Article_-_Managing_Risk_in_an_Uncertain_ - Managing risk in...

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Managing risk in an uncertain world June 24, 2000 by Richard E.S. Boulton, Barry D. Libert, and Steve M. Samek The following is an excerpt from the recently released "Cracking the Value Code: How Successful Businesses Are Creating Wealth in the New Economy" (HarperBusiness) by Richard E.S. Boulton, Barry D. Libert, and Steve M. Samek. "We are all paid to take risks," says Lawrence A. Bossidy, the storied chairman of New Jersey- based Honeywell (HON ) and former leader of aerospace company AlliedSignal until its recent merger with Honeywell. When he was 12 years old and an altar boy at St. Theresa's Church in Pittsfield, Mass., Bossidy started helping out in his father's shoe store on evenings and weekends. He could barely reach the cash register, but he was a full-fledged salesman. He noted the everyday risks his father took in terms of ordering particular styles of shoes and not ordering others. A few years later, when a snowstorm swept in on a Friday night, his father gave Bossidy $500 in cash and the young man drove to a midnight auction in another town. There he practiced a kind of homespun risk management, buying dozens of pairs of galoshes on the assumption that enough snow would fall to produce a seller's market the next day. Not all risk management can be reduced to an equation as simple as making a calculated decision that it will snow enough to drive up demand in galoshes. But the general principles remain the same. Companies that alter their business models in response to the New Economy are taking risks, to be sure. But so are companies that elect to do nothing but stick with the tried-and-true. The difference is, companies that respond proactively to the new business realities may have a better understanding of the risks they are taking than do those companies that choose to do nothing. Above all, companies that seek to change their business models probably understand that risk is as much about upside opportunity as about downside threat. 'All bets are off' Example: Andrew Grove, chairman of Intel Corporation (INTC ), refers to risk as "points of inflection" or "the moment that massive change occurs and all bets are off." Not surprisingly, he is putting Intel's future on the line with a $5 billion investment in the Internet. Going still further, Grove has announced a $100 million fund intended as seed money for companies that will create the communications networks of the future. Believing that data transmission will soon dominate voice in the networked economy, Grove is ready to go head-to- head with entrenched competitors. Risk is as much about upside opportunity as about downside threat.
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Example: John F. Welch Jr., chairman and chief executive officer of General Electric Company (GE ), is betting $1 billion to $2 billion that the emerging economy of China, home to almost 20 percent of the world's potential consumers, will become a power in the global marketplace. Under Welch's leadership, GE is managing strategic risk by taking specific action
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Article_-_Managing_Risk_in_an_Uncertain_ - Managing risk in...

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