What is meant by strategic risk? Strategic risk examples encompass many different risks — and depending on the nature of your business, you may face any or all of them. Understanding the types of strategic risk you face is fundamental to your ability to tackle them as part of your broader governance, risk and compliance (GRC) strategy. Whether you are a chief risk officer and strategic risk falls firmly within your orbit, or whether as CFO, CEO or general counsel, you take more holistic responsibility for your organization's risk strategy. Understanding and mitigating risk at a strategic level will be a priority. In today's hyper-connected world, the risk evolves faster than businesses can devise strategies to tackle it. Being familiar with different strategic risk examples can help you get ahead of the curve, helping you identify the types of strategic risk your organization faces and the tactics you can put in place to respond.
'Strategic risk' is a term that's often bandied about. But what does the phrase mean in practice? What types of risk are defined as 'strategic?' How do you identify strategic risks? What are the examples of strategic risks you might face in your organization? What are the types of strategic risk you should prioritize in your risk mitigation strategy?
Strategic risk is a category of risk; alongside operational, financial, regulatory and other business risks, it forms part of the umbrella of risks your organization faces. When we look at strategic risk examples, they are generally defined as those that threaten a business's ability to set and implement its chosen strategy. They may be external; events like the Covid-19 pandemic are the perfect example here. They may be 'self-inflicted,' brought about via an organization's own strategy and decision-making. An example of this would be the accelerating digital transformation of businesses, which has delivered many positives but has also exposed new types of risk.
Regulatory and legislative drivers relating to governance, risk and compliance strategies more generally are also prompting businesses to focus on strategic risk. At the same time, a spotlight has been thrown on strategic risk via growing awareness of the close ties between risk, compliance and business value. This evolution of risk has led organizations to try and bring some structure to their mitigation strategies by categorizing and prioritizing the risks they face. Let's look at some of the examples of strategic risks you might face. Some sources distill strategic risks into five types, sometimes called the 'five sources of strategic risk.' However, these aren't always consistent, however, look up several different sources, and you will find a variety of risks listed among the 'five types.' Our list of strategic risk examples below therefore includes more than five.
Many of these examples of strategic risk are inter-connected. For instance, if you face operational risks around the efficacy and rigor of your processes, this is likely to expose you to financial or regulatory risk. Similarly, if you fail to tackle governance risks, you may well encounter reputational risk.
The intertwined nature of the types of strategic risk emphasizes how important it is to take an integrated approach to address them.
Amongst all these strategic risk examples, there are positives. The linkages that cause one risk to increase the chances of another can also work to your advantage. Take a coordinated, integrated stance on one aspect of strategic risk, and your performance in others should also improve. As companies refine their approaches to risk mitigation, they become better able to recognize these connections. As a result, they can approach risk strategically, capitalizing on synergies for a more robust result.
Below we also set out some specific tips that can help you tackle the different strategic risk examples:
Hopefully, this article has given you a deeper understanding of the types of strategic risk you face, some examples of strategic risk that bring this to life. It has also provided insights into how you can tackle different strategic risks.
Remaining on the front foot in terms of upcoming legislation, economic trends and governance best practice can really make the difference — amplifying your ability to be leverage strategic and proactive in the face of changing risks.
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