Corporate Risk Management: Associated Risks

Corporate Risk Management: Associated Risks

Research and development (R&D) plays a key role in the life and well-being of a company. Indeed, it is are essential factor if a company is to survive in the increasingly competitive world of business. In a wider sense, R&D benefits the community at large by providing not only the best in service, but also in new products. Through R&D, humanity develops to increasingly facilitate life in the 21st century and beyond. Because this strategy requires a continual strategy of innovation and competition, it often entails risk factors that might be unforeseen and/or unknown to the manager of a company. R&D is therefore a field in which risk management plays an extremely important role in order to minimize the risk factor while optimizing a company's competitive edge. R&D can be categorized into five different areas.

Firstly, defensive R&D focuses on current market demands and trends. Professionals working in this field would investigate current inventions and strategies carried by competitors, and research ways in which the company can either match or surpass the performance of the rival company. The risk associated with this R&D field is that, researching new products and strategies, the rival company may further develop their current projects to surpass their own performance. This would then significantly impact upon a company's defensive strategy, carrying risk in terms of both finance and public image if a company appears to be blatantly copying another for the sake of "keeping up."

Offensive R&D can be combined with defensive R&D in order to mitigate the risks carried by the former. An offensive strategy however carries the risk of falling short of market demands. Depending upon the nature of the market, this strategy could fall short of the demand, or altogether miss the target. Combining it with the defensive strategy can then in turn mitigate this associated risk. The market research involved in defensive R&D is more thorough and targeted than offensive R&D. The reason for this is that the former occurs in reaction to existing market trends, while the latter aims at predicting future trends. When combining the two, future market trends can be more accurately predicted by basic it upon existing trends. In this way, the risk factors associated with both areas of R&D are significantly reduced.

The most prominent risks associated with R&D, as identified above, include market research and competition. In addition to risks associated with market trends, risks posed by competitors can also be mitigated with a combination of strategies. The three remaining categories of R&D include long-term, short-term, and intermediate-term R&D.

Long-term R&D can be associated with the offensive R&D strategy, as it entails a projection of market needs in the long-term. This means that products and services are developed on the basis of prediction rather than fact. The most important reason for this is to rise above the competition. The risk associated with this is the fact that competitors may develop long-term products that exceed the company's projects, thus resulting in a significant loss of revenue. The R&D professional is therefore under great pressure to be creative and innovative in terms of projecting future needs and markets. A further risk may then be posed internally in terms of employee overload and stress.