Torben Juul Andersen (Copenhagen Business School, Denmark)

A Study of Risky Business Outcomes: Adapting to Strategic Disruption

ISBN: 978-1-83797-075-9, eISBN: 978-1-83797-074-2

Publication date: 29 September 2023


Andersen, T.J. (2023), "Prelims", A Study of Risky Business Outcomes: Adapting to Strategic Disruption (Emerald Studies in Global Strategic Responsiveness), Emerald Publishing Limited, Leeds, pp. i-xii.



Emerald Publishing Limited

Copyright © 2023 Torben Juul Andersen

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A Study of Risky Business Outcomes

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Series Editor: Torben Juul Andersen

Recent Books in Series:

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    Edited by Torben Juul Andersen

  • Strategic Responsiveness and Adaptive Organizations: New Research Frontiers in International Strategic Management

    Edited by Torben Juul Andersen, Simon Torp, and Stefan Linder

  • Adapting to Environmental Challenges: New Research in Strategy and International Business

    Edited by Torben Juul Andersen and Simon Sunn Torp

  • Strategic Responses for a Sustainable Future: New Research in International Management

    Edited by Torben Juul Andersen

  • Navigating Corporate Cultures From Within: Making Sense of Corporate Values Seen From an Employee Perspective

    By Michael Jakobsen and Verner D. Worm

  • Responding to Uncertain Conditions: New Research on Strategic Adaptation

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A Study of Risky Business Outcomes: Adapting to Strategic Disruption



Copenhagen Business School, Denmark

United Kingdom – North America – Japan – India – Malaysia – China

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Emerald Publishing Limited

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First edition 2023

Copyright © 2023 Torben Juul Andersen.

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ISBN: 978-1-83797-075-9 (Print)

ISBN: 978-1-83797-074-2 (Online)

ISBN: 978-1-83797-076-6 (Epub)

Table of Contents

List of Figures and Tables vii
About the Author ix
Preface x
Chapter 1: Managing (in) a Disruptive World 1
Chapter 2: Collecting the Data 15
Chapter 3: Preliminary Data Analysis 29
Chapter 4: Extended Data Analysis 47
Chapter 5: Background and Prior Studies 67
Chapter 6: Analyzing Manufacturing Subsamples 83
Chapter 7: Simulating Strategic Adaptation 99
Chapter 8: Examining the Outliers 121
Chapter 9: Summary and Conclusion 143
Index 159

List of Figures and Tables


Fig. 1.1. A Display of (Extreme) Negative Outliers and Some Positive Outliers 3
Fig. 1.2. Two Views of the Relationship Between Performance (Return) and Risk 5
Fig. 4.1. The ROA Distributions (Frequency Diagrams) in the European Dataset for Specific Industries (SIC Divisions) 52
Fig. 4.2. The ROA Distributions (Frequency Diagrams) in the North American Dataset for Specific Industries (SIC Divisions) 53
Fig. 6.1. Frequency Diagrams of Net Income, Total Assets, and ROA (Annual Accounting Data 1995–2019) 86
Fig. AI. Comparing Average Annual Data Points to Annual Data Points for the Full Period 97
Fig. 7.1. A Central Planning Model of Strategic Adaptation 105
Fig. 7.2. An Interactive Updating Model of Strategic Adaptation 106
Fig. 7.3. Different Approaches to Strategic Adaptation 107
Fig. 7.4. The Effects of Adaptation Cost on Strategic Adaptation 110
Fig. 7.5. The Effects of Environmental Jolts on Strategic Adaptation 111
Fig. 7.6. The Effects of Environmental Conditions on Strategic Adaptation 112
Fig. 7.7. The Frequency Distributions of Simulated Performance Outcomes 113
Fig. AI. Cross-Sectional and Longitudinal Risk-Return Relations 119
Fig. 9.1. Plotting the Density Diagrams (Frequency Distributions) of Returns Across Manufacturing Firms 148
Fig. 9.2. Analyzing Risk-Return Relationships and Possible Moderating Effects 151
Fig. 9.3. Summary of Findings Across the Distribution of Performance Outcomes 155


Table 2.1. The Industry Classification Systems 19
Table 2.2. Summary of Missing Values in the Original Datasets 20
Table 2.3. Summary of Missing Values After Cleaning the Datasets 25
Table 3.1. Shares of Missing Values for Each Performance Variable by Geographical Area 31
Table 3.2. Number of Firms and Their Lifespan Across Different Treatments and Regions 32
Table 3.3. Skewness and Kurtosis of ROA Distribution across Treatments and Regions 36
Table 3.4. Outliers and Extreme Outliers of ROA across Treatments and Regions 40
Table 4.1. Comparing Original European and North American Data with the Complete Dataset 50
Table 4.2. The Persistence of Outliers (Based on ROA) in the European and North American Complete Case Datasets 55
Table 4.3. ROA Outliers in the North American and European Datasets Across Different Company Sizes 59
Table 4.4. Needed Decrease in Share of Observations and Companies Per Industry to Make the ROA Distribution Normal 61
Table 5.1. Comparing Performance and Risk-Return Studies in Management and Finance 77
Table 6.1a. Descriptive Statistics on Key Performance Variables for Manufacturing Firms 1995– 201987
Table 6.1b. Statistics on Leadership and Accounting Variables for Manufacturing Firms 1995– 201990
Table 6.2a. Statistics for Firms Performing Above and Below Median ROA 1995– 201991
Table 6.2b. Accounting and Leadership Statistics for Firms Above and Below Median ROA 1995– 201991
Table 6.3a. Risk-Return Correlations (ROA) of Manufacturing Firms 1995– 201993
Table 6.3b. Risk-Return Correlations (NI) of Manufacturing Firms 1995– 201993
Table 6.4a. Performance Outcomes of Manufacturing Firms by Subperiods 95
Table 6.4b. Risk-Return Correlations of Manufacturing Firms by Subperiods 95
Table 7.1. The Performance and Risk-Return Outcomes in Different Subsamples 1995– 2019114
Table 8.1. Financial Returns (ROA) of Firms in Manufacturing Industries 1995– 2019123
Table 8.2. Return Outcomes and Risk Correlations of Manufacturing Firms by Subperiods 124
Table 8.3. Description of Negative and Positive Outliers from Sampled Manufacturing Firms 1995–2019 126

About the Author

Torben Juul Andersen is Professor of Strategy and International Management and Director of the Global Strategic Responsiveness Initiative, Department of International Economics, Government and Business at the Copenhagen Business School, Denmark.


More than five years ago, we were contemplating the need for further studies to help us better understand how organizations, or firms, respond to rapidly changing environmental conditions often interrupted by extreme unexpected events. Indeed, the beginnings of the Emerald Studies in Global Strategic Responsiveness book series emerged from a similar urge to uncover how responsive global organizations could adjust and adapt their business operations across multiple overseas markets as they deal with unpredic Table changes in the turbulent reality that describes the global marketplace.

In recent years, we have seen these turbulent conditions excel as international business activities have been affected by several abrupt and largely unexpected disruptive incidents including a pandemic, a major military conflict, and mounting geopolitical tensions. Hence, we have observed a general development toward global business contexts characterized by radical uncertainty with many unknown factors in play that call for new and more effective ways to deal with the changing risk landscape. As the recent incidents of pandemic and war have demonstrated, most institutions were not prepared for the ensuing chaotic, uncoordinated, and somewhat divergent approaches adopted typically influenced by national political interests. Hence, we continue as societies to struggle with ways to deal with the severe economic ramifications imposed by these events including the formation of resilient global supply-chains in a world of increasing regional tensions while dampening the intermediate effects of inflationary pressures not seen for decades. In short, the challenges foreseen a few years back have not diminished but have rather exacerbated.

Back then, we noted how organizations operating in the global economy were exposed to a daunting array of possible risk events including fiscal crisis, cyberattack, social instability, governance failure, and an increasing frequency of extreme weather incidents. In view of these challenges, some organizations were noted as adjusting better to the changing conditions and thriving under adverse odds whereas many others, maybe most, had a hard time adjusting. This fundamental issue inspired the formulation of a research project attempting to better understand how the observed performance differences were related to strategic response capabilities and expected adaptive outcomes. It was observed as a regular empirical artifact that over given time periods several firms would outperform their peers competing under comparable business conditions and generate favorable performance outcomes whereas a vast number of the firms seemed to produce often extremely poor financial returns. While these extreme occurrences often are overlooked in mainstream management studies, we thought they might provide some interesting insights. Hence, we attempted to study this phenomenon closer to gain more insights about how competing firms and organizations respond and adapt when they are exposed to adverse conditions that at times are inflicted in the form of sudden unexpected events. So, the project attempted to fill an apparent gap in our understanding of how the common contours of realized economic performance come about.

Other motivations include the seeming increase in extreme environmental events of various kinds that generate many surprising disruptions and strategic discontinuities that largely went unnoticed before. This means that contemporary business environments present complex and dynamic contexts where many extreme events may arise that are difficult to predict and therefore notoriously hard to respond to. Hence, it may be difficult for otherwise successful firms to observe ongoing changes and orchestrate effective responses to major shifts in the competitive environment, which in turn may have an adverse effect on their economic fortunes. These characteristics could explain the observed performance data of few over-performers and many underperformers. They also accentuate concerns for strategic adaptation whereby organizations can adjust to gain a better fit with the changing business environment over time where we need a better understanding of the adaptive processes that may lead to the extreme observed outcomes. Hence, the study aimed to develop a deeper understanding of the phenomenon with few high-performers and many extreme negative outcomes typically observed in the empirical data. The insights derived from the study should ideally help organizations increase their awareness of strategic adaptation and improve their response capabilities to gain better adaptive outcomes with stronger performance avoiding downside losses while thriving from an ability to exploit emerging opportunities.

This four-year research effort eventually received financial support from the Independent Research Fund Denmark (Danmarks Frie Forskningsråd Grant #8019-00046B) with the formal title: Risky Business – Managing in a world with extreme exposures (2019–2022). We acknowledge and appreciate this support that made the ensuing reporting of findings possible.

The project name, Risky Business, also the title of a (famed) Tom Cruise movie (1983), and as the movie hints, risky events and circumstances also present opportunities, even if partially self-inflicted, but we know too little about how firms can take on risky initiatives and exploit them to their advantage as the external circumstances change. So, the research project was inspired by an urge to better understand the regularly observed fat-tailed distributions of financial returns across firms, where many of them underperform but a few excel displaying higher performance with lower performance risk. Hence, implicit in this effort was an aim to better understand why some firms appear to adapt rather well to extreme exposures consistently outperforming their peers in the industry when many more of the firms underperform with a substantial number of them posting extreme negative returns.

The project collected extensive datasets for all registered European and North American firms over the 25-year period 1995–2019 which spans diverse economic scenarios of global expansion, recession, and recovery up until the COVID-19 pandemic in 2020. The analyses of both datasets reproduce the extreme left-skewed performance distributions with small positive tails of high-performers across different geographies, industrial sectors, and time intervals. More refined analyses of complete datasets show how the left-skewed returns are associated with negative risk-return relations as high-performers generate superior average returns at lower variation in returns. It is further shown that unfavorable risk-return outcomes are related to overconfident executives whereas high-performers retain a high degree of investment flexibility.

These results resonate with propositions arguing for the advantages of interactive decision-making processes where executives use frequent dispersed insights to update ongoing strategy deliberations expressed in a quantitative model. This strategic responsiveness model is used as a basis to perform computational simulations that show how it can produce empirically observed negatively skewed performance distributions and inverse risk-return relationships. Hence, the studies altogether indicate that interactive collaborative decision-making processes can drive effective strategic adaptation to extreme exposures.

The book presents some of the key findings from this four-year research program conducted between 2019 and 2022 investigating the commonly observed left-skewed distributions of financial returns based on reported accounting performance.

As international economic actors struggle to make necessary adjustments that align their transnational production structures and global value-chains with the evolving political reality, it is clear that multinational organizations must improve their ability to deal with uncertainty and abrupt events. This also includes concerns about increasing demands to deal with potentially extreme weather effects from climate change influenced by ongoing degradation of the natural environment, for example, CO2 emissions, waste, and pollution. Hence, it is becoming apparent that organizations are incapable of resolving these challenges on their own but require collaborative solutions for sustainable long-term outcomes. We hope that this monograph of sequentially ordered book chapters provides relevant insights to current thinking about strategic adaptation, needed response capabilities, and the formation of resilient organizations within the global economic systems.

The nine chapters that constitute this monograph are included as standalone contributions although they emerge as sequential presentations much in line with the planned progression of the research project. This should provide for flexible use of individual chapters while presenting progressing insights that lead to a conclusion to the extent such is possible. Nonetheless, we hope this can contribute with some interesting and insightful reading.

Torben Juul Andersen

Frederiksberg, March 18, 2023