Saturday, April 26, 2014

Risk as a Catalyst to a Growth Strategy

Every risk has opportunities in it, and every opportunity has risks in it. 

Digital brings both significant opportunities and risks to business today. One of the biggest problems with conventional Risk Management is that it tends to focus on risk and ignores opportunities, which will be where the greatest value can be created. Only the high mature companies can take advantage of risk as a catalyst to business growth. From the governance perspective, how to adapt to such digital ‘disruption’ and embrace the opportunities embedded in the changes and transformations?

Manage the risks, but identify some opportunities. Many of the opportunities are in the blind spots. When you are not looking at your blind spots, someone comes in and disrupt you over time. In business, every day is a risk, but when a company embarks on a growth strategy, the risk curve will always be greater than a business as usual approaches. And more than 80% of today's business value is based on their ability to embrace complexity, understand the future, opportunities, decide which one to go after and which one they will not go after and clearly articulate forward the way value will be created.

The majority of the business value is based on intangible assets such as information. Typical risk management programs are based on financials and transactions. Today, more than 80% of the enterprise value is based on nonfinancial assets, the assets that are not currently visible, touchable, hard to quantify; the assets which in a complex digital world are coming and going very rapidly. The intangible factors which are identified as risks need to be clearly defined and given a value. For example reputational risk, client perception, competitor reaction, financial markets perception etc., all have a risk factor which needs to be recognized, and how to capture the insight from those intangible assets is more important than ever.

From risk management to risk intelligence. When boards talk about risk, it’s nearly always referenced as a negative, something to be avoided and certainly minimized within the business model. And today, boards that are still using traditional risk management frameworks and management showing graphs and curves to their board are only moving forward by driving through a rear mirror view. Because the biggest risk for business is beyond those traditional graphs and curves. In fact, companies that are still stuck with their old ways run the risk of being rapidly disrupted. The risk management needs to lift up from risk control to risk intelligence which can identify the potential business growth opportunities.

A multiplier of reward to the investment needs to be established based on a defined payback period. For example, the longer the payback period, the higher the risk; as the original assumptions upon which the investment is based will be subject to greater variances in marketplace conditions. The board needs to ensure that they have a clearly defined monitoring program for each investment.

In order to achieve risk intelligence and take the risk as a catalyst to growth strategy, a harmonic, forward-looking approach to manage opportunities and risks has to be put at the heart of the new 21st century.


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