What is meant by 'strategic risk'?

Strategic risk refers to the uncertainties and challenges that an organization faces in pursuing its strategic objectives. This type of risk arises when external changes, such as shifts in market dynamics, political environments, competitive landscapes, or regulatory frameworks, impact an organization's ability to implement its strategy effectively.

When a company's strategy fails to adapt to unforeseen external changes, it may struggle to meet its goals, leading to reduced competitive advantage or even financial distress. Understanding strategic risk is essential because it influences decision-making and long-term planning, ensuring that the organization remains aligned with its market environment and capable of achieving its objectives in varying circumstances.

This definition clearly differentiates strategic risk from other types of risks, such as operational inefficiencies, which relate more to internal processes, or the risks associated solely with financial losses, which do not encompass the broader scope of strategic objectives and external influences. Moreover, the risk of losing proprietary information is more closely tied to information security rather than the broader strategic objectives of an organization.