusing their power. 

It obviously means taking the plunge, but once it is taken, there is no going back. A negative workplace culture means exploiting employees on all fronts. Extensive working hours, being available around the clock, and no space for progress. Such a competitive culture leads to employees being unable to work together as a team. 

Competition takes the worst of them, and they fail to recognize that they are working as a consolidated team. The company begins to cash in on it, but it backfires. Employees are drained and only wish to quit without any remorse. That is when business executives are shocked because they were unable to anticipate the circumstances. 

More Resources Are Being Used

Companies always decide on a set of resources to be used and keep some only for certain emergencies. It is definitely a warning sign when a company’s resources are depleted within a short period of time. That itself is a strategic risk that takes the most time to solve. Companies are founded on shares and investments. 

They must safeguard their resources and be efficient enough to use them when needed. A company reaching out to emergency resources reflects negatively on their growth because it means that they are struggling to make ends meet.  A financial crisis can often lead to a company facing bankruptcy. Coming out of bankruptcy is not an easy task. 

It takes years to earn the trust of stakeholders and audiences for the second time. Moreover, people lose hope in a company’s vision, and that can completely diminish any possibility of them entering the marketplace again. A company can always see an instance of strategic risk before it takes over. But companies always assume they can handle such a situation but fail to do so. 

Key Components of Managing Risk Strategically (Source: nTask)

However, such instances can be tackled if companies implement the right tactics in strategic risk management. Here are some popular trends: 

Changing Workflow Systems

The only way to tackle situations of strategic risk is by making internal changes within the company. There are always some routine tasks that need to be done. The approach taken to complete them can be altered from time to time. That provides a refreshing perspective for employees to work from. A stagnant workflow will always leave employees drained and stuck. But an efficient workflow system will help employees accomplish tasks to the best of their abilities. 

Changing the workflow system from time to time can enable employees to use advanced features that help them perform routine tasks in an enhanced manner. Companies can include better software in their practices. Software powered by AI can help a company and its employees do any sort of task. Their tasks will become more seamless. Plus, any sort of human error will be omitted. 

Introducing an Employee Benefit Program 

Employees are the backbone of a company. Not recognizing their needs and concerns can lead to them feeling undermined and choosing to eventually leave the workplace. However, a great step towards retaining employees is introducing an employee benefits program. 

That program should cover all their concerns so that it becomes the core reason for them to stick around. Employees often face episodes of burnout and exhaustion. Therefore, they should be allowed to work flexible hours. Including a work from home policy also goes a long way. 

Employees can avail themselves of that and work from the comfort of their homes when they are tired of facing the office culture. Health benefits should also be given so that a feeling of genuine trust can be established. Moreover, employees should be allowed to take breaks at least once a year so they can regain their sense of purpose and return to their offices. 

Including Customer Preferences in All Practices

Paying attention to customer preferences is always a benefit. Making audiences a part of the process gives them room to share their opinions. But it also works as a double-sided benefit. Companies that welcome employees to share their opinions witness a ground-breaking improvement in their engagement rates. 

Audiences feel that the company is interested in what they have to say and, as a result, will always extend their support. Companies can gain insights into the expectations of their audience members. That will help them streamline their practices according to the audience’s preferences. 

This way, campaigns will be conducted efficiently. The best part is that they resonate with the target audience instantly as well. All it takes is some research and taking the audience’s preferences seriously. 

Will Strategic Risks Continue to Hamper Growth?

The answer is yes. That is, if companies are too confident in assuming that strategic risks can be easily mitigated. Strategic risk can only be solved if a solid system for managing it is in place. Failure to create solutions for strategic risks will not only hamper a company’s growth but will also degrade its reputation in the marketplace. A company mostly thrives on the way it is perceived. So, it is crucial for companies to take steps in order to eliminate the possibility of strategic risks affecting their business. 

Featured Image: De-RISK

- Advertisement -


Please enter your comment!
Please enter your name here

Follow us for latest news!

- Advertisement -

Latest News

- Advertisement -
- Advertisement -