“Mastering the New Normal” – A Continuing Series
“A company’s ability to respond to an unplanned event, good or bad, is a prime indicator of its ability to compete.”
– Bill Gates
Our New Normal world involves a global business environment, dynamic markets and evolving strategic, technological and operational risks. Though different organizations have different priorities and issues, what are the key risks keeping leaders awake at night in 2014? A survey of almost 400 C-level executives recently published in Directorship* identified these key concerns:
TOP “NEW NORMAL” RISK CONCERNS
- Regulatory changes and increased regulatory scrutiny
- Macroeconomic conditions and uneven economic growth in current markets
- Political leadership uncertainty in the US and abroad
- Succession planning and top talent acquisition
- Cyber security and information protection across platforms
- Organizational resistance to change
- Volatility in global financial markets
I would add to this list what our clients say are top-of-mind risk management concerns:
- Supply chain robustness
- Operational safety internally and among vendors and sub-contractors
- Emergency disaster preparedness
WHAT CONSTITUTES ACCEPTABLE RISK IS EVOLVING FAST
Decision makers must be vigilant in identifying and addressing new risks and risk profiles to insure sustainable success:
- Which risks to avoid
- Which risks to mitigate
- Which risks to accept
Case in Point: US financial institutions have been laggards in introducing credit cards with chip-and-PIN technology. The business rationale (i.e., risk assessment) was that the costs of absorbing credit card fraud from the current magnetic strip system were far less than the investment costs of updating point-of-sale (POS) equipment, ATMs and producing the new cards. However, these bottom line and reputation risk scenarios changed dramatically with the recent customer data breaches at Target, Niemen Marcus and elsewhere. Consumers and their elected officials became mad as hell. Now credit card issuers are trying to transfer risk – and associated business costs – to end merchants by shifting the liability for identity theft to them if they do not upgrade their POS equipment to smart chip technology by the end of 2015.
7 KEY RISK MANAGEMENT ACTIONS
Warren Buffett famously noted, “Risk comes from not knowing what you’re doing.” Sound judgment and vigilance in the C-suite and boardroom are absolutely essential to successful risk management.
Here are my recommendations:
- Secure agreement between senior management and the board on the organization’s appetite for risk in setting and implementing strategic initiatives.
- Periodically review major risks (strategic, financial, operational, IT, talent) and how crisis situations will be managed.
- Stress-test continuity crises ranging from key talent gaps to industrial accidents to supply chain disturbances to natural catastrophes.
- Promote a culture that rewards upward feedback of bad news and hazardous conditions. (Remember NASA’s Challenger disaster?)
- Place a premium on operational safety everywhere in the organization. (See #4)
- Develop a clear protocol for internal and external communications in emergency and crisis scenarios. (Note: “No comment” is not an effective crisis response.)
- Bring fresh eyes to highest-risk areas as an antidote to complacency, over-confidence and out-dated solutions.
LEADER SUSTAINABILITY: FIVE IMPERATIVES SUMMARY
This series on Leader Sustainability and Mastering the New Normal has focused on five imperatives: Culture, Customers, Talent, Reputation and Risk Management. These imperatives are interconnected dimensions of leader sustainability. For example, Culture impacts Customers and Talent, Risk Management impacts Reputation, Reputation impacts Talent and Customers, etc. By the same token, essential organizational capabilities that I have not explicitly discussed here, such as innovation, are subsumed under Talent and Culture. Use the Action Items I have provided in this series to enhance your abilities to execute brilliantly now and going forward.
*Note: Directorship is an online publication of the National Association of Corporate Directors. I have not included a hotlink to the article because of a malware security alert with the NACDOnline site.