Seminar 2 Flashcards
What is a black swan event?
- Low probability, high impact events that are almost impossible to forecast and they are increasingly dominating the environment
Why are black swan events on the rise?
- The internet and globalisation has meant the world has become a complex system made up of a web of relationships and other independent factors
- Making it more complex which increased the incident of them and also makes forecasting them much harder
Rather than trying to anticipate these events what should we be doing?
- We should be reducing our vulnerability to them
- Lessening the impact of them
To ensure we aren’t predicting these risks, what are the six mistakes we need to avoid?
1) Thinking we can manage risk by predicting extreme events
2) Being convinced that studying the past will help us manage risk
3) Not listening to advice
4) Assuming the risk can be measured by SD
5) Not appreciating that whats mathematically equivalent isn’t psychologically so
6) We are taught that efficiency and maximising shareholder value don’t tolerate redundancy
Whats involved with us thinking we can manage risk by predicting extreme events?
- By focusing attention of a few extreme scenarios we neglect other possibilities and so become more vulnerable
- Its more effective to focus on the consequences, so evaluating the possible impact of extreme events
What have energy companies began to do?
- Rather than trying to predict events they now prepare for the consequences that event might have it it was to happen
Whats involved with being convinced that studying the past will help us manage risk?
- Managers mistakenly use hindsight as foresight
- Research shows that past events don’t bear any relation to future shocks
- Managers assume that if they try hard enough they can find precedents for anything and predict everything
- Black swan events don’t have precedents
- Managers don’t take into account the types of randomness inherent in many economic variables
What does socioeconomic randomness mean?
- This means there is no such thing as a typical failure or typical success
What is meant involved with not listening to advice?
- Managers typically place a greater emphasis on earning profits than they do on avoiding loses
- Corporations should integrate risk management activities into profit centres and treat them as profit generating activities
What is meant by ‘we don’t appreciate thats whats mathematically equivalent isn’t psychologically so’?
The way a risk is framed influences peoples understanding of it
- Airline example
- Providing the best case scenario usually increases the appetite for risk
- Important to always look for the different ways risk can be presented to ensure that you aren’t being taken advantage of
What is meant by ‘We are taught that efficiency and maximising shareholder value don’t tolerate redundancy’?
- redundancy consists of apparent inefficiency: idle capacities, unused parts, and money that isn’t put to work.
- The opposite is leverage (loans), which we are taught is good.
- It isn’t; debt makes companies – and the economic system – fragile. If you are highly leveraged, you could go under if your company misses a sales forecast, interest rates change, or other risks crop up. If you aren’t carrying debt on your books, you can cope better with change
What are the six events companies make with global marketing?
1) Not specifying countries
2) Not paying enough attention to internal data
3) Not adapting their sales and marketing channels
4) Not adapting the product offering
5) Not letting local teams lead the way
6) Not thinking through the global logistics
Why is not specifying countries within global marketing an issue?
- Some marketers typically think of overseas markets in vague regional terms, this oversimplification if problematic
- Apple example
- Companies need to remember that every country has it own local, cultural norm, form of current and unique business practices
- Essential to break up broader geographic markets into individual countries, conducting adequate market research
- Allows better targeting and relationships to form
Why is Not paying enough attention to internal data within global marketing an issue?
- Commonly marketer use third party data sources such as a consensus to make decisions
- However it is the internal data that is better for the company as it allows personal info on your customers and also allows you to know
1) How easy it will be for your company to do business in the specific market
2) How much success you’ve had in that market
Why is Not adapting their sales and marketing channels
within global marketing an issue?
- Many firms believe they can enter a foreign market by doing the same things that brought them domestic success
- However different markets favour different sales and marketing approaches and companies need to change up their marketing channels according to the behaviour of each market
- E.G FB better in brazil but in latin America companies twitter may be the better option
