Risk management: the next source of competitive advantage

Abstract

PurposeThis paper aims to show how proper risk management capabilities can lead to competitive advantage for a company. There is much evidence that suggests that the current very high level of volatilities in the business world is going to get worse in the years and decades to come. This trend of increasing uncertainties and the resulting risks for businesses, demands a strategic‐level attention to risk management. This strategic‐level attention is warranted by the fact that proper risk management capabilities can lead to competitive advantage.Design/methodology/approachThe work is conceptual in its approach. The paper also provides many examples from a wide range of industries, as well as the results from other research works to support the finding of the paper.FindingsThe paper first shows how firms' perspective of risk management is evolving. It then characterizes the main drivers behind the trend of increasing uncertainties in the business world which results in higher levels of risk exposure for companies. Finally, the paper characterizes four different ways through which proper risk management capabilities can lead to competitive advantage (depending on different risk categories).Originality/valueAlthough the importance of risk management and its potential strategic role has been widely studied in the literature, the question of how risk management capabilities can turn into a competitive advantage has received less attention. The answer to this question might help firms to better understand the strategic role of risk management and the importance of developing a proper set of risk management capabilities. This paper tries to identify the relationship between risk management capabilities and competitive advantage under different types of risks.