Proceedings of 29th International Business Research Conference
24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1
Strategic Risk Management: Scrambled Egg
Patrick McConnell1
Strategic Risk, or the failure to execute its chosen strategy, is probably the
greatest risk facing any firm. Not only will such a failure result in oftenconsiderable wasted expense and damage to the firm’s reputation, but
may even cause bankruptcy or harm to the financial system, as for
example in the case of Lehman Brothers and Anglo Irish Bank. Yet the
active management of these important risks, or Strategic Risk
Management (SRM), is not a well-developed discipline. But firms in
dynamic industries, such as banking, are forced to adopt risky strategies
to compete, especially with regard to introducing new technologies.
Technology drives innovation in banking and whether an early adopter or
follower, the introduction of a new generation of technology carries with it
considerable risks. This paper is a case study of Egg, a subsidiary of
Prudential plc a major UK insurance company. Egg was set up by
Prudential in 1998 as the vehicle that it would use to enter the Internet
banking market. This was an aggressive strategy by the insurer to enter
new markets, which was made even more risky by relying almost
exclusively on new Internet technologies for its marketing and operations.
In summary, although initially successful the strategy was a failure, with
Egg being sold off within a decade after losing some £600 million for the
insurer. With hindsight, the risks in Egg’s strategy were obvious but this
paper does not apportion blame. Instead the paper attempts to highlight
the generic risks in developing complex strategies and makes suggestions
to firms and banking regulators as to how such strategic risks may be
managed.
Field: Finance and Banking
JEL: G21, G32, G28, O31
Keywords: Strategy, Strategic Risk, Egg plc, Prudential, Innovation, Internet
Banking, Banking Regulation
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Dr Patrick J McConnell, Honorary Fellow, Macquarie University Applied Finance Centre
(MAFC), Sydney, pjmcconnell@computer.org +61 (02) 4861 5054
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