Assessing the Risks to Financial Strategy for Companies - Essay Example

?Running Head: Financial Strategy Financial Strategy [Institute’s Financial Strategy A firm’s risk consciousness governs the underlying strategies that are employed by the enterprise. To what extent do you agree with this statement? The planning involved in building an overall functioning programme of an entire organization is quite extensive and it demands the team’s effectiveness in analyzing different strategies and choosing the distinctive ones which are relevant to the firm and are capable to bring success at the end. Thus, a risk-conscious enterprise already has strategic plans in hand to handle any sort of crises prior to its happening and furthermore, it would inculcate such strategies in its daily working environment which would minimize any foreseen risks so as to avoid danger. To begin with a theoretical point of view a firm that does not prioritize and foresee danger points in the ongoing business lacks the power to cope up with any kind of transformation that a potential risk may bring in the long run. It might overrate its focus upon other profit-making strategies than making alternative strategically workable plans to overcome those risks (Ackermann, pp.5-6, 2008). As a matter of fact, potential risks that big firms and organizations may face are divided into three categories which include hazard risks, operating risks and financial risks (Slywotzky, 2007). The case of Toyota is quite obvious in this regards. In the 90s, though the company enjoyed a very good position and had a well known repute in the eyes of its consumers with leverage over other competitors, they worried about what future could bring to them since; a period of maturity never lives very long. The foreseeing ability of potential threats of the company made the executives plan for the first ever car of the 21st century by Toyota even a decade ago. They penned down unique characteristics of any comfortable car ever and assigned an engineer, who had never worked for a whole new developmental project, to transform the ideas into concrete proposal. The Japanese automaker lived up to its promises when it launched its breakthrough car Prius in the 90s. The strategy was to lend three years to the task force of the new car to analyze each aspect of the internal working of Toyota and to have the company’s first hand knowledge to produce the new generation of the model. This move worked a lot and the assigned engineer made his team from the most talented engineers whose ages reflected maturity yet eagerness in adaptability. The idea was to introduce hybrid engine in the newly-designed car. Nevertheless, the potential risk was that the competitors were experimenting the same sort of experiments. Assessing the risks, Toyota decided to make their breakthrough as fast as possible so as to be ahead of all (Slywotzky, 2007). One crucial move that Toyota took was to bring the Resident Engineers (REs) during the phase of design development who usually work at the manufacturing plants to take care of the problems that arise in the production stage. This move was taken so as to avoid any possible fault that is probable to happen in a stage where everything is in blueprint. One more strategy that it employed was to create alternative options with regards to engine design and the overall car design so that they may end up choosing one which proves to be the best among all. During the whole process, cross-referencing of the experts continued to be taking place to implement the best given idea in the making (Slywotzky, 2007). Consequently, the world knows how Prius took over the market in a few period of time. In theory, the Competitive Strategy Theory by Michael Porter talks about certain focus points to be made and implemented by any firm to achieve a sustainable ground in any market in the absence of which the company is prone to serious losses. A firm’s risk consciousness is quite visible if it emphasizes upon planning for ‘differentiation, overall cost leadership and focus’ (Isabel, pp.77-78, 2008). However, the presence of all these determinants contribute to the success and no one should be left untouched. If an enterprise knows about its product’s Unique Selling Point (USP) and develops its marketing strategy upon that point, then definitely it is careful about the potential risks. Likewise, in a competitive environment if a firm is ready to attract its target market (focus) with a low price but enhanced facilities, then definitely it is employing a well-thought strategy (Isabel, pp.81-82, 2008). Considering all these points in one more car model of Toyota, Lexus, the explicit visibility of employing all the competitive strategy is a mark that reflects Toyota’s risk consciousness. It was a luxury car for the United States which had to compete with BMW and Mercedes Benz and it was economical. Unfortunately, some of the consumers of Lexus found certain small faults and reported them to the company. This was a huge drawback, but Toyota, quite efficiently, turned this drawback as one of its efficiency and called back all the models that were sold in that year, which was around 8000 cars. They fixed the problem, filled the gas and polished the cars making them brand-new again and then returned them to their consumers. Their strategy was to use their own drawback as an opportunity to build themselves and get back the loyalty of their customers. If they wouldn’t have done so, the risks could have been far worse and grave, losing of existing consumers and even putting reputation at stake. Since BMW and Mercedes already had a huge market and recognition among their target market, Toyota had to put its grip upon something that was unique in every way. Lexus became recognized in responding to consumers’ complaints and dealing with them in an efficient and productive manner. Let the paper analyze one more example. Considering the example of Coca-Cola and how it maintained its fame and recognition among its loyal consumers and also attracted new ones is simply remarkable. The one strategy that it always implemented has been to produce thousands of promotional items to keep itself alive in the lives of its consumers. These items included merchandising items like coolers, printed commercials, daily-usage items like trays, calendars, toys and so on (Slater, pp. 356-360, 2001). The strategy was to keep the consumers hooked to the brand in the presence of its most rivalled competitor, Pepsi, which too enjoyed a great repute among its consumers. Thus, producing different items with the name sign of Coca Cola made the consumers talk about and invest in Coca Cola every time so that the brand never fades away and lets them stick to it. Large enterprises invest quite a lot in its functioning and management. In its progress and success lie brains and expertise of a team of people according to the size of the firm. Its every move is strategic and thus, when it does so much to rise to the top places in the market, it also analyzes the potential threats that it may come across. A firm’s each move reflects the time and expertise spent to bring about that effort so, if it is risk conscious the strategies would be dependent on its consciousness and priorities (Nosi & Zanni, pp.789-792, 2004 & Junnonen, pp. 110-112, 1998). On the other hand, taking the case of Canon under consideration, we can convincingly assume that it wanted global leadership and it had a stable and strong Xerox in its way. Canon, which started its journey from 1933, began to expand its business after the World War II. It gradually expanded its business and made a variety of machines, starting from the manufacturing of a mere camera. However, its journey was not that smooth and it had to face a number of managerial threats in its way. Its underlying strategies included manufacturing smaller and cheaper machines initially. Since, Xerox had always demanded high price for its products, its competitor had a leverage to outshine it in that regards. Subsequently, Canon started introducing better features and more reliability towards its products as compared to Xerox (Gilad, pp. 7-8, 2004). Xerox, thus, lost the lead in the market and the vigilance of Canon paved its way up. Canon also employed one more strategy that was to hire people with bright minds from competing firms who were in the middle of their career and felt happier to switch companies. This strategy helped Canon to create diversity within its firm to give birth to new and contemporary ideas to enhance creation and production (Nonaka & Kenney, pp. 70-71, 1991). Nevertheless, it is not every time that a company might come up with a positive strategist move when being risk-conscious. For instance, in the case of Kodak, they thought that it is better to employ a diversification strategy in order to maintain its position in the market and to maintain the lead from the new born Fuji. Its diversification strategy, unfortunately, did not prove to be a well-measured move and Fuji took global lead shattering Kodak’s strategies and with it, its dreams, into pieces (Gilad, pp. 8, 2004). Thus, in certain cases, risk consciousness makes certain companies perplexed in a situation of aggravating tension and worries and they are unable to come up with a sensible and lucrative strategy for themselves ruining their business. References Ackermann, J. 2008. “The Subprime Crisis, its Consequences.” Journal of Financial Stability. Volume 10, pp. 1-11 Gilad, B. 2004. Early Warning: Using Competitive Intelligence to Anticipate Market Shifts, Control Risk, and Create Powerful Strategies. Amacom. Isabel, S. 2008. “Lexus: A Premium Brand.” The Ritsumeikan Business Review. Volume XLVII, Issue 2, pp. 71-89. Junnonen, J. 1998. "Strategy Formation in Construction Firms." Engineering, Construction and Architectural Management. Volume 5, Issue 2, pp. 107–114. Nonaka, I., Kenney, M. 1991. “Towards a New Theory of Innovation Management: A Case Study Comparing Canon, Inc. and Apple Computer, Inc.” Journal of Engineering and Technology Management. Volume 8, pp. 67-83. Nosi, C. & Zanni, L. 2004. “Moving from Typical Products to Food-Related Services”. British Food Journal. Volume 106, Issue 10/11, pp. 779-792. Slater, J. 2001. "Collecting Brand Loyalty: A Comparative Analysis of How Coca-Cola and Hallmark Use Collecting Behavior to Enhance Brand Loyalty." Advances in Consumer Research. Volume 28, pp. 362-369. Slywotzky, Adrian. 2007. “The Upside of Strategic Risk: How Toyota Turned its Greatest Threat into a Growth Breakthrough.” Marsh & McLennan Companies. Retrieved on February 15, 2011: www.mmc.com Read More