Introduction
The modern market has become increasingly volatile and fast paced as it encounters numerous changes at every turn. Failure by companies to understand and identify the risks that come with the changes are likely to experience significant consequences.There have been so many companies that have gone under due to such encounters. For this reason, corporations are developing ways that they could counter the volatility of the market with their desire to continue with exponential growth. Enterprise risk management is one of the high quality measures that organizations have employed in an effort to explore calculated risks that will help achieve the growth that the firm desires. In fact, it is expected that ERM, strategy, and strategic risk management are ingrained into the very fabric of the business. The LEGO Group in its enforcement of the practice will shed light to the benefits of this approach.
Advantages of integrating ERM with Strategy and Strategy Execution
The LEGO Group has been able to overcome the significant risks involved in the toy making industry by effectively integrating ERM with strategy and strategy execution. There are significant advantages born from these approach. The first and foremost is the fact that the practice becomes a part and parcel of the company’s culture as it implements ERM into every business strategy it seeks to pursue (Fraser, Simkins, & Narvaez, 2015). The approach by the company also helps prepare for uncertainty due to the ever changing nature of the market. In this way, the LEGO Group can actively pursue different measures of identifying risks and opportunities in the industry. The firm also notes that there are some risks that may have not been foreseen through integration of ERM and strategy (Fraser, Simkins, & Narvaez, 2015). As a result, they have set up effective measures that will ensure damage control whereby the consequences of encountering a risk will only achieve minimal effect (Bromiley, McShane, Nair, & Rustambekov, 2015). The approach ensures the company stays afloat and also continues to build up knowledge of the issues that could affect the company in future.
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Scenario Analysis in Preparation for Uncertainties
Scenario analysis is an integral part of risk analysis and serve as a powerful tool for use by the risk manager. They help develop just the right questions and seek solutions for the unexpected occurrences in the future. The approach is used to make risks appear more concrete and tangible such that proper risk analysis and assessment can take place (Bromiley et al., 2015). It is evident that the scenario analysis can bring about realism, organizational engagement, and improved structure of analysis through the insight gained. The LEGO Group may use scenario analysis to identify the relevant risk out of all the things that might go wrong (Fraser, Simkins, & Narvaez, 2015). This measure ensures that priority focus is given to particular issues over others. Company can effectively save up funds whereby proper allocation of money to each problem is ensured.
Advantages of using the PAPA model to categorize risks
The PAPA model is an effective technique of looking at the risks based on the information drawn from the scenarios. In full it stands for Park Adapt, Prepare, Act model which helps identify the speed of change of the issue and the overall strategic response to be made. There are various advantages that could be born from this measure (Fraser, Simkins, & Narvaez, 2015). The park phase identifies risks that are slow to cause change and will require low strategic response hence they are parked,but not forgotten. In the adapt phase, it is evident that the risks are slow to change, but the overall response required should be fast (Bromiley et al., 2015). The measure includes the changing nature of children’s play while it is not sudden, it will definitely happen and the company needs to adapt to fit into the new occurrence (Fraser, Simkins, & Narvaez, 2015). The prepare phase recognizes the risks that have low probability, but once they do, they escalate very quickly. The PAPA model helps prevent the firm from being caught off-guard. Another area of focus is the ACT phase where members are expected to incorporate measures as the issues are high probability and fast-moving concerns.
Strategic Risk Management Return on Investment at LEGO
The enforcement of ERM with strategy and strategic risk management at the LEGO Group has proved to be a significant benefit to the company. Hans Læssøe who is the senior director of Strategic Risk Management recognizes that the enforcement of ERM has proven beneficial to the overall growth of the company (Fraser, Simkins, & Narvaez, 2015). A 20% average growth was recognized between 2006 and 2010 an experience that is high considering the industry does not grow more than 2% or 3% annually (Fraser, Simkins, & Narvaez, 2015). Accumulation of growth between 2006 and 2012 is at approximately 20% ensuring the company tripled in size. The sales of the company have also increased from 17% to 34% return on sales between 2006 and 2012. Considering the fact that in 2004 the company had a negative return on sales of 15%, it is clear the strategic measures implemented have been effective (Fraser, Simkins, & Narvaez, 2015).
Conclusion
The above case study on the LEGO Group is a clear indicator of the importance of strategic risk management in the organization. Enterprise risk management is an important measure that multinational companies should undertake. The approach is effective as it provides the decision-makes with tangible scenarios on the risks that they face. In this regard, it is much easier to create an effective plan that would be beneficial to the growth and financial well-being of the company.
References
Bromiley, P., McShane, M., Nair, A., & Rustambekov, E. (2015). Enterprise risk management: Review, critique, and research directions. Long Range Planning, 48 (4), 265-276.
Fraser, J. R. S., Simkins, B. J., & Narvaez, K. (Eds.) (2015) Implementing Enterprise Risk Management: Case Studies and Best Practices . Hoboken, NJ: John Wiley & Sons.
