‘The imperative for companies to be paranoid is paramount’

“If I hear another insurer claiming that they are ‘innovating’, I’m going to say: ‘Well, what exactly do you mean?’” says the director of risk management and insurance for global law firm DLA Piper, Julia Graham (pictured).

“It’s certainly an easy word to throw around, but a very hard one to define and act on.

“Businesses, risk managers, insurers – they all use the word a lot without really articulating what they are doing.”

But while the word ‘innovation’ might frequently ring hollow, it remains nonetheless at the heart of every successful firm. Like a shark that needs to keep swimming to breathe, a company cannot stay still or it will suffocate.

“Innovation should be defined as a rupture, a new way of thinking, producing or working,” says Franck Baron, chairman of the Pan-Asia Risk and Insurance Management Association (PARIMA).

“It is forward-thinking about what the underlying trends are and how to cope with them. You don’t want to innovate for the sake of innovation. It needs to be supported or initiated by a cultural, technological, business or consumption shift.

“That’s why innovations are usually misleading as they are mainly marketing-driven and not enough product or business process-driven.”

The problem every organisation faces is that the world does not stand still. Unless you are constantly asking questions of yourself – which, rest assured, your competitors will be doing – then you risk being left behind.

Second vice-president of the Risk and Insurance Management Association of Singapore (RIMAS) Daniel Tan Kuan Wei says that most industries are facing great pressures “as customers are becoming increasingly fragmented with the advent of viable substitutes presenting an attractive myriad choices and platforms for product consumption”.

“It is imperative for industry players to develop a comprehensive understanding of the industry and develop sound innovations to stay ahead,” he says.

“Against the backdrop of a dynamic and intensely competitive landscape in today’s business environment, the imperative for companies to be paranoid and survive and launch new innovations for future growth is paramount.”

Tracking trends

Baron points out that the challenge is to make sure that an organisation is structured to identify and track the demand and market shifts, as well as capturing the new business processes or technologies that can match these trends.

“Risk managers should support this process through the ERM framework by monitoring risk exposures related to lack of innovations or risks created by certain innovations, offsetting the opportunities generated,” he says.

“In addition, the risk manager should look at the innovations their department can create to optimise and improve further their own business processes. They should capture the market innovations that can meet their organisation’s needs in terms of financial protection.

“Finally, risk managers should be at the heart of the expression of needs to trigger the necessary innovations within the insurance market. Hence the need to leverage their professional associations, such as PARIMA for Asia.”

A risk manager cannot and should not merely be co-ordinating and reporting risks, says advisory partner at EY in Singapore Neo Sing Hwee.

“To operationalise the risk management process and achieve the benefits of risk management, the risk manager should not only understand the operations but also be closely involved from the early stages of key projects,” he says.

“The risk manager should be an adviser, identifying and assessing

risks, as well as work alongside operations management to

determine the actions necessary to mitigate the risks.”

The problem is that many firms look to the short term, when they are under pressure, instead of looking to innovate, which is what they should be doing, says DLA Piper’s Graham.

“Bridging this gap is where risk management comes in,” she adds. “We can help companies manage the process of innovation. We should be right in there.

“Risk managers need the opportunity to sit at the boardroom table and have a conversation with those trying to drive innovation. It is our job to make sure innovation happens in a risk-informed way.

“I would wager that failure to innovate should be up there as one of the strategic risks at a large number of firms. It certainly is at DLA Piper. You need to be an innovative business and keep your business model up to date. Plus, you need to use innovative tools and techniques in your operations.”

But in cash-strapped times, risk managers may find that in talking to colleagues they encounter obstacles to innovation in terms of a scarcity of resources. Here again, they have a role to play.

PARIMA’s Baron says innovation requires prioritisation of long-term vision, sustained investment and clear focus at the top of any organisation.

“This is where the role of the risk manager can become instrumental and critical,” he advises.

“The risk manager is entitled to flag up the importance of innovation with a cost/benefits perspective… Innovation should be also recognised as a pillar to the resilience of an organisation. This is the pivotal role/responsibility of a risk manager leading an enterprise risk management programme.”

Risk landscape

Microsoft Asia chief security officer and adviser Pierre Noel says that a risk manager orchestrates risk-oriented discussion around possible innovation decisions that are on the table.

“Deciding to embrace innovation or remaining with the status quo carry their own risk landscape, and everyone within the organisation is directly responsible for managing these risks,” he says.

“As a subject matter expert, the risk manager needs to identify all the risk facets associated with the innovation. This usually means bringing external expertise into the mix.”

EY’s Neo Sing Hwee believes that identifying risks in operations, process of innovation or research and development projects should always be done with reference to the established risk appetite of an organisation.

“It is essential to consider and assess if the extent and consequence of the risks, when materialised, will affect the organisation in terms of financial performance, reputation and operations,” he says.

“One of the key questions to ask is whether the effect of the risk will exceed the organisation’s threshold. If so, will the organisation have the appropriate measures or resources to mitigate the risks to an acceptable level within its risk appetite, through ways such as transferring the risks or partnering with another party to share the risk? If not, should the project be stopped?

“The firm must be confident of the benefits of the project and whether there are alternative ways to reduce or transfer the risks, before making any decisions.”

It can seem overwhelming, but risk managers need to encourage a deep risk awareness among their colleagues – not only to mitigate problems, but to identify opportunities. In doing this, simple habits and disciplines can really help.

International corporate governance and board development consultant Professor Bob Garratt advises risk professionals to encourage their colleagues to adopt an “old-fashioned PEST [political, economic, social and technological risk] analysis as they read the news”.

“Everything is changing, most of the time, so how do you get your corporate head around it?” he says.

“Most people panic at the thought. But it’s easy to get reasonably comfortable just by reading a serious daily paper – most of which, if you read the headers at the tops of the pages, are based on a PEST analysis.

You need to develop a discipline of engaging with change and when you do, you will see opportunities.”