Strategic Risk Management Practice: How to Deal Effectively with Major Corporate Exposures

Citation

Juul Andersen, T. (2011), "Strategic Risk Management Practice: How to Deal Effectively with Major Corporate Exposures", Strategic Direction, Vol. 27 No. 7. https://doi.org/10.1108/sd.2011.05627gae.001

Strategic Risk Management Practice: How to Deal Effectively with Major Corporate Exposures

Article Type: Suggested reading From: Strategic Direction, Volume 27, Issue 7

Torben Juul Andersen and Peter Winther SchrøderCambridge University Press, Cambridge, 2010

Strategy is a fascinating subject. It is about the overall directions of all kinds of organisations, publics or privates, multinationals corporations or entrepreneurial start-ups, great or small business. The strategy raises the big questions about these organisations subordinate to frequent and often abrupt changes fuelled by new market developments, political events, technological inventions and different environmental hazards that confront their activities across the global economy (Hechavarria and Reynolds, 2009; Hsueh et al., 2010; Mariussen et al., 2010; Pechlaner and Bachinger, 2010; Scott and Laws, 2010). The organisations should create a proactive organizational environment that encourages innovative responses to environmental challenges in an uncertain world (Koelling et al., 2010; Koschatzky and Stahlecker, 2010). They must analyse the risk and uncover shortcomings in current risk management practices (Browning et al., 2009; Lin, 2010; Pardo-del-Val, 2010; Peris-Ortiz, 2009; Rondan-Cataluña et al., 2010), which is the aim of this book.

Andersen and Schrøder combine their academic practice and their vast practical experience in this book that hopes induce a movement towards a more comprehensive and meaningful risk management construct compared to the fragmented way in which we often seem to study risk management (p. 31).

Andersen is a businessman dedicated to teaching at present. He focuses on corporate strategy development, effective strategy processes, strategic management, and strategic risk management. Professor at the Copenhagen Business School held positions as senior consultant at PHB Hagler Bailly, Inc, Arlington. His professional engagements include institutional bank practices, corporate finance, capital markets, treasury, trading, and derivatives: senior vice president at Unibank A/S; managing director at SDS Securities A/S, Copenhagen; and vice president at Citibank/Citicorp Investment Bank, London. He has published numerous articles and books, including Perspectives on Strategic Risk Management (2006), Global Derivatives: A Strategic Risk Management Perspective (2005), Currency and Interest Rate Hedging (1993), Euromarket Instruments (1990), and Interest Rate Risk Management (1989). He holds an MS in Economics from the University of Copenhagen, an MBA in Finance/International Business from McGill University, and a PhD in Strategic Management/Finance from the Kenan-Flagler Business School, University of North Carolina at Chapel Hill.

Schrøder, partially dedicated to teaching as a part-time associate professor at the Copenhagen Business School, is a director at Saxo Bank A/S, Copenhagen where he is responsible for all risk management within the group. He has held various executive risk management positions in the banking, insurance and management services industries over the past 20 years where he gained comprehensive practical experience in all aspects of financial and operational risk management.

Strategic Risk Management Practice: How to Deal Effectively with Major Corporate Exposures is focused to an audience of practicing managers, executive leaders in public and private enterprises, in sight of the high profile of the topic of risk management among.

The book proposes an effective risk management model covering various risk management subjects structured around nine major chapters. Chapter 1 provides an overview, outlining the various approaches to exposure assessments and risk management, and discusses the diverse dynamics and strategic nature of the corporate risk management challenge. The chapter presents managing risks as a process of developing and probing innovative and responsive ideas that can help the organization to gain insights about new opportunities under changing environmental conditions. Chapter 2 outlines more conventional concerns about financial and longer-term economic exposures faced by corporations engaged in international business activities and looks at recent methodologies developed to assess aggregate exposures in all-encompassing value-at-risk measures. Chapter 3 presents some of the modern diversification techniques used to hedge and cover against conventional hazards, financial risks and economic exposures, gives an update on recent interfaces between instruments traded in the financial, insurance and capital markets, and emphasizes the need for specialized expertise within the risk management disciplines to be able to act professionally and exploit opportunities specific risk-transfer markets. Chapter 4 challenges traditional risk management rationales and extends the risk perspective to include important competitive exposures, arguing that a wider range of risk practices is required to deal with current operational and strategic risks. Chapter 5 introduces a more integrated view of the corporate risk landscape and challenges the silo orientation often adopted in existing risk management practices, arguing that management should consider all risks and possible interactions between them while pursuing a strategy-oriented approach. Also discusses the practical challenges associated with the myriad of risks faced by the modern corporation, stressing the simultaneous need for specialized risk expertise and an integrated treatment of corporate exposures, and concludes, hedging decisions and the risk management process in general should become an integral part of the corporation’s strategic planning process. Chapter 6 introduces the “enterprise-wide risk management” aimed at an integrated assessment of important corporate exposures in a systematic manner and examines whether this approach constitutes a framework that can manage risks appropriately in dynamic business environments where companies face increasing uncertainty and lower ability to forecast events. Chapter 7 outlines the most common analytical approaches associated with the Enterprises Risk Management frameworks, illustrates how different conventional strategic and risk management tools can be combined and applied to perform extended analyses of the corporate risk landscape beyond hazards and market-based risks to consider also operational and strategic risks, and discusses the importance of establishing a strong culture of risk awareness and mindfulness, enabling the organization to sense, observe and react to environmental changes in a timely manner. It is finally concluded that strong values, behaviour and corporate culture establishing risk awareness and establishing mindfulness to sense, observe and react to environmental changes are paramount. Chapter 8 argues that a centralized and uniform structure across the organization, as proposed by various Enterprises Risk Management frameworks, is unsuited to dealing with the uncertainty that surrounds contemporary business environments and that a more balanced organization of corporate risk management activities is required. Finally, chapter 9 concludes by describing how effective risk management practices may be integrated with the corporate strategy process and how specialized risk management expertise, decentralized functional insights and responsive initiatives to emerging threats may be facilitated by a central risk management function. Starting from a real case of implementation of an organization that successfully introduced a set of risk management practices based on integrative risk and strategic management processes is conclude the basic success factors in this venture include support from top executives, use of effective processes dismissing bureaucracy, inviting engagement and providing influence, adopting suggestions for change, getting everyone onboard and demonstrating the potential benefits to the business (p. 224).

One of the strengths of the book is that the authors adopt a style that is clear and accessible in mind so as to reduce the time it takes to get to important points and facts. Like a textbook can be read in conjunction with considerable facility. Provide examples and more detailed insights of interest to management scholars in boxed inserts that can be omitted without loss of continuity.

It is clear that Andersen and Schrøder have been successful in reaching the objectives they set themselves in writing this book. Strategic Risk Management Practice: How to Deal Effectively with Major Corporate Exposures is above all a practical guide to analyse the critical connection between risk management and strategic management, uncovering shortcomings in current risk management practices, which are synonymous with Enterprise Risk Management, and combining various elements from traditional risk management areas with elements from the strategic management field, embodied with knowledge and personal experiences of the authors.

Reviewed by Joaquín Loras, Department of Business Organisation, Polytechnic University of Valencia, Spain.

This review was originally published in Management Decision, Volume 49, Issue 1, 2011.