Multiple perspectives on the meaning and application of strategic risk
We learned of multiple perspectives on the meaning and application of strategic risk. An example of a strategic risk event occurred on March 17, 2000, when a ten-minute fire at a Royal Philips Electronics semiconductor plant in Albuquerque, New Mexico, "touched off a corporate crisis that shifted the balance of power between two of Europe's biggest electronics companies..." (Wall Street Journal, January 29, 2001). This occurred because, besides directly destroying several thousand chips for mobile phones, the fire contaminated the clean room environment in the semiconductor plant, effectively shutting it down for weeks. At the time, both Nokia and Ericsson were sourcing microchips from the Philips plant. However, while Nokia was able to quickly shift production to other Philips plants and some Japanese and American suppliers, Ericsson was trapped by its sole source dependence on the Philips plant (Strategic Risk from Supply Chain Disruptions, Hopp, et al.) Using perspectives from Ch. 4, how do you think these two companies viewed strategic risk, before the fire?
Sample Solution
Nokia vs. Ericsson: Contrasting Views on Strategic Risk (Pre-Fire)
Based on Chapter 4 and the Philips fire case study, we can infer how Nokia and Ericsson likely viewed strategic risk before the event:
Nokia:
- Perspective: Risk as an Opportunity: Nokia seems to have approached strategic risk from a more proactive and opportunity-seeking perspective.
- Evidence: Their ability to quickly shift production to other suppliers suggests they had already identified potential risks associated with sole-source dependence and had established alternative sourcing options. This demonstrates a proactive approach to mitigating supply chain risks.
Full Answer Section
Ericsson:- Perspective:Risk as an Unforeseen Threat: Ericsson's heavy reliance on the Philips plant suggests they might have viewed strategic risk as an unforeseen threat, focusing on efficiency and cost savings rather than diversification.
- Evidence:Sole-source dependence can offer cost benefits through negotiation and volume discounts. However, in this case, it left Ericsson vulnerable to a single point of failure. This suggests a focus on efficiency over risk mitigation.
- Risk as a Threat:This view emphasizes the potential negative consequences of risk events. Ericsson's situation exemplifies this perspective.
- Risk as Uncertainty:This view acknowledges the inherent uncertainty in business environments and the need for flexibility to adapt to changing circumstances. Nokia's approach reflects this perspective.
- Risk as an Opportunity:This view recognizes that risk can present opportunities for innovation and competitive advantage. Nokia's ability to find alternative suppliers demonstrates this perspective.
- Identify and assess potential risks across their supply chains.
- Develop contingency plans to address potential disruptions.
- Maintain a balance between efficiency and risk mitigation in sourcing strategies.