Risks in company strategy - Strategic Management

The investigators now have a clear indication of the company’s main sourcesof profits. The next stage is to examine some of the risks attached to these products. First, there is the obvious situation where a company is very dependent on one product for its profit. There have been many companies in this position, and they can carry on for decades making good returns and seemingly giving little cause for concern. Yet there is a problem, and overdependence on one product – or indeed, to a lesser degree one market – carries a high probability of future problems.

Second, a similar type of risk is where the bulk of a company’s business is tied up with a few customers. This is often the case with certain industrial products, and is an increasing tendency in certain types of retailing. Again the business may be quite safe, although there is a strong indication for strategic development elsewhere. In some cases the strategic implication may mean a new approach in the same market, widening the pattern of distribution: in others it may indicate different products or completely new types of business.

Third, there is raw material risk which may vary from a world difficulty of supply to overdependence on one supplier. Market risk should also be examined. The market position of each main product should be established. It is equally important for the firm to understand the areas in which it has leadership. Finally, technological risk should be considered, not only the possibility of product obsolescence but also the likely changes in production processes which are likely to cause the company problems in the area of plant and machinery. Anything which affects the company’s future competitive position is a risk which should be carefully considered.

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