adminTaurai Changwa: Business Forum
WHEN South Korea-based global mobile phone-maker Samsung released its Galaxy Note 7 on August 19, 2016, it was supposed to be a trump card to unclasp Apple’s vice grip hold on the global smart phone market.The strategy by Samsung was clear: It targeted to enhance the phone’s aesthetics by not only coming up with a design that was irresistible, but also introducing a battery that would outlast any other on the market.
This backfired in spectacular fashion.
Packing such a powerful battery in such a thin frame has proved to be disastrous for Samsung. Since its release, there have been several reported cases of overheating and in some cases fires caused by exploding phone batteries.
And the company has continued to pay the price for its poorly conceived product. After announcing several world-wide recalls for its product, on October 11, 2016, it decided to discontinue the product line.
Samsung has lost more than US$26 billion in market value since the beginning of the crisis. The founder and patriarch of Samsung, Lee Kun-hee, has also lost part of his fortune as a result.
But no matter how harsh the judgement against Samsung might be, the fact is it had the guts to take a gamble. It took gambled and lost. Had its strategy worked, it would have become a market leader in the dynamic smart phone market.
In sum, Samsung had a brilliant strategy but its execution was quite catastrophic.
This is quite instructive for any undertaking and or venture. As the Reserve Bank of Zimbabwe – the custodians of the country’s monetary policy – prepare to roll out bond notes to help ease the current cash challenges, it might be prudent for them to be wary of how the market will react.
While it is clear that the motive is to ease the liquidity challenges that the country is currently facing, what might not be clear at the moment are the risks associated with this move.
If money authorities have already budgeted for such risks, it is also important to know how they intend to mitigate the same. Well, risk management is a key tool in any organisation.
Investopedia defines risk management as the process of identification, analysis and acceptance or mitigation of uncertainty in investment decisions. Essentially, risk management occurs any time an investor or fund manager analyses and attempts to quantify the potential for losses in an investment and then takes the appropriate action (or inaction) given his investment objectives and risk tolerance.
For one to manage risk properly there is need to have thorough knowledge of the environment in which one operates.
After having an appreciation of the risks, the potential risks are identified and assessed in order to determine the likelihood of the risk occurring and its potential impact.
After all these steps have been made, a risk response model is then developed and implemented.
Broadly, there are two risk response models that have been quite handy for ordinary companies: TARA ( Transfer, Avoidance, Reducing risk and Accepting risk) and SARA (Scanning, Analysis, Response and Assessment).
In ordinary organisations, some risks can be passed on to other parties such as insurance organisations that are willing to take over the risks. Also when a risk is likely to occur, some organisations choose to share the risk with other parties.
A risk with high impact and very low likelihood can be transferred or shared, while a risk with low likelihood and low impact can be accepted. Since risk management is a process, it needs continuous monitoring.
Risks, which can be financial, operational, strategic and compliance risks, can change over time.
In the case of Samsung, there was an operational risk as the company issued a product which was largely dysfunctional. It can be argued that the risks of introducing bond notes are already evident in the market. Speculation is now rife. This has made the situation worse.
Where companies and individuals used to be comfortable depositing their money in banks, this is no longer considered viable. Deposits have dropped. Higher denominations of the US dollar such as US$100 notes and US$50 notes are becoming scarce.
If anything, the banking sector hasn’t done anything to regain the trust and confidence of the market.
It, therefore, becomes necessary for the RBZ to thoroughly assess the risks inherent in their plans and act accordingly. Agreed, the task is not easy but it has to be done to avoid dislocating the local financial market.
It must be considered that every new strategy brings with it new risks. Risk management comes with certain costs and at times the costs of managing the risk can save the organisation or country massive losses. However, when the cost of managing risk is more than the rewards then risk management may not be worth it in such circumstances.
Taurai Changwa is a member of the Institute of Chartered Accountants of Zimbabwe and an estate administrator with vast experience in tax, accounting, audit and corporate governance issues. He is MD of SAFIC Consultancy and writes in his personal capacity. Feedback: [email protected], Facebook page SAFIC Consultancy, and WhatsApp +263772374784
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