Lesson 1, Topic 1
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9.5 The contingency model Copy

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Nik Shazana November 1, 2022

Contingency plans can be defined as alternative plans that can be put into effect if certain key events do not occur as expected. Only highpriority areas require the insurance of contingency plans. Strategists cannot and should not try to cover all bases by planning for all possible contingencies. But in any case, contingency plans should be as simple as possible.

Regardless of how carefully strategies are formulated, implemented, and evaluated, unforeseen events, such as strikes, boycotts, natural disasters, arrival of foreign competitors, and government actions, can make a strategy obsolete. To minimize the impact of potential threats, organizations should develop contingency plans as part of their strategy-evaluation process.

Some contingency plans commonly established by firms include the following:

  1. If a major competitor withdraws from particular markets as intelligence reports indicate, what actions should our firm take?
  2. If our sales objectives are not reached, what actions should our firm take to avoid profit losses?
  3. If demand for our new product exceeds plans, what actions should our firm take to meet the higher demand?
  4. If certain disasters occur—such as loss of computer capabilities; a hostile takeover attempt; loss of patent protection; or destruction of manufacturing facilities because of earthquakes, tornadoes or hurricanes—what actions should our firm take?
  5. If a new technological advancement makes our new product obsolete sooner than expected, what actions should our firm take?

When strategy-evaluation activities reveal the need for a major change quickly, an appropriate contingency plan can be executed in a timely way. Contingency plans can promote a strategist’s ability to respond quickly to key changes in the internal and external bases of an organization’s current strategy. For example, if underlying assumptions about the economy turn out to be wrong and contingency plans are ready, and then managers can make appropriate changes promptly.

Self-Check Activity

1. Identify some contingency plans commonly established by firms.