Disruption in manufacturing: Managing unexpected risk for strategic opportunity

By Brian Clark and Mo Reynolds

Unexpected risks. They’re all around us in today’s volatile, uncertain, complex, and ambiguous world (dubbed “VUCA” by the US Army War College). Manufacturers face challenges from powerful forces as technology, social, environmental, economic, and market trends converge, testing the mettle of even the strongest companies.

One area of specific concern: strategic risk.

Results from a Corporate Executive Board study, published by Harvard Business Review, found that 86 percent of losses in market value was tied to strategic risks. This shows that, if not managed carefully, strategic risks present potential losses in market share, brand reputation, competitive advantage, and market traction, allowing the competition to gain ground.

At the same time, manufacturing companies have an unprecedented opportunity to innovate and evolve. New customers, markets, materials, and technologies await exploration and provide unlimited opportunities for expansion and growth.

Anticipating opportunity—while protecting value—is where strategic gains may be realized.

By managing strategic risk—the uncertainties and untapped opportunities that directly impact a company’s identified strategic goals—organizations can navigate uncertainty while supporting business goals and both creating and protecting value. Whether they continue to generate value for stakeholders depends on how well they prepare for and react to strategic risks.

Addressing strategic risk head on delivers value by helping to increase revenues, decrease expenses, gain efficiencies, lower costs, boost returns, avoid downsides, and capitalize on potential upsides. Forward-thinking companies develop strategic risk plans and approaches that include a process for identifying, assessing, monitoring, and responding to potential risks. Here’s how the process might look:

  • Identify significant risks. Identify the top risks to the corporate strategy, as well as the shortcoming(s) of the strategy itself. Once identified, those risks are incorporated into the business strategy and planning processes.
  • Assess risk exposure. Prioritize risk based on its impact to strategy and the organization, considering the nature of vulnerability and preparedness to respond to a risk event.
  • Design the risk response. How will the organization respond to prioritized risks based on the gap between risk exposure and appetite? Develop a deployment roadmap that takes these factors into consideration.
  • Deploy the appropriate strategy. As strategic risk events occur, execute the planned risk mitigation tactics and event responses.
  • Monitor and report. Develop a plan to continuously monitor and report, including sensing and predicting emerging risks.

Interested in learning more? Read the full report on disruption in manufacturing.

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