INS 575 - RISK Management
Ericsson’s Risk Management Practices – A lesson to be learnt
We, the Smeal College of Business Community, aspire to the highest ethical standards and will hold each other accountable to them. We will not engage in any action that is improper or that creates the appearance of impropriety in our academic lives, and we intend to hold to this standard in our future careers.
Ericsson, one of the leading players in Smartphone market in late 90’s, faced a supply chain disruption of one its core components from Philips. Ericsson’s reactive risk handling strategies did not catch the disruption in time, thus leading to huge direct financial loss running into billions and a more severe indirect loss of decline in market share. On the other hand, Nokia, one of Ericsson’s main competitors, were pro-active in dealing with this risk and this helped them prevail over Ericsson in the smartphone market. This paper discusses in detail about the pure risk faced by the firms, how they handled this disruption and what happened as an end result. This paper also discussed how Ericsson could have prevented this loss and how its risk management processes got changed after the incident.
Ericsson was Sweden's largest company, with annual revenue of more than $24.6 billion at the end of fiscal year 1999 (Latour, 2001). In 2000, Ericsson had a 12 percent market share in the cell phone market and sold 43.3 million cell phones across the whole world, making it the world’s third largest mobile phone producer just behind Nokia and Motorola. Thirty percent of Ericsson’s revenue came from its mobile phones division. At the end of 2000, Ericsson had 105,100 employees worldwide .
In 2000, Ericsson was one of the primary customers of a Philips Electronics plant in Albuquerque, New Mexico which manufactured Radio Frequency Chips (RFCs), a critical...