• Subject Name : Economics

Abstract

With increased technological evolution and uncertainties in the business world, risk is regarded as an essential component for strategic organizational decisions. Leaders play a key role in taking risks when making strategic decisions. Among the important reasons why leaders take such risks is that risks attract rewards and opportunities, offer a competitive advantage, and allow them to learn. With increased technological evolution and uncertainties in the business world, risk is regarded as an essential component for strategic organizational decisions. Leaders play a key role in taking risks when making strategic decisions. Among the important reasons why leaders take such risks is that risks attract rewards and opportunities, offer a competitive advantage, and allow them to learn.

However, there are strategies appropriate to reduce risks and minimize the likelihood of an incident occurring in order to protect the organization from running losses. Also, through an evaluation of organization structures, leaders are able to identify those conducive for risk-taking in relation to their feasibility. While managing risk is collated and virtual global environments are essential during decision-making, there are significant differences in risk-taking when making decisions between collocated and cross-virtual organizations. Therefore, the paper provides an explanation on the importance of leaders taking risks when making strategic decisions, and evaluation of strategies to mitigate risks and reduce the likelihood of adverse effects on the decisions, and evaluation of organizational structures that encourage risk-taking, and a discussion of differences between collated and cross-virtual environments.

Importance of Leaders Taking Risks when Making Strategic Decisions

With increased technological evolution and uncertainties in the business world, risk is regarded as an essential component for organizational decisions. Risks apply to events and circumstances that have the potential to threaten the company’s ability to achieve its goals. With increased technological evolution and uncertainties in the business world, risk is regarded as an essential component for organizational decisions. Risks apply to events and circumstances that have the potential to threaten the company’s ability to achieve its goals.

However, embracing the effectiveness of risk-taking requires that leaders first acknowledge possibilities of the risk decision failing then develop a positive attitude towards the failure. Leaders are obligated to take risks when making strategic decisions since several advantages are underlying the criteria. In one way, leaders who value risks and integrate them in their decision- making process are likely to reap key business rewards and opportunities (Stepchenko & Voronova, 2015). In a broader sense, risks are directly connected to market opportunities.

Likewise, a leader's role in making strategic decisions needs to align with the shifts in market trends and customer needs so that an organization prioritizes responding through providing solutions to the market. In other words, leaders accepting risk as a cost of opportunity and then validating the attitude within their organizations are likely to realize their goals and achieve success in the end.

Another importance of leaders taking risks when making strategic decisions is that with risks, the organization has a competitive advantage (Stepchenko & Voronova, 2015). Integrating risk in decision-making sets the pace and leads from the front with new ideas, bold inventions, and fresh offers in the market. Leaders as risk-takers in decision-making are adept at pivoting when the going gets tough. In other words, if leaders cannot accept risk, innovation cannot take place since it is about sharing what is known while new ideas are put into practice.

According to Lippuner & McDermott (2017), risks are necessary for an organization to succeed. Also, taking risks when making strategic decisions helps leaders learn what actually works based on market opportunities and demands. In essence, risks arise because it is impossible for leaders to predict the outcomes after implementing a given strategy. Based on such uncertainty characteristics, not all risks pay off. However, integrating the idea in the strategic decision-making process is important since leaders will look the failure as an opportunity to learn and adjust the strategy to meet market demands.

Evaluation of Risk Mitigation Strategies

Risk mitigation refers to the processes carried out to reduce risks and minimize the likelihood of an incident occurring. In relation to strategic decision-making, there are strategies that are most likely to reduce the likelihood of adverse effects of the decisions. Risk mitigation refers to the processes carried out to reduce risks and minimize the likelihood of an incident occurring. In relation to strategic decision-making, there are strategies that are most likely to reduce the likelihood of adverse effects of the decisions. For instance, the strategy of assuming and accepting risk helps the leaders and organizational team members to identify and understand risks that are likely to affect the project’s output (Sadeghi et al., 2016). The related consequences may be deemed acceptable, or the possible vulnerabilities that the risk might present may be assumed.

However, with the strategy, the possible risks for the strategic decision are brought to the organization's attention so that each stakeholder in the project has a shared understanding of the risk and its consequences. Another strategy to mitigate risk is avoiding the risk (Sadeghi et al., 2016). The strategy presents the assumed and accepted risks and their consequences, as well as the opportunities to avoid the risks accepted. For example, a leader and team stakeholders may decide to implement product testing to avoid the risks of the product failing before approving the final production.

Risk can also be mitigated through controlling it (Sadeghi et al., 2016). The leader’s role in this strategy is to implement control methods that are likely to detect possible issues with the project, take into account the risks based on the decision-making process and eliminate the impacts of the risk before the issue can arise. Also, another strategy of mitigating the risks is transferring them (Sadeghi et al., 2016). When risks have been identified and taken into account, the transfer strategy requires leaders to transfer the risk's strain and consequences to another party. For example, suppose a production team realizes defects in a built new product, and defects are caused directly by the input from an outside vendor. In that case, the organization will transfer the consequences to the vendor, who will be required to cover the costs associated with the defect. However, for the organization to implement the strategy, all parties involved must agree acceptably. In addition, the strategy of watching and monitoring risk can be used to mitigate the risks in decision-making (Sadeghi et al., 2016). The strategy entails following up for and consequences of risks and identifying changes likely to affect the impact of the risk. The leaders and stakeholders can use the strategy to review the project plan in terms of cost, productivity, and performance before the project is completed.

Evaluation of Organizational Structures

Based on the evaluation of organizational structures results, there are those most conducive to risk-taking. For instance, the functional organization structure presents the specific levels of responsibility whereby the employees are organized according to their specific skills and corresponding function in the company. Based on the evaluation of organizational structures results, there are those most conducive to risk-taking. For instance, the functional organization structure presents the specific levels of responsibility whereby the employees are organized according to their specific skills and corresponding function in the company (Ahmady et al., 2016). With the ability of employees to focus on their roles and encourage specialization makes the structure conducive for risk- taking. On the other hand, the matrix organizational structure illustrates a cross-functional team with special projects.

The structure is more conducive to risk-taking since it gives a more dynamic view of the organization, which illustrates the willingness to take the risk. The network organizational structure reflects on open communication and relationships rather than hierarchy (Ahmady et al., 2016). The structure is conducive to risk-taking since it makes sense of the spread of resources, allows for flexibility and agility, and allows for collaboration. The spread of resources indicates the willingness of the structure to accommodate risk.

Some organizational structures are considered better than others for encouraging risk- taking based on the rate at which they are willing to take the risk, the amount of resources available, and the specificity of the organization's focus from others. Each organization structure has a specific level of risk they can comfortably take, and this influences its willingness to take the risk (WILKEN KISKER, 2015). However, the more an organization is willing to take the risk, the more likely it will achieve its goals. Also, with the definition of the organization's focus, leaders are able to align the level of risk an organization may be willing to take. Further, the availability of resources influences the organization's willingness to take the risk.

Managing Risk in both Collocated and Virtual Global Environments

Managing risk in both collated and virtual global environments is essential during decision-making. However, there are significant differences in risk-taking when making decisions between collocated and cross-virtual organizations. For instance, the major difference can be determined based on the sufficiency of knowledge transfer when taking risks to outsourcing information for decision-making since the methods involved in the two environments are naturally different. In essence, the decision-making process involves a manner in which a team shares, examines, and uses the information to make a decision. Managing risk in both collated and virtual global environments is essential during decision-making.

However, there are significant differences in risk-taking when making decisions between collocated and cross-virtual organizations. For instance, the major difference can be determined based on the sufficiency of knowledge transfer when taking risks to outsourcing information for decision-making since the methods involved in the two environments are naturally different. In essence, the decision-making process involves a manner in which a team shares, examines, and uses the information to make a decision. Also, risk occurs when there is no successful transfer of crucial details between involved parties. For this case, the difference between collocated and cross-virtual organizations is based on the difficulty of integrating multiple perspectives of different members. In a broader sense, knowledge transfer in virtual environments is mediated through electronic means such as teleconferencing, unlike the collocated teams where communication is facilitated face-to-face (Davidaviciene et al., 2020).

Another significant difference in risk-taking when making decisions between collocated and cross-virtual organizations is team cohesion. The risk exists with team cohesion when the necessary relationship is not developed for the teams' function or when there is a conflict between team members. Therefore, the difference is realized since, for collated environments, bonding is achieved more quickly than in virtual environments, which have no face-to-face contact (Davidaviciene et al., 2020). Face–to–face interactions build trust among the team members. In a way, trust affects the decision-making process since leaders trust opinions from entrusted members. Notably, cross-virtual environments involve high risks for decision-making compared to collocated environments.

Conclusion

In conclusion, risk is regarded as an essential component of strategic organizational decisions. Risks attract rewards and opportunities, offer a competitive advantage, and allow leaders to learn. Also, risk can be mitigated through strategies such as accepting and assuming it, avoiding it, controlling it, transferring it, and watching and monitoring it. Besides, evaluating organizational structures to determine those conducive to taking risks is essential for leaders during decision-making processes. Likewise, managing risk in collated and virtual global environments is essential during decision-making. With the differences outlined, leaders can determine high risks and productivity environments. 

References

Ahmady, G. A., Mehrpour, M., & Nikooravesh, A. (2016). Organizational structure. Procedia- Social and Behavioral Sciences, 230, 455-462.

Davidaviciene, V., Majzoub, K. A., & Meidute-Kavaliauskiene, I. (2020). Factors Affecting Decision-Making Processes in Virtual Teams in the UAE. Information, 11(10), 490.

Lippuner, D.,& McDermott, A. (2017). Leveraging Strategic Risk Assessments to Inform Budgetary and Strategic Decisions, Retrieved from:

http://pdi2017.org/wpcontent/uploads/2017/06/83-Lippuner-McDermott.pdf

Sadeghi, B., Mortaheb, M. M., & Kashani, H. (2016). Defining mitigation strategies for recurring EPC contract risks. In Construction Research Congress 2016 (pp. 2773-2782).

Stepchenko, D., & Voronova, I. (2015). Assessment of Risk Function Using Analytical Network Process. Engineering Economics, 26(3), 264-271.

WILKEN KISKER, C. E. (2015). INFLUENCE OF THE MOTIVATION OF ENTREPRENEURS ON THE WILLINGNESS TO TAKE RISKS. Ad Alta: Journal of

Interdisciplinary Research, 5(1).

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