Risky Business: Managing in a world with extreme exposures The competitive landscape can change rapidly, and while some businesses are able to adapt effectively to the evolving social and economic environment, many others are not. We spoke to Professor Torben Juul Andersen about his research into this long ‘negative tail’ of companies, and what distinguishes those organisations that adapt effectively from those that don’t. The business sector faces a challenging environment, with cyber-attacks, financial instability and climate change just some of the issues that major companies need to consider if they are to build a sustainable, profitable future. While some companies are able to adapt to these types of challenges and continue to thrive, many others fail, a topic that Professor Torben Juul Andersen is investigating in a new research project. “We see a very long, consistent negative tail of sub-performance across different industries and time periods,” he explains. Only a small proportion of organisations seem to be able to sustain high performance over extended periods, now Professor Andersen aims to probe deeper into the underlying reasons behind this. “Why do we have such a dominant negative tail of companies that don’t seem to be able to cope with these challenges and why is it so difficult to persevere?” he asks. An inability to adapt to the changing business conditions is often a major reason, yet Professor Andersen believes that other factors are often involved. Within the project, the researchers plan to examine data over
Risky Business
Managing in a world with extreme exposures Torben Juul Andersen, Professor, PhD, MBA, MSc (cand. polit.)/ Director (GSR) Department of International Economics, Government and Business Global Strategic Responsiveness Initiative (GSR) Copenhagen Business School Porcelænshaven 24A, #1.57 DK-2000 Frederiksberg Denmark T: +45 3815-2572 E: tja.egb@cbs.dk W: https://www.cbs.dk/en/research/ cbs-research-projects/researchprojects-overview/ca4050b4-cac54aca-86c2-5a511fff1564
extended time-periods to build a deeper understanding of the negative tail. “How long and persistent can the negative outcomes be? Is it something that happens in just a couple of years? Or is it actually something that can happen persistently?” asks Professor Andersen. The focus here is on firms above a certain minimum threshold in terms of size and turnover, as small start-ups are particularly vulnerable to failure; Professor Andersen and his colleagues want to investigate why some companies perform better than others. “What it is that explains high versus low risk-adjusted performance?” he continues. They will look at performance data over extended time-periods to investigate the performance of certain firms within comparable contexts. A firm in a given industry may go from low performance to high performance in risk-return terms between consecutive periods for example, and further investigation can help uncover the reasons why. “We can use this as a selection mechanism to undertake deeper case studies,” says Professor Andersen. He and his colleagues will examine websites, reports from analysts and other sources of information to identify the causes for shifts in performance. The aim is to look at relative performance measures. “We will take out a number of indicators – say return on assets, return on sales, or return on invested capital,” continues Professor Andersen. “We will group the data into specific industry contexts, where they all face the same kind of external conditions, then we will make comparative studies over different time periods. We might also do more detailed
analyses around specific events like the global financial crisis in 2008.” Further investigation of periods around other major market events, such as Black Monday in 1987 or the dotcom bubble in the early 1990s, can also add fresh insights. “The idea is to look at the organisational context and the factors that can explain good versus poor adaptive behaviour,” says Professor Andersen. With issues like climate change and environmental impact growing ever more pressing, Professor Andersen believes that companies need to consider how they will adapt if they are to maintain their commercial viability. “The average lifetime of organisations is decreasing, and firms are becoming increasingly vulnerable. The business conditions are becoming increasingly uncertain and unpredictable,” he explains. “The challenges we are faced with today, like the climate issues, are really daunting, and it’s difficult to foresee the consequences.” The solution to this will require not just individual change, but also collective and societal shifts, so Professor Andersen’s research does hold relevance to public policy development, although this is not a key focus in the current research. “We’re looking at the institutional context,” outlines Professor Andersen. The nature of this research obviously means that it is difficult to forecast the final results from the project, yet a number of articles and case studies will be produced on the basis of the project, while Professor Andersen hopes to make an important contribution to the wider field of strategic risk management. “Hopefully we will gain new insights as we progress,” he says.
Torben Juul Andersen is Professor of Strategy and International Management, and Director of Global Strategic Responsiveness Initiative, at Copenhagen Business School. He achieved an MSc at Copenhagen, an MBA at McGill, and his PhD at UNC - Chapel Hill. He has also held senior positions with Hagler-Bailly, SDS, Unibank, and Citicorp/ Citibank.
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