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Women! Open the Pandora Box of Strategic Risk

In Risk, Risk Management on November 19, 2017 at 2:34 am

WomanRisk

Women! Open the Pandora box of strategic risk. Untangle it and mix it with your strength and weakness. This is the time when your strengths must speak.’

In general, the perception is ‘women are risk averse’ and therefore take fewer positions as CEO of a company. Alice Vaidyan (CMD of GIC Re) and Indra Nooyi (CEO of Pepsi) are well-discussed the examples of emerging successful women in the corporate world. Recently, I was the speaker at Conference on Empowering Women Entrepreneurs organized by FICCI partnering with NITI Aayog as a part of Road to GES Series at Chennai. During my presentation, I discussed that organisations’ face three types of risks: external risk, internal risk and strategic risk. Several women entrepreneurs during the forum discussed the issues related to unavailability of infrastructure to kick-start the business, and if they start it, it remains as small scale for years. They are not able to take it to next level. Why women need hand holding while men often do not complain about this. The market data also reflects the same:

After a high score in World Bank’s rankings for ease of doing business (Improve 30 places), India has declined in its overall Global Gender Gap Index ranking of the World Economic Forum (WEF). It slipped 21 places on the index to 108 behind neighbours China and Bangladesh, primarily due to less participation of women in the economy and low wages” (Excerpt from a News Report).

A few professors from University at California and Virginia found in their research that before 2007-08 crisis, large institutions have taken greater risk than the market average and booked the losses (Erkens, Hung, & Matos, 2012). The issue was more related to lack of understanding of risks undertaken and its inter-relatedness with other risks. If we accept some strategic risks which we do not understand, we cannot rightly estimate the consequences. There are three ways to deal with such risks: do not take such risk, take but fewer risks or thoughtless /thoughtful expansion to satisfy the greed of more and more profits. Women entrepreneurs, in general, chose the first or second option while large institutions chose the third one. For large entrepreneurs’ this made sense as they have the large capacity to take risks with structured systems and processes and capital to absorb the shock. Women entrepreneurs have less exposure to large strategic risks; they lack in capital back up. Also, they are surrounded by the culture issue of ‘not a failure’ therefore they can-not afford failures as it may serve as bread and butter for many of the families having kids and senior citizens. Emerging questions are: who will help them? How can they survive and sustain?

Understanding of Strategic Risk is one of their weakness. Even I found strategic risk-taking ability is the problem of many developing countries. Companies often know ‘what they can-not do’ but often don’t know ‘where they are good at’. Good means whether they are the better than their competitors in the local industry, country, globally or for simply a niche. It is the argument similar to a journey. If you don’t know where you want to go, you may fail many times. For example, the level of preparation needed to visit a cold place is substantially different than a requirement of hot place. Knowing you want to go locally or globally will make a significant difference. I met a very influencing lady at a conference in Lyon, France. The Turkish lady was the owner of a top scarf brand similar to the level of Louis Vuitton (a scarf costing around $ 1000). Though she was from Turkey, she decided to buy wool and silk from China, hired a team of designers from Italy and opened the first store in Switzerland. After the success of her scarf in Europe, she expanded throughout US and Asia including Turkey. I was also impressed with a CRO of a large reinsurance company who was very confident that they were the best in the aviation business and exploited the opportunities when the situation arises.

Understanding the strategic risk is important for the women executives. The gender does not change the business paradigm, the environment remains the same. In my opinion, women are NOT risk averse, they are in much better position to understand risk than their men counterparts. Afterall, it’s always ladies first ……..

References:

Erkens, D. H., Hung, M., & Matos, P. (2012). Corporate governance in the 2007–2008 financial crisis: Evidence from financial institutions worldwide. Journal of Corporate Finance, 18(2), 389–411. http://doi.org/10.1016/j.jcorpfin.2012.01.005

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