vol. XVII no. 3

				Page 1 Page 1 2 3 4 The Latest Buzzwords or The Holy Grail of Business Sir Freddie Laker was a pioneer. His company, U.K.-based Laker Airlines, was one of the original ValuJets offering a low-cost alternative to the more established airlines. At the time, the pound was strong and the dollar was weak, which provided Laker with an opportunity. His primary strategy was to compete against British Airways by offering low-cost, transatlantic packages to London travelers. As consumer demand soared and Laker's business began to prosper, he signed a deal for more planes with The Boeing Company and agreed on a price set in dollars. Unfortunately for Laker, the foreign currency rate soon changed and the dollar strengthened. His pound revenue became worth less in terms of dollars and forced him to devote more money to pay for the planes. The weaker pound also resulted in less travel. Ultimately, Laker Airlines filed for bankruptcy and no longer exists. The questions the company never addressed and the risks it did not see turned Laker Airlines into a case history in failure rather than innovation. While foreign currency risk was the primary issue in Laker Airlines' demise, other variables contributed to the company's fate. According to Richard Phillips, Bruce A. Palmer Professor of Risk Management and Insurance at the Robinson College of Business, if Laker had someone at the top who forced the operation line manager to ask the "what if" questions and think bigger picture, perhaps they would still be in business. Today's global and technologically driven business environment has increased the assortment of internal and external risks companies face every day. Risks almost unimaginable 10 and 20 years ago are now issues affecting businesses worldwide. Man-made disasters like the terrorist attacks of 9/11 and the corporate governance issues that sent companies into a tailspin combined with the financial, operational and insurance risks businesses face daily have forced organizations to look at risk in a new way. "Historically, and still today, many companies have a 'silo' mentality in their approach to risk. Most did and still do rely on insurance to 'address' whatever situations may arise," says Harold Skipper, professor and C. V. Starr Chair of International Insurance. But in this new age of uncertainty, companies have to take a different approach, a more "enterprise-wide" look at risk. This shift has sparked interest in enterprise risk management or ERM. But what is enterprise risk management? According to Jane Mutchler, director and Ernst & Young - J.W. Holloway Memorial Alumni Professor for Robinson's School of Accountancy, it is a process that allows management to identify internal and external risks that may have an effect on their ability to achieve strategic objectives. Once identified, they are able to manage the risks to both control potential pitfalls and take advantage of opportunities. "Essentially, it focuses management on the big picture and allows them to make strategic decisions," said Mutchler. Top | Next Page

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