Risk And Uncertainty In Strategic Management

Baird and Thomas (1985) present a study on the use of the term risk from a strategic management perspective, it was concluded there isn’t a generally acceptable definition for risk. Risk is usually associated with negative discrepancies in the objectives of the business (March & Shapira, 1987).

The primarily objective of multinational corporations is to ensure that there is effective and efficient management of risk. Treatment of risk and uncertainty vary in international management literature based on their interpretation of the terms “risk and uncertainty” and the categorization of risk. In strategic management theory, uncertainty is the predictability or inadequacy of information on the factors in the macro and micro environment that will

Input uncertainties can result from the fluctuations in consumers’ demands which will shift the market supply for producers. From an international perspective, input uncertainty is interrelated to the general environment uncertainties (Millers, 1992).

The uncertainty of consumption patterns and demands of the output produced by the firms are known as product market uncertainty. The unpredictability in the change in trade policies in domestic and international markets result in a direct impact on product market uncertainty.

Porter’s five forces (Venter & Louw, 2012) is usually a tool used by organisations to predict competitive uncertainties. The two main forces are: rivalry among existing firms and the potential of new entrants into the industry. A competitive uncertainty hinders organisations ability to predict the types and availability of products in the market.

Firm- Specific Uncertainties Firm specific uncertainties is the last category that is sub-divided into operating uncertainty, liabilities uncertainty, research and development uncertainty, credit uncertainty and behavioural uncertainty (Millers,

Many companies respond to risks that have a low impact in supply chains and tend to overlook the high-impact and low-likelihood risks (Chopra & Sodhi, 2004). An understanding needs to be obtained by managers between the connection and variety of the supply chain risks to develop an effective risk response strategy. Hauser (2003) recommends that due to today’s complex environment, adjusting and understanding risk will result in an improvement in financial performance and competitive advantage for an organisation.

Hise (1995) states that the objective of supply chains is profit maximisation by finding a balance between productivity (efficiency) and profitability (effectiveness) (Mentzer & Firman, 1994) to shift raw material and products between countries in a timely manner ( Bowersox & Calantone, 1998a) resulting in profitability of supply chains as a whole ( Manuj & Mentzer, 2008). Managers need to consider the different factors that create uncertainties and risks as a global supply chain have numerous delay points, greater uncertainties, and hence the need for greater coordination, communication and monitoring (Manuj & Mentzer,