In the final part of our exclusive three-part series, former LEGO risk manager and current principal consultant at AKTUS, Hans Læssøe, and principal consultant at Risk Insight Consulting, Gareth Byatt, tell risk managers why maneuverability for businesses of all sizes has become the key to competitive advantage
Rejoice – prosperous times lay ahead: use risk management to drive them
Throughout most of the 20th century, size and scale was a key strategic competitive advantage in many industries. A slogan for large businesses was “dominate or die”, and Forbes 500 companies had a life expectancy of 60+ years.
Then, around the turn of the 21st century, “outsourcing” became a strategic focus. Companies of various sizes saved costs by outsourcing tasks to low-cost countries and built complex networked supply chains and organisations to manage this.
Today, neither of these approaches can provide you any significant competitive advantage. They may still be valuable in certain situations, for sure, but fast-moving and unexpected disruption from any direction can change your business conditions to such an extent that stability is not something that will last for long.
Today, the slogan is more likely to be “disrupt or die” - Forbes 500 companies now have a life expectancy of more like 18 years, and declining.
Manoeuvrability for businesses of all sizes has become the key to competitive advantage. This means:
- · You need to be able to spot, or create, trends and changes – and act on these faster than your competitors (some of whom you may not even be aware exist);
This includes “inventing” a new market, where there currently isn’t one – which is what Facebook, Uber, Airbnb and other have done – as have many small pop-up companies, which are subsequently sold to the major players for huge amounts, e.g. Navision (bookkeeping), Mojang (Minecraft), etc.;
- · You need to increase operational flexibility, and exist on a shorter horizon than your competitors;
This is how Inditex/ZARA has outperformed the rest of the apparel industry by having a vastly shorter design to sales process than anyone else;
- · You need to have bold(er) strategic planning, based on future needs and desires, and a willingness to be flexible and adapt to change, to a higher extent than your competitors;
This is what Tesla, Google, Amazon, and others are doing addressing electric-powered and autonomous vehicles, and green/emission free energy supply
Such moves may not be immediately seen as risk management, but if you think about it, risk management concepts, tools and processes enable you to tread these paths. For example:
- · Systematic scouting for emerging risks … and opportunities, by addressing what is and may be happening in your industry, in parallel industries as well as in the economy at large (e.g. sharing economy, blockchains and cryptocurrencies, water scarcity, CO2 emissions, work/life balance, etc.);
- · Predefined and known levels of risk capacity (what can you really afford to risk) and risk tolerance (what will you accept) on multiple parameters such as financial, environmental, reputational – your key performance criteria, based on your company mission;
- · Understanding of inter-connectivity, and running through scenarios to look at how events could unfurl and how to act upon them in a flexible way;
- · Defined and monitored early warning indicators showing when a risk or an opportunity is about to materialize – and they are likely to materialize (“trigger points”);
- · Defined and validated/tested (business continuity and resilience) plans to deal with things that do happen, including acting on early warning indicators to “head off” the most damaging effects;
Leading companies, be they large, medium-sized or small, already take this approach – though it may not be labelled ‘risk management’. If your organisation is still waiting to adopt this approach and mindset, then we are afraid to say: the longer it waits, the harder it will be to catch up continue to exist.
Risk managers – step up and lead
Most risk managers are currently working in organisations, where the executives and the board are not aware of how valuable risk management can be to help the organisation to truly prosper. This gives you a tremendous opportunity.
You have a job enrichment and career opportunity to be a key enabler in a company, to assist executives and the board to set strategies and deliver on plans to succeed in a world they may still think is changing faster than they are comfortable with.
Did we say comfortable? We have yet to hear from any athlete stating that “winning was comfortable”. Winning involves taking and managing risk, and it is hard and difficult in sport – just as it is in business.
Business and commerce constantly move forward. Business development is like walking up a down-escalator. The minute you are too slow, or not moving, you will be moving the wrong direction. Risk management is not just about being safe if and when the boat is rocking – but also about having the skills and courage to be the one rocking the boat.
What is the alternative – sit back, and be content being an ever-smaller player with decreasing sales and profitability in an industry that either you become obsolete in, or it becomes obsolete itself. Not a happy or inspiring thought.
So, dear risk manager – grab your chance, lead your C-suite and drive maneuverability as your company’s competitive edge – before it becomes industry “standard operating procedure” and is no longer a source of advantage.