Abandoning caution for resources: the Ambatovy bet and its reckoning (2005)

An organization that grew strong by taking no risk misjudged when it took one

These ten years at Sumitomo hold a paradox. This was an organization that built its competitive strength by not taking risk; the very caution with which it kept passing on large resource deals was the source of some twenty years of advantage. Yet when, from 2005, it let go of that caution of its own accord and stepped into resource investment, Sumitomo lacked quality in its risk-taking judgment. The $2.6B (¥310bn) impairment of the year to March 2015 exceeded even the vast loss it had suffered from the illicit copper trades of 1996, and became one of the largest financial blows in the company’s history.

The financial buffer that twenty years of prudent management had piled up, Sumitomo spent in just ten years from its change of course. The irony is that this ending retroactively confirmed the good sense of the principle Mitsuo Uemura had once stated — that the firm “does not touch long-term, large-scale projects.” What does a company lose when it lets go of the caution it had made its competitive strength? Sumitomo’s resource investment puts to today’s managers the weight of a decision to throw away one’s own strength.