It requires a fresh perspective to treat risk management as an enabler of strategy and strategic initiatives; however, it also requires business acumen. And business acumen turns out to be in short supply.
In his 2007 book, Oliver Wyman partner Adrian Slywotzky shows how companies like Apple and Toyota reaped great gains by treating risk as a threat as well as an opportunity. These organizations applied the same rigor to systematically chase the good stuff (opportunity) that most companies employ when dodging the bad stuff (threats).
For example, Slywotzky found that the Toyota team charged with creating the Prius reduced the project’s probability of failure from 95 percent to 20 percent. This systematic “upside risk management” helped Toyota trounce Honda (and its Insight) out of the initial hybrid gate.
The book’s title? The Upside: The 7 Strategies for Turning Big Threats into Growth Breakthroughs (Crown Business, 2007).
A recent survey conducted by the Economist Intelligence Unit, and sponsored by strategy implementation consulting firm BTS, suggests that the upside has a major downside. This should be of major interest to finance and risk management professionals, many of whom have helped shepherd their organizations toward a new understanding of risk.
It requires a fresh perspective to treat risk management as an enabler of strategy and strategic initiatives; however, it also requires business acumen. And business acumen turns out to be in short supply, according to the EIU/BTS survey results:
BTS defines business acumen as “an intuitive and applicable understanding of how a company makes money.” This understanding has three components:
Strategic Perspective: An overall big-picture understanding of the business; the critical interdependencies across functions and divisions; and the short- and long-term trade-offs of decisions.
Financial Acumen: A comprehensive understanding of: the drivers of growth, profitability and cash flow; a firm’s financial statements; key performance measures; and implications of decisions on value creation.
Market Orientation: The ability to analyze and synthesize market and competitive data; a deep understanding of the customer’s business objectives and purchasing criteria; and an appreciation of the value of each customer to the company.
The analysis of the survey findings emphasizes that this acumen gap is an enterprise-wide issue. That said, the acumen gap likely has some unique twists within the corporate finance and risk-management realm, where financial acumen is no doubt in high supply.
The question for finance and risk managers centers on strategic perspective and market orientation. This research raises several specific questions for finance and risk management managers, including the following:
Addressing these questions may help your function, and your organization, more effectively harvest the upside of risk.