Strategic Risk
The Problem
DPS and UHT are in the supply chain business. UHT is the market leader. They are fierce rivals and compete for market share in countries around the globe. Both companies see enormous opportunities in China but neither has a strong presence there. Both DPS and UHT have formulated a strategy to gain competitive advantage by means of first mover’s advantage.
The phenomenal growth of the Chinese market presents DPS and UHT with risks as well as opportunities. These include political and financial risks such as exchange rate risk. Both companies have vast experience of operating in developing countries, and so are experienced with managing these types of risks. The challenge for both companies is to implement the market development strategy rapidly in order to gain the upper hand. Thus, a key success factor is the people chosen to lead and manage the projects.
Both DPS and UHT chose experienced managers to lead the market development plan. Robert White successfully implemented DPS’s market penetration strategy in Russia and Marcus Dobson did the same for UHT in India. Both men are now charged with hiring a project team to implement the strategy. They want to appoint people with knowledge of the local market, and team members whose risk appetite is in keeping with the requirements of the role.
The Solution
Robert White of DPS chose Oxford Risk Rating because he wants to understand the risk profile of the candidates. He is particularly interested in identifying people who fit the risk profile required of the job role. The objective is to penetrate the market rapidly so he wants people on his team who have a high risk appetite. But, given the stakes involved, Robert also wants to identify people who demonstrate sensitivity to the risks involved. He will consider each individual’s Oxford Risk Rating profile in conjunction with his own intuition in order to select his project team. Marcus Dobson of UHT, on the other hand, feels he has a knack for picking appropriate candidates. He has elected to choose candidates based solely on his own intuition.
The Result
The team selected by Marcus Dobson at UHT turned out to be disastrous. The candidates he chose were highly risk averse, and consequently, decisions took weeks. At DPS, identical decisions were made within hours. When the UHT team finally did make decisions, they exercised conservative bias. Mr. Dobson was called back to UHT headquarters and replaced with a new manager. His entire team was subsequently fired. DPS now dominates the Chinese market with 75% market share. Revenues from operations in China account for over 22% of the company’s worldwide earnings. DPS share price has soared.
UHT’s story is quite different. Analysts downgraded the stock and the share price has tumbled. There is prevailing belief on Wall Street that UHT will never again regain its leading position after losing the battle for the world’s most dynamic new market.