Is your risk management and innovation up to the task?
Does your approach to risk management and seizing opportunities maximise your chance of being one of the winners or is it more likely that you will end up suffering a potentially existential threat to your business in the coming years? This is the big issue boards must address given the unusually high degree of change and uncertainty currently in the system which many feel is the ‘new normal’.
The current environment shaped by the cumulative impact of technological change, political instability and low levels of trust in business, looks set to create far more significant winners and losers than would occur in more steady state times. Whilst maintaining the core ability to identify, assess and manage risks effectively remain the hardy perennials, agility and resilience comes to the fore at such times.
Avoid the ‘blind spots’
Care is needed to avoid risk management ‘blind spots’ through management or the board having an unconscious bias that leads them to focus more on some areas than others, whether it be strategic, operational, regulatory or compliance issues; as a result of there being ’elephants in the room’, ie sensitive issues everyone knows about but no-one dares raise; or due to a failure to pick up new or emerging risks, a more pressing task in changing times. Involving team members across the business, and especially younger ones in formal risk management processes, is also helpful in avoiding ‘blind spots’, not least in the technology area, as is developing a learning culture where the business makes sure it learns from situations where risks crystallise or near misses occur within it and also more widely in the sector or further afield. Using techniques such as scenario planning or horizon scanning can help envision futures significantly different from the current market thereby avoiding the ‘lobster in the spot’ syndrome where a growing climate of change goes unnoticed, or is not responded to, until it suddenly is too late.
Agility is now critical to enable a business to be fleet of foot once an uncertain situation becomes clearer or when a risk crystallises unexpectedly though care is needed to avoid becoming risk junkies, leaving situations go unchecked confident that the emergency response will suffice- just as none of us should end up in A&E when elective surgery would have solved the problem earlier! And, as in the case of Brexit, there are sometimes alternatives to be weighed up, with a number of businesses concluding it may be better to end the uncertainty and set up a new secondary operation in an ongoing EU Member State even if when the negotiations, when eventually concluded, mean it does not prove necessary.
Focus on resilience and innovation
Resilience and being innovative/seizing the right opportunities are really the opposite sides of the same coin, the first about winning through in challenging times that are hard to avoid in a turbulent world, the second about having the wisdom to select the right opportunities to pursue and the boldness to pursue them with vigour whilst not betting the business recklessly.
If they have not done so in recent months, boards and audit committees would clearly benefit from undertaking a health check on risk management and innovation, two of the principal drivers of sustainable success.
How does your company fare?
To what degree do the statements below reflect the approach to risk management and innovation at your organisation? It is suggested that boards ask themselves how well they measure up and, more importantly, what improvements they could introduce that would help them build a more sustainable business for the benefit of their stakeholders and wider society.
- We have robust processes for identifying, assessing and managing risks.
- We aim to avoid ‘blind spots’ in our management of risk. We seek to cover strategic, operational, finance and regulatory risks and no areas are ‘off limits’ at board and committee meetings.
- We promote a learning culture and always seek to learn from our experiences and those of other businesses, especially competitors.
- To help us understand better how the future may unfold, we use relevant techniques such as scenario planning and horizon scanning.
- We regularly consider how we might respond if certain challenging/crisis situations were to unfold.
- We encourage innovation and have a strong track record in successfully introducing innovation into the business.