The Sunday Mail
Taurai Changa Business Forum —
How a company reacts to risk – either taking it or avoiding it – usually (but not often) determines their fortune. However, it does not make business sense for companies that are still in their infancy to be too risk averse. For small companies, which in most cases have nothing to lose, risk taking can lead to rich pickings.
But that is not always the case. Risk taking can be career-defining in two major respects: it can lead to huge rewards or dismal failure. In some circumstances, it might be prudent for companies to be risk averse and protect gains. It takes a good manager to know when to take risk and when to avoid it.
As much as shareholders might enjoy the glories and rewards that come with taking risk, managers are the ones who are sacrificed when a venture goes sour. Launching a new product, for example, requires a lot of risk taking; the product can either be a success or a failure.
EcoCash, the mobile money platform launched by Econet Wireless Zimbabwe in September 2011, has been hugely successful because the telecommunications firm took the plunge, opting to invest in an area that had never seen such an innovation locally. It is also not surprising that those whose who rolled out their services after Econet where not as successful as EcoCash.
In a market that is dynamic and ever-changing, risk taking seems a viable option for companies that want to grow. To avoid the pitfalls that naturally come with risk seeking, research and development becomes a key component for decision makers. R&D typically provides managers with the ability to measure and calculate risk. Calculated risks add the extra comfort of being in control of any investment that a company might undertake.
Usually investment scenarios present themselves in such a way that avoiding the risk might seem to be a good decision. For example, in cases where business managers are presented with the option of either a guaranteed payout or a payout based on a “coin toss”, they would rather opt for the former – which might not always be the best decision.
The temptation to be risk averse is considerably high in most circumstances. But, to a large extent the world belongs to those that are prepared to take risks. The world is trying to make sense of the recent calamitous decision by South Korea-based Samsung to redefine the boundaries of smart-phone technology. Had its plans succeeded, the market might be talking differently.
It has to be considered that Samsung is where it is today because of its ability and appetite for risks. The same cannot be said of other companies such as Nokia. Most of the influential and great businesspeople the world has known have been risk takers. They take losses when they occur and move on.
Mark Zuckerberg, the founder of social media site Facebook, once told a group of young entrepreneurs that it’s risky not to take chances.
“In a world that’s changing really quickly, the only strategy that is guaranteed to fail is not taking risks,” he said.
And it seems he was right: many scholars who study strategy have come to the conclusion that taking great risks can lead to great rewards. This applies even if one is trying to start a new venture. After two years at Harvard, a young Bill Gates took a risk that would end up birthing a wildly successful career: He dropped out of college to found Microsoft.
After undergoing almost two decades of turmoil, Zimbabwean companies are not keen on taking risks because any mistake might mean the end for them. But for how long can companies be content with remaining small? There comes a time when they must bite the bullet.
Africa provides a market of more than one billion people, most of whom are underserviced. Turning such opportunities into real wealth necessarily involves taking risks. So, risk management is an important tool in every business. It seems many local companies have developed a “wait-and-see” attitude and are reluctant to venture beyond their shells.
The longer Zimbabwean companies remain inactive, the more difficult it will become for them to cover ground, especially against competitors, when they eventually consider that the time is ripe for them to expand. Yes, it is true that policies can affect the risk appetite of potential investors, and it therefore becomes urgent for Government to review such policies to ensure they are in line with expectations of potential investors.
FDI is evidently very low in Zimbabwe as compared to other countries in Sadc. Are we perceived as a high risk country by investors? What are the chances of an investor losing money by investing in Zimbabwe? As said earlier on, taking risks can reap rewards but one need be careless. Whichever way it is important to weigh the pros and cons before making a commitment.
Taurai Changwa, a member of the Institute of Chartered Accountants of Zimbabwe and an estate administrator, has 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
