Two Great Rules offer Insights #IN Opportunities and Risk
2011/01/19 Leave a comment
“Partners are like horses that wildly gallop as a group to what looks interesting. Me, I think very briefly about why I would want expend the energy to go there…” — Advice offered me at PwC from the President’s Octogenarian advisor.
Opportunities and Risk are Inseparable
In its heyday Nortel represented a significant value element of the entire Canadian economy and was very good at risk reduction and contracting forward with suppliers to avoid the component part shortages that plagued the telecommunications industry–until their competitors started compressing the time to introduce new products. Later competitors would speed up new product introductions even more and Nortel’s inventory ballooned.
Risk Measures May Increase Risk
The risk reduction strategy of contracting forward may have exposed Nortel to huge self-inflicted risk and eventually contributed to its collapse as current risk measures didn’t adequately reflect the future risk associated with long term supplier contracts.
Nortel was one of the horses that ran to the green meadow without adquate scenario analysis that reflected their reality.