The perceived effects of risk associated strategic decisions have been a motivation for integrating contingency frameworks in the development of strategic plans in companies. By integrating the manner for which the perceived risks are to be managed, planners are able to anticipate the potential damage caused by an uncertain decision or plan of action.
From the Wal-Mart company annual reports, it can be noted that the company has many strategic initiatives. These strategic initiatives have many risks because of continuing weak economic conditions and strong competition. However, the company is confident with its business because revenues are projected to increase this year, continuing its growth. The company is also looking at risks from fluctuating foreign currency exchange rates and interest rates. The company faces risks to its exposure to foreign currency exchange since it has foreign affiliates and has equity investments in foreign companies. Though the company does not hedge foreign currency translation risk, it does hedge a large portion of the exchange risk. In terms of interest rate risk, the company has financial instruments in medium and long-term fixed-rate notes and debentures. Changes in the interest rate can lead to possible significant fluctuations in the fair value of the notes and debentures.
Strategic initiatives relating to the global market accompanied by substantial threats of failure, but it is only through continuous innovation and risk-taking can an organization really stands out in a highly competitive global market. The company is cognizant of what risks are worth taking, and how much could be managed to make strategic plans really work for the benefit of the organization. Risk is worth taking if it opens up sustainability potentials, long-term benefits that at the outset may seem to be a huge investment.
Wal-Mart’s needs to capitalize on its unique qualities, and these should be immediately visible in its packaging – not only in its advertisements. Although there could be certain risks in changing its branding design, Wal-Mart’s has to invest in it if it wants to obtain a fair market share as well as a competitive advantage. In exploiting and develop a dynamic resource strategy, the product portfolio theory where products are perceived to be strong “in a firm’s growth-share matrix supply weak ones with cash again underscores the duality between the product and the resource perspectives on the firms” (Wernerfelt 1984, p. 178).
Normally, businesses are expected to relate to one another in several ways other than financially. In such a case, ” the joint cost subsidy from resource relation may be a more potent tool than a product to product cash subsidy” (Wernerfelt 1984, p.178). That is, if firms decide to diversify their resource portfolio rather than the product, then they could give a richer perspective on their growth prospects. In other words, optimal management of a resource portfolio is, in theory, similar to the optimal management of a product portfolio. To ensure that the firm continues developing in its field, it is necessary for that company to gain a balance between the exploitation of the already existing resources and the development of new ones (Wernerfelt 1984). However, this would not necessarily make versatile resources more attractive compared to more specialized resources. This is because of the fact that a large number of different resources will create a great competition as well as show new ways in business (Wernerfelt 1984). Similarly, resource position barriers are similar to entry barriers and therefore has a potential for high returns because of the understanding that one competitor will always have an advantage.
Reference
Wernerfelt, B. (1984). A resource-based view of the firm. Strategic Management Journal, 5(2), 171-180. Web.