Torben Juul Andersen

A Strategic Risk Management Framework for Multinational Enterprise

Liberalizations of international trade and improvements in communication and information technologies allow companies to organize around extensive multinational structures of cross-border sourcing networks. In a freely interacting market setting multinational enterprise is exposed to financial and economic risks that can be monitored within conventional reporting systems and managed through use of various derivative instruments. All the while, a dispersed multinational structure can be vulnerable to disruptions caused by changing economic conditions, competitive moves, and geopolitical developments as well as natural disasters and terrorist events that are difficult to forecast. Consequently, current risk management techniques span from conventional gap analyses and quantitative value-at-risk measures of market-related exposures to more qualitative assessments of competitive exposures and low-frequency high-impact disaster events based on scenario analyses. Hence, there is a need to consider risk management approaches that integrate relatively transparent financial exposures with the consequences of uncertain and hard-to-quantify event risks. This paper outlines the contours of such a strategic risk management framework incorporating conventional exposure measures and simulation techniques to assess vulnerability and responsiveness in a turbulent global setting.

Capital Structure, Environmental Dynamism, Innovation Strategy, and Strategic Risk Management

Previous research found that capital structure affects performance when it is adapted to the level of environmental dynamism and pursuit of an innovation strategy. The current study reproduces some of these relationships in a more recent dataset but also identifies significant nuances across industrial environments. Analyses of a large cross sectional sample and various industry sub-samples suggest that other factors have influenced capital structure effects in recent years including flexibilities in multinational organization and effective strategic risk management capabilities.

The Performance and Risk Management Implications of Multinationality: An Industry Perspective

Multinational enterprise in control of dispersed overseas resources and capabilities has been linked to strategic flexibility that allows the firm to take advantage of opportunities and manage exposures imposed by changing environmental conditions. This paper analyzes the implied performance and risk management effects in a comprehensive sample of public firms and finds supportive evidence for the proposition that multinationality can enhance performance across industries. However, the ability to exploit upside potential and avoid downside risk is industry specific. The positive effects of multinationality are found particularly pronounced among firms operating in knowledge intensive service industries while firms in capital-intensive primary industries display the inverse relationships.

Multinational Performance and Risk Management Effects: Capital Structure Contingencies

Multinational enterprise provides access to a diverse resource base that may support options related business initiatives and operational flexibilities with a potential to improve performance and risk management capabilities. Hence, multinationality should be associated with strategic responsiveness as real option structures allow the corporation to exploit new initiatives and pursue alternative actions. This, in turn should improve economic performance and risk management capabilities as corporate activities are adapted and new initiatives introduced in response to changing global conditions. The analyses of a cross-sectional sample comprising 1357 multinational firms during 1996-2000 partially support the proposed performance and risk management effects but also raise issues for further study.

Effective Risk Management Outcomes: Exploring Effects of Innovation and Capital Structure

Purpose – The purpose of this paper is to argue that strategic responsiveness is of paramount importance for effective risk management outcomes and to introduce an empirical study to demonstrate this.Design/methodology/approach – Real options logic is adopted to explain how effective risk management capabilities improve performance and how innovation and financial slack enhance this effect. The propositions are examined across 896 companies using two‐stage least square regressions.Findings – The study reveals that risk management effectiveness combines both the ability to exploit opportunities and avoid adverse economic impacts, and has a significant positive relationship to performance. This effect is moderated favorably by investment in innovation and lower financial leverage.Research limitations/implications – The analysis is based on a sample of large firms, which may affect the generalizability of results. Nonetheless, the study shows that effective risk management capabilities differentiate the firm...

Short Introduction to Strategic Management

The Short Introduction to Strategic Management provides an authoritative yet accessible account of strategic management and its contemporary challenges. It explains the roots and key rationales of the strategy field, discussing common models, tools, and practices, to provide a complete overview of conventional analytical techniques in strategic management. Andersen extends the discussion to consider dynamic strategy making and how it can enable organizations to respond effectively to turbulent and unpredictable global business environments. There is a specific focus on multinational corporate strategy issues relevant to organizations operating across multiple international markets. Written in a clear and direct style, it will appeal to students and practicing managers and executives alike.

Managing Risk and Opportunity: The Governance of Strategic Risk-Taking

This book promotes good risk governance and risk management practices to corporate managers, executives, and directors wherever they operate around the world. The major corporate scandals have their roots in governance failure pointing to the link between risk governance and good performance outcomes. This topic is timely and of interest both to the academic community as well as to practicing managers, executives, and directors. The volume focuses on contemporary risk leadership issues based on recent research insights but avoids excessive technical language and mathematical formulas. The book is framed around the challenges imposed on executives and directors in dealing with an increasingly complex and unpredictable world. This requires a new risk leadership focus that not only avoids the downside risks but also considers ways to exploit the upside potential offered by a dynamic environment. The underlying logic is built on the principles of financial economics where benefits derive from reducing bankruptcy costs and increasing future cash inflows. This provides a stringent framework for analyzing the effect of different risk management actions and behaviors in effective risk-taking organizations. Hence, the book addresses the potential for upside gains as much as the threats of downside losses that represent the conventional risk perspectives. It states the simple fact that you must be willing to take risk to increase strategic responsiveness and corporate manoeuverability. The text builds the arguments in logical steps explicating relevant techniques and practices along the way that invite to immediate applications and practical thinking

The risk implications of multinational enterprise

Purpose – Multinational structure has been linked to operational flexibilities that can improve corporate adaptability and a knowledge‐based view suggests that multinational resource diversity can facilitate responsive opportunities. The enhanced maneuverability from this can reduce earnings volatility and hence the corporate performance risk. But, the internationalization process may also require irreversible investments that increase corporate exposures and leave the risk implications of multinational enterprize somewhat ambiguous. Hence, the purpose of the paper is to present an empirical study of the implied relationships between the degree of multinationality and various risk measures including downside risk, upside potential, and performance risk.Design/methodology/approach – The paper provides a brief literature review, develops hypotheses, and tests them in two‐stage least square regressions on archival data to control for pre‐selection biases.Findings – The analyses indicate that multinationality...

The Essential Elements of a Risk Governance Framework for Current and Future Nanotechnologies

Societies worldwide are investing considerable resources into the safe development and use of nanomaterials. Although each of these protective efforts is crucial for governing the risks of nanomaterials, they are insufficient in isolation. What is missing is a more integrative governance approach that goes beyond legislation. Development of this approach must be evidence based and involve key stakeholders to ensure acceptance by end users. The challenge is to develop a framework that coordinates the variety of actors involved in nanotechnology and civil society to facilitate consideration of the complex issues that occur in this rapidly evolving research and development area. Here, we propose three sets of essential elements required to generate an effective risk governance framework for nanomaterials. (1) Advanced tools to facilitate risk-based decision making, including an assessment of the needs of users regarding risk assessment, mitigation, and transfer. (2) An integrated model of predicted human behavior and decision making concerning nanomaterial risks. (3) Legal and other (nano-specific and general) regulatory requirements to ensure compliance and to stimulate proactive approaches to safety. The implementation of such an approach should facilitate and motivate good practice for the various stakeholders to allow the safe and sustainable future development of nanotechnology.

The Risk-Return Outcomes of Strategic Responsiveness

The ability to realize sustainable performance over longer periods of time is an essential outcome parameter in strategic management, and another important performance characteristic, not often taken into consideration, is the riskiness of the income stream. The research on the relationships between performance and risk outcomes typically measures performance as the mean value and realized risk as the standard deviation of return measures, such as the accounting-based ratio return on assets (ROA). Based on such mean-variance measures of performance outcomes, Bowman (1980) found a predominantly negative relationship between risk and return across most industries. Since, this finding was at odds with the common assumptions about higher returns associated with more risky business activities; it was referred to as a “risk-return paradox” or simply the “Bowman paradox”. The existence of this risk-return paradox has received much scrutiny in management literature over the years, and the possible explanations that have been presented can largely be categorized around those that are based on prospect theory, on statistical artifacts, and on good management conduct (e.g. Andersen et al., 2007).