Risk & Reward
Worst Case Scenario
Kent (2008) discusses risk and notes that entrepreneurs seek to reduce risk. Entrepreneurism is risky because entrepreneurs do not know what they are doing. This may have been something Peter Drucker said, but the reality is a little more complex. Entrepreneurial activity is risky because there are few established givens -- sales are not well-established, products and process may not be refined -- and building a business from scratch is quite challenging when there is nothing in place. In this instance, Capellon's risk is not as great at that of entrepreneurs, because it has existing products. In the pharmaceutical business, many products are covered by patent protection that ensures a baseline level of demand. So the worst case scenario here is not total business failure. The worst case scenario is probably what the company is experiencing now, or something slightly worse. There is organizational dysfunction, sales are declining and none of the objectives are being met.
Another important takeaway from Kent's discussion of risk is that the company needs to take more risk in order to succeed, in particular if it has good people who can execute strategy effectively. The company needs to make some changes to the existing strategy because it is struggling, but because it can only screw things up so badly (so to...
The worst case scenario is pretty much where the company is right now, and none of the proposed changes are going to make things dramatically worse.
The Nature of Losses
The nature of the losses are of course going to be primarily monetary. The concerns right now are with respect to sales. While many of the problems stem from human resources, the measures are financial and that means that it is the poor financial performance that is the concern here. Dunn (2008) notes that when someone violates a policy, they need to be punished to appease the jurors. For Capellon there have been many failures, but no consequences. The executives who are interfering with the marketing department need to be punished for their meddling. The human resources department has also been a problem, supplying the marketing department with a succession of incompetent managers and creating conditions for poor communication. Thus, human resources should also be punished. There has simply not been enough enforcement of the rules at the company and as Dunn notes that creates a lack of accountability that sets a bad example for everybody. Yes, this means that some of the losses are going to be emotional or with morale, but at the end of the day the problems have been identified as a failure to reach financial objectives, so…
