Your frontline people have always been relevant in early detection of risks and opportunities. Actively engaging them now, in a world more digital and less co-located, was never more important. Failure to detect early signals of uncertainties are costly. The antidote is engaging and motivating an entire organization to quickly identify risks and opportunities as they surface, giving the organization the ability to make the right decisions, at the right place and at the right time. Conversely, organizations that fail to embrace modern risk management will likely be overwhelmed as the pace of change accelerates faster and faster.
Risk management’s value is as great as the impact leaders allow it to have on enterprise-wide learning and decision-making. The profile of risk management, compliance policies, assurance practices and codes of conduct expanded after the 2008 credit crisis, but to what end?
Did they prevent Wirecard’s bankruptcy, the devastating explosion at the port of Beirut, Boeing’s problems with the 737 Max, or a global pandemic? Was somebody in Wirecard aware of false records in the Philippines before 1.9 billion euros evaporated? Were there people in Boeing and the FAA who knew about the potentially fatal problems with the 737 Max before 346 people died in two crashes?
Of course, somebody knew. They probably even declared the risk, but crucially, did the organizations hear, listen and act?
Leaders who seek breakthrough results must embrace the uncomfortable truth: most risks and opportunities their organization will register in the coming year are already known by somebody in their organization today. They are uncertainties rather than obvious threats or chances. Knowing these in their earliest stages gives leaders a head-start in response strategies. As William Gibson wrote:
“The future is already here, it’s just not evenly distributed yet”.
Being a company with a risk culture doesn’t mean they avoid risk. Quite opposite, they are taking more risks and grasp more opportunities. The difference is that they do this faster with more profound insights into the uncertainty. With that: they have higher levels of control and are ahead of market trends and competition. They don’t need to predict the future; they are creating it.
But how do you assure that risks and opportunities are seen by the right people in the organization, at the right time so that teams can act at the right moment, with skill and confidence? And so extend the boundaries of what is possible in their response strategies. As that is how an organization builds resilience and remains relevant in the decade ahead.
Creating such a risk culture is a group exercise and takes a two to three-year transformation. In our observation, companies wrestle with a few challenges, of which we highlight two:
- First is the ability to marry early signals with the power to act.
- Secondly is the implementation of the risk culture across all levels of the organization.
Capturing early signals is a simple concept but not an easy exercise. And only a start. It needs the engagement of all frontline workers, making them all risk-manager. Your frontline workers are the eyes and ears in the place where most risks and opportunities are born. The volume of their daily encounters with risk and opportunity is high. Much higher than the volume of encounters risk managers have, as they often work from headquarters. Nowadays, from home, with reduced ability to travel to the field. In traditional risk-management practices, risk and opportunity insights only reach the risk-registers when they have aged and matured. When the response options have decreased and the response cost increased.
Companies with a modern risk culture capture early signals, including response strategies across all organizational levels.
And they have implemented ways of working to connect these insights with the resources, expertise and power to act. This increases the ROI of their response strategies and maximizes the value of uncertainty.
A risk management culture is not about managing risks; it is about people learning how to make better decisions. Doing this without the proper tools and interventions is a formidable challenge. Doing it the right way means taking evolutionary steps to get to revolutionary goals.
It means setting out a journey that looks into compliance and risk, behaviours & engagement, learning & continuous improvement, and decision-making as critical elements of risk culture. Such a journey alternates quick wins with more longitudinal interventions.
The implementation means that all must embrace the fact the company will, for example, adapt the way risk committees function and that risk managers take their seats at the executive board table.
It possibly means revaluating people-related processes, such as training, remuneration, and accountability. It means that project managers and business leaders are hold accountable for the risk and opportunity detection and follow-up in their respective areas. Doing this profoundly and visibly will have an immediate impact on the culture. To operationalize a risk culture, leaders must translate this into process changes around the organization and deliberately intervene where it will make a difference to signal the right behaviour.
A lack of risk and opportunities detection & response will lead to trouble. Right now, we see companies tackle risk culture just as thoroughly as any other business challenge. How we perform risk management is not written in the stars, it is not a cosmological constant.
We empower our clients in their transformation of risk and opportunity management, making the impossible possible.