BA_315_LN_9D_Strategic_Risk_and_Competition

BA_315_LN_9D_Strategic_Risk_and_Competition - Competition...

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1 Competition in Relation to Strategic Risk Lecture Notes #9DB BA 315: Economy, Industry, and Competitive Analysis Ali Emami Department of Finance Charles H. Lundquist College of Business University of Oregon
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2 Topic: Identifying Strategic Risk Source: R.L. Simons. A Note on Identifying Strategic Risk ”. Harward Business School Case Study #9-199-031, Nov. 5, 1999. Lecture Outline: A. Sources of Strategic Risk I. Operations Risk I.1 Identifying and Controlling Operations Risk II. Asset Impairment Risk II.1 Financial Impairment II.1.1 Financial Impairment Caused by Willful Actions of Employees II.2 Impairment of Intellectual Property Rights II.3 Physical Impairment III. Competitive Risk III.1 Sources of Competitive Risks III.1.1 Customers III.1.2 Suppliers III.1.3 Substitute Products III.1.4 Competitors IV. Franchise Risk V. Early Warning System for Avoiding Risk: Key Indicators B. Assessing Internal Risk Pressures I. Risk Exposure Calculator (Risk Matrix) I.1 Risk Pressures due to Growth I.1.1 Risk from Pressure for Performance I.I.2 Risk from Expanding the Scale of Operation I.I.3 Risk from Hiring Inexperience Employees I.2 Risk Pressures due to Culture I.2.I Risk Pressure due to Rewards for Entrepreneurial Risk Taking I.2.2 Risk due to Incompatible Cultures of Merging Companies I.2.3 Risk due to Executives Resistance to bad News I.2.4 Risk due to Internal Competition I.3 Risk Pressures due to Information Management I.3.1 Risk Pressures due to Increasing Transaction Velocity I.3.2 Risk Pressures due to Increasing Transaction Complexity I.3.3 Risk due to Pressures from Inadequate Management Information Systems (MIS) and Lack of Formal early Warning Systems C. Risk due to Misrepresentation and Fraud I. A Dangerous Triad 1.1 Pressure I.2 Opportunity I.3 Rationalization D. Learning What Risks to Avoid
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Identifying Strategic Risk Introduction Competition in any industry involves risk. The more aggressive the firm and its management, the greater the probability of mishaps would be. Hence, corporation’s strategy for value creation will be exposed to large risks. Questions to be answered: 1. What are different types of strategic risks that can affect a firm? (financial and non-financial firms) Financial firms: Depository (receives its revenues from deposits) For example, commercial banks Nondepository (recieves its revenue from fees, commisions, memberships) For example, Insurance companies, brokerage firms) Non-financial firms: These firms obtain their revenues from sales of non- financial products and services. Financial Products (assets): Intangible product: The value (present value) of product is determined based on the asset’s promised cash inflow over time. For example, [Securities (stocks), Bonds, Derivatives (forwards, futures, options (calls, puts), swaps)]. Non-financial Products: Tangible Products:
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This note was uploaded on 04/22/2008 for the course ECON 315 taught by Professor Aliemami during the Spring '08 term at University of Oregon.

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BA_315_LN_9D_Strategic_Risk_and_Competition - Competition...

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