The world of business is quickly evolving, and risks have become the order of the day. The ability of a company to manage risks will determine the duration and the anticipated levels of success the company enjoys in the market. Some risks can be financial while others can be reputational, infrastructure, marketplace driven (Solozhentsev, 2012). In a competitive market, there are numerous risks that a company is likely to encounter. Therefore, it is important that proper strategies are put in place to ensure that desired success is attained regardless of the risks involved. Many businesses have shifted their focus to managing the risk.
KPMG is a company that provides tax, advisory, and audit services their extensive clientele across the world. The company has built its name around a range of financial services that every company would find indispensable. Through numerous financial services, the company has been able to encounter challenges and countable success stories in the due course.
How they were affected by the risk
KPMG stayed put as the market leader in the provision of financial services thereby forgetting any potential risks it stood as a business. Taking that view into account, the company had built its reputation on a competitive financial services firm that was unchallengeable. It had weathered a significant potential market bottlenecks (Čulík, 2014). Through its initially successful strategy, the company stamped its authority and cemented its position as unchallengeable market leader, a status it enjoyed for a decent period. During its successful years, the company outwitted several technological companies to the extent of annulling their competitive threat. As a result, it became the market leader. However, the continued evolution of the technology sooner spelled doom for its business models and the formerly successful strategies could not withstand the new technological solutions the other companies implemented. Its traditional methods of risk handling had become obsolete and no longer effective in handling the technological risks. In the company’s admission, there was the lack of coherent models of communication and holistic awareness of risk (Kryukova, 2014). Due to the rise of the competitors, its sales began to dwindle and the eventual decline in the revenues. Its market dominance led to it lending deaf ears to clear writings on the wall. External forces then ganged up and developed a common strategic approach to the market to kill its market dominance. Through its false sense of security, it entered an array of misbelief and lack of proper risk identification and handling strategies. As a result, it allowed the other companies to make inroads. The competing firms offered similar products, but they had used different technology (Manohar, 2009). Consequently, the company’s massive customer base preferred the competing products. It then began to loosen the grip on market share. However, it could not construe that the drift in the market share was due to change technology.
What the Company did to recover from the risk
In the wake of a looming wind down, the company sensed that it had lost its grip on the market to the once “nobody” in the market. Its market share had grown sizably small and so was the revenue (Manohar, 2009). It was then faced with the choice of staying put in the market by absorbing the past mistakes and taking drastic and costly measures to revert the situation. With the growing financial instability, it was a huge risk in adopting new technology to repackage its products since it also required a thin margin for error.
In this period, the company’s management team shifted their focus to understanding the actual risk factors pushing them out of the market. The company’s management agreed to take bets on certain products it considered worthy competitors in a technology dominated market. The use of the disruptive technology is required that it considered its best options that could be transferred to the new market model as well as discover the ways to leverage its supply chain so that its products could be competitive through cost measures (Manohar, 2009).
In this period, the company began to determine the risk appetite by developing a framework to help its ranks understand the situation and their actual position in the market. It further developed risk tolerance strategies to help weather the risks of the new market and the adoption of new technology. It developed a top-down risk approach in which risks were categorized chances of reoccurrence and impact on the business strategies (Manohar, 2009). Risk mitigation framework was then developed to help prevent and minimize the impacts of the risks.
Long-Term outcome of the actions
The decisions on risk management spelled the company’s turnaround in the long run as it slowly made its way from the wilderness to become a strong financial force that it even weathered the 2008 financial crisis (Manohar, 2009). The company became more competitive and gained larger market share as a result. In the new disruptive market, it was difficult to find a cutting edge over the competitors who were now established and running the market from the front. The competitors were as well set the pace through technology packaged products that had then gathered reasonable support. However, the company having realized the disruptive nature of the technology, it discovered its killer touch in the market as its main products attracted new demands that led to a boom in market share. The products continued to command huge market share as it overcame the risks. Consequently, the competitors withered and their markets shares diminished with time. It then developed new cross-selling opportunities thereby leading to success of many of its repackaged products.
Lessons about risk management from the companies
One of the lessons is that risk management is critical to the success of the company, and failure to manage risks can be detrimental to the company. Also, there is the need for every company to understand the risks associated with its business environment to be able to weather the mucky business environment. Moreover, risk management should be the primary goal of the management team. In the wake of the dwindling market, the company discovered its main undoing as lack of awareness about the potential risks and its subsequent management. It is paramount that every company forms an astounding understanding of the market environment and forms a formidable knowledge of the market risks (Zhang & Qi, 2008). Understanding such risks will enable the company develop reactive measures that will keep the competitors on check and counter their potential dangers through good, well thought, and informed strategies to provide the continuity of market dominance. It will also help develop risk management strategy that helps weather great crises.
Lessons for the industry and organizations in general
Some of the lessons are that companies should establish risk management team at the management level. Also, companies should enhance infrastructure control and governance to stay relevant in the risk dominated markets (Manohar, 2009). Finally, companies should formulate risk tolerance and appetite to manage the organizational risks. The risk management team will provide the benefit of understanding the interrelationship between the risks facing the company thus develop the necessary risk intelligence that is based on the experience it has had with the risks, their knowledge of the industry factors, and businesses that relate to the looming risks. Managing risks at the management level will also help in avail accurate and quick information that would be important in developing the post-launch strategies to counter the escalating risks (Kryukova, 2014). By responding to the warning signs of potential risks, the company will prompt appropriate actions that will prevent the effects of risks from taking tall over the health of the business processes.
What interested about the case
The case of KPMG epitomizes a real case of failed risk management and its glaring repercussions. KPMG is a testament to how risk management is critical to all the business process. As such it provides and anecdote for study.
Kryukova, O. G. (2014). Risk Prevention As A Condition Of A Company Stable Development. Jour Effective Crisis Management, (3), 74.
Čulík, M. (2014). Company valuation under risk and flexibility: Discrete models comparison. IJRAM International Journal of Risk Assessment and Management, 17(4), 268.
Solozhentsev, E. D. (2012). Risks Management Technology of Company Management. Risk Management Technologies Topics in Safety, Risk, Reliability and Quality, 173-178
Manohar, H. (2009). KPMG: Leveraging KM Tools for Practice Areas and Clients. Knowledge Management Tools and Techniques, 222-226.
Zhang, L., & Qi, J. (2008). Generation Company Bidding Strategy based on Risk Factors. 2008 International Conference on Risk Management & Engineering Management.