Strategic Risk and Competitive Advantage: an integrative perspective

Abstract The purpose of this paper is to investigate the important relationship between risk taking and competitive advantage. Over the last two decades, a range of theoretical frameworks, drawn from behavioral decision theory, agency theory and strategic management have examined organizational risk-return trade-offs. This paper develops a model for the strategic management of risk. A dynamic model of competitive strategy linking risk and competition is presented, in which strategic reference points and risk attitudes are endogenously determined and influence risk/return performance. Following Shapira's (1995) arguments that good managers take high risk but are able to reduce it over time, we highlight the relevance of managing risk taking to achieve competitive advantage and then show how risk-seeking organizations can strategically achieve sustainable high returns at low risk.