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Summary of Service Economy Risk Management Strategies

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Five Historic Steps in Risk Management

by Eskil Ullberg

In a study on how companies develop their business - taking on more risk and learning to manage it - five distinct steps can be found. Starting with the industrial revolution, where the product came into place, a line of services have developed until the service offering dominates the offering of the company. The companies become service companies, more interested in the risks they manage for their clients business as a means for managing their own. This can be summarized by Hans Raussing's formulation of the TetraPak market strategy, "Risk Minimization by risk maximization". The steps are:

0. Product - the entry ticket to the market, "the transaction" in an economic context.

1. Guarantee/Warrants -> Gives the customer trust in buying the product/Manufacturing Risks

2. Financial service --> Gives the customer access to the product/Credit Risks

3. Technical service --> Makes the product work for the customer/Operational Risks

4. IT Tools and information --> Operational Support/Performance Risks

5. Management of risk --> Taking over the customer's processes and risks and charging for the risk management/Business Risk

These first three steps can be managed without IT. Step 3 and 4 are new in the "information economy" or "e-business. In the end companies are "trading" the customer's risks and finding ways to manage them or sell them. In all steps, intellectual property like patens, trademarks, copyright are present today and provide an essential contribution to the competitive advantages of companies and economies.

IKU helps companies package the business risks so they can be managed via economic markets.

There is a 6th step developing today in particular in relation to the intellectual capital and property of a company. Management of the customers "innovation process" helping the customer to develop and launch more innovative services in its markets based on that intellectual property. This step allows the company to use the customer as their R&D center, paying with successful market entry, further specializing the tasks between the "supplier" the "customer" in the now more complex but efficient "customer" relation.

The development can be seen as covering all the steps from "transaction" to "relation" and then "capitalization" on intellectual property in the relation..

For a full discussion of the five steps, check out the article on Risk Management - From portfolio strategy to value creating systems strategy, The Geneva Papers on Risk and Insurance - Issues and Practices, July 2002.

IKU offers services in financial innovation for its clients, IT strategy and IP strategy, in particular the competitive use of patents.



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