Managing Global Risk to Seize Competitive Advantage

This article illustrates strategic risk management principles while providing a regimen for developing a resilient, adaptable and profitable firm: chart current conditions, anticipate future conditions, and plan accordingly. Section 1 of the article describes six characteristics that are rapidly reshaping the global environment. Drivers such as globalization, changing demographics and spending patterns, increasing energy demands and the level of regulation and activism create opportunities and represent potential threats. Section 2 traces and entwines these characteristics to depict three possible future global scenarios. Ever deepening global integration may continue, as witnessed in the 1990s (optimistic outcome); could become more incremental, with an emphasis on bilateral arrangements instead of comprehensive global arrangements (neutral outcome); or recede amid a backlash sparked by security threats, corporate malfeasance, and economic uncertainty (pessimistic outcome). Finally, Section 3 identifies how to develop risk profiles unique to a business and situation. By prioritizing earning drivers, identifying critical infrastructure, locating vulnerabilities, identifying responses to possible disruptions, and monitoring the environment, firms can effectively evaluate risk. With a solid grasp of the risk management principles discussed in the article, business leaders will be well positioned to comprehend the drivers of change that reshape global markets and environments, to manage the corollary risks, and to take advantage of abundant business opportunities.