The Risk Driven Business Model: Four Questions That Will Define Your Company

Abstract

The Risk Driven Business Model: Four Questions That Will Define Your Company Karan Girotra and Serguei Netessine Harvard Business Review Press, 2014 $20.95 (hard cover), 256 pagesIt is a known fact that organizational success is not necessarily final or long-lasting. Similarly, failure in business does not always have permanency as things can change at any time. Ultimately, it is the courage to continue, move on, and reinvent one's business model that counts because both personal and organizational success can be seen as the progressive realization of worthwhile goals. Each morning, entrepreneurs and professionals have a choice to get up, take action, and move ahead toward worthwhile destinations by making incremental or radical changes in their business models to serve their customers better than their competitors. The Risk Driven Business Model: Four Questions That Will Define Your Company , by Karan Girotra and Serguei Netessine, helps companies outsmart risks that they face in their ongoing operations by making incremental innovations for success in the short-term and long-term horizons.Risk is typically defined as the potential for losing valuable assets or opportunities for increasing future investment returns. Sadly, many firms increase their risk of failure by becoming complacent due to their past successes. ?It's impossible to overstate how easily businesses can become hostages of their own success, looking to the past for keys to their future? (Girotra and Netessine, 2014, p. 26) and we know past success does not guarantee continuity in the future as variables change and competitors catch up. In today's world of international business, we need to learn to selectively forget past successes and develop a discipline for experimentation and adjusting. Therefore, successful businesses must develop ways of continually questioning what they do, when they do it, who does it, and why they do it. Risks should be proactively tracked and planned for strategically; otherwise, damaging risks can announce their presence sooner or later in a reactive, urgent, or crisis manner. According to Girotra and Netessine, ?The damage they cause is at times apparent in well-recognized pain points-phenomenon that drive down demand, margins, sales, and asset utilization, or just lead to waste?, and, at other times, ?the impacts of risks on our business models are apparent only as wild variations in performance, which is often misconstrued as good or bad fortune? (2014, p. 41). As such, through an auditing process, managers should start with a systematic process of searching for evidence of how value is reduced and lost from risk-driven inefficiencies.Girotra and Netessine focus specifically on helping companies design their business models to manage risks associated with information risk and incentive-alignment risk. Information risk is similar to the concept of "satisfying" where you make management decisions without having all the needed information; and incentive-alignment risk is when those who are making strategic decisions have incentives that are at odds with the strategic long-term or broader goals of the company. It is mentioned that "the costlier it is to reverse the consequences of a decision, the more intensely its timing will affect the level of risk...the time between when you make a decision and when you have sufficient information to make the decision defines its information risk" (Girotra and Netessine, 2014, p. 17). When entrepreneurs can modify their business models for when decisions are made, then they can reduce information risk along with any inefficiencies created by it. Managers and leaders who can effectively manage information risk and incentive-alignment risk will be in a better position to create wealth for their stockholders, to revolutionize operations in their industries, and to build a pathway toward a better world in society. For example, when companies can regularly and quickly align what they want to sell with what customers want to buy then they can enjoy a sustainable competitive advantage over their competitors. …