Countering the Biggest Risk of All

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Countering the Biggest Risk of All
by Adrian J. Slywotzky and John Drzik

Included with this full-text Harvard Business Review article: 1 Article Summary The Idea in Brief—the core idea The Idea in Practice—putting the idea to work 2 Countering the Biggest Risk of All 13 Further Reading A list of related materials, with annotations to guide further exploration of the article’s ideas and applications

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Countering the Biggest Risk of All

The Idea in Brief
You’ve insured your company against earthquakes, hedged against interest-rate hikes, and created backup data systems. But what about new technologies that may render your products obsolete? Sudden shifts in customer tastes that could redefine your industry? A one-of-a-kind competitor who might seize the lion’s share of your market? These and other forms of strategic risk can disrupt and even destroy your business. Over the past 12 years, they’ve caused more than one-third of Fortune 1000 companies to lose 60%-plus of their value in one year. How to avoid this fate? Apply powerful strategic-risk countermeasures. For example, to insure against technology-shift risk, Microsoft used double betting: It invested in the OS/2 and Windows operating systems so it could thrive no matter which version prevailed. Recognizing Wal-Mart’s threat as a one-of-a-kind rival, Target changed its business design: It transformed itself from a conventional discounter into a low-price but style-conscious retailer that attracts different customers than Wal-Mart’s. By countering strategic risk, you protect your company’s value, secure your competitive position, and even uncover surprising new growth opportunities. For example, after struggling leather-goods maker Coach began using aggressive in-market testing to anticipate customer-preference shifts, it surpassed rival Gucci in growth rate, profit margin, and market capitalization.

The Idea in Practice
Technology shifts and...
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