How Business Managers Manage Risk and Return
According to my research there are two frameworks for thinking about how to manage risk more effectively and reach the right balance with potential return that will show benefits to managers. According to the Harvard Management Update column in the Harvard Business Review, entitled “Balancing Global Risk and Return,” a manager can do two things. First, they must examine the basic supply-to-market strategy to ensure they are following the course that best supports their business, and, second, to determine the right tactics to support their strategy. In order to execute this two-step process, the manager must have a firm grip on the company’s core strategies, be willing to invest time and effort into new forms of internal analysis, and be willing to make decisions that don’t necessarily align with organizational precedent. For manufacturers, distributors, and retailers there are two strategic approaches to addressing risk. First, shorten the supply chain in order to reduce cycle time and disruption risk, and second, optimize the portfolio of supply chain sources and locations in order to gain flexibility through diversification. The first approach limits the company and prevents it from taking advantage of the economic benefits of extending the supply chain globally. The second approach could possibly offer some advantages. The idea of optimizing the company’s portfolio of sources, assembly locations, and distribution points offers a valuable framework for assessing risk/return tradeoffs. The goal is to create a strategy that best meets the needs of the firm by showing the decision makers the benefits and risks of different sourcing tactics. A company has more options and can mix and match different tactics in pursuit of the arrangement of sources, locations, and so on that maximizes the supply chain’s ability to support a specific company strategy. Once the manager has adopted a strategy, there are many ways they can...
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