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Currently viewing the tag: "Risk Management"

When things go wrong on a grand scale, often we direct our attention to the role of the Board. Debate exudes and often gets heated up and pic 1 Long-term Mindsetintensifies. This often happens when the Board spends more time looking in the rearview mirror and not enough scanning the road ahead. When this happens, governance suffers.

Often, the Board of Directors spend a bulk of its time on quarterly reports, audit reviews, budgets, and compliance.  However, with the change in the business environment, there is a greater need to redirect the Board’s attention on matters crucial to the future prosperity and direction of the business. One of this is Strategy Development.  Achieving this requires the development of a dynamic Board with a long-term mindset capable of creating forward-looking agenda and activities that get sufficient time over a 12-month period.

The Changing Board Agenda

The Board Agenda is changing. It is becoming more dynamic and it has increasingly highlighted forward-looking activities.  Long-term economic, technological, and demographic trends are radically shaping the global economy. The second Industrial Revolution now requires the Board to shift focus. The Board is now challenged to focus on matters crucial to achieving Operational Excellence and the future direction of the organization. Directors must devote more time to strategic and forward-looking aspects of the agenda. They must cease seeing the job as supporting the CEO, but instead, be strategic in making sure long-term goals are formulated and met.

Having a forward-looking Board has now become every organization’s imperative.  However, this can only be achieved if there is a solid foundation that is anchored on three guiding principles. Organizations must have the right Board Member, a clear definition of the Board’s role, and greater time commitment from members. At this time when a long-term mindset has come to a fore, these have become essential.

Developing a Long-term Mindset: The 4 Essential Tactics

“Strategy without tactics is the slowest route to victory. Tactics without strategy are the noise before defeat.” – Sun Tzu

Organizations can undertake 4 essential tactics to encourage the Board to have a long-term mindset.

pic 2 LOng term MIndset

  1. Study the External Landscape. This is the starting point of creating a forward-looking mindset. The primary purpose of this tactic is to expose the Board to new technologies and market developments relevant to the company’s strategy. Studying the external landscape will challenge management with critical questions.
  1. Participate in Strategy Development. This tactic focuses on making strategy a vital part of the Board’s DNA. Participating in the Strategy Planning process will strengthen the Board’s role in co-creating and ultimately agreeing on the company’s strategy.
  1. Focus on Long-term Talent Development. The third tactic, this tactic focuses on unleashing the full power of the people. It will effectively reallocate skills and experience to a business with more potential.  To achieve its expected result, the key is the Board must agree with management on a sensible approach to reviewing executive talent.
  1. Identify Existential Risks. This is the tactic that focused on the Risk Management of existential risks. Because of accelerating technological progress, existential risks have become a recent phenomenon. Existential risks have a great detrimental impact not only on business but also on mankind. The Boards have the duty to ensure that management teams pursue bottom-up investigations, identify key risk areas, and act on the results.

The 4 tactics are essentially effective in creating long-term mindsets.  When this is achieved, Board Excellence is never far behind.

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The pressure on Boards and Directors to raise their game has remained acute. A survey of more than 770 directors from public and private expert panel piccompanies across the industries around the world suggested that some are responding more energetically than others.

There is a dramatic difference between how directors allocate their time among boardroom activities and the effectiveness of the Boards. One in four directors assessed their impact as moderate or lower, while others reported as having a high impact across Board functions.

Today, the call to become more forward-looking and achieving Board Excellence is further highlighted. This is further emphasized when the Board and Management are pressured to find the best answers to global business concerns and issues. In Strategy Development, this becomes invaluable. It does not only lead to clearer strategies but also the creation of alignment essential in making bolder moves.

While these are essential, there is a need to raise the quality of engagement on strategy between the Board and Management for each group to achieve smarter options. This is possible only if organizations have high impact, strategic Boards in place.

High impact, strategic Boards have a greater impact as they move beyond the basics and face increasing challenges.

The Challenges that Today’s Board Face

Business is fast-changing and rapidly transforming. The global economy is increasingly pushing businesses, as well as the Board to face a gamut of challenges.

What are the 2 main challenges facing Boards today?

First is Time Commitment. Working at a high level takes discipline – and time. In fact, the greater time commitment is expected on high impact activities. The Board often have 6 to 8 meetings a year. As a result, they are often hard-pressed to get beyond the compliance-related topics to secure the breathing space needed for developing a strategy.

Often, it is the very high impact Directors who invest more time compared to moderate or lower average Directors.

Who are your very high impact Directors? They are those spend a total of 40 days a year working for the Board compared to 19 days of low impact Directors. An extra 8 workdays a year is invested in strategy and an extra 3 workdays a year are spent on Performance Management, M&A, Organizational Health, and Risk Management.

High impact Directors who believe that their activities have greater impact spend significantly more time on these activities compared to low impact Boards.

Second is Strategy Understanding. Why is Strategy Understanding a challenge for the Board? Limited understanding of the organization’s strategy can result in the Board’s limited engagement with the organization. Based on the survey made, only 21% of the Directors have a complete understanding of the current strategy. Often, Board members have a better understanding of the company’s financial position rather than its risks or industry dynamics.

If we look at high impact Directors, they invest more time in dealing with strategic issues. In fact, they invest 8 extra workdays a year on Strategic Planning and discussing strategy compared to low impact Directors. High impact Directors center on Strategy Focus Areas which can, in turn, spur high-quality engagement from the Board on strategy development. The quality of Board engagement on strategy is enhanced, both when the engagement is deep and during the regular course of business.

The Board just needs to focus on 3 areas of discussion for the Board to enhance Strategy Development. One of them is Industry and Competitive Dynamics.

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The use of the Internet and other online tools have turned consumers to be more empowered and are now shopping differently. Customers are customer centric culture 1becoming more demanding and accustomed to getting what they want.

With greater access to reviews and online rating, customers are better equipped to switch to new products and services. Consumers now want to buy products and services when, where, and however they like. They expect companies to interact with them seamlessly, in an easy, integrated fashion with very little friction across channels.

As customer expectation continues to evolve–accelerated by the amplifying forces of interconnectivity and technology–markets are becoming increasingly fragmented with demand for greater product variety, more price points, and numerous purchasing and distribution channels.

Companies should be able to adapt to these increasingly disparate demands quickly and at scale. Staying close to the Customer Experience across an increasingly diverse customer base changing over time is no longer a matter of choice. It is a business imperative and a matter of corporate survival.

The Age of the Customer now calls for companies to be a Customer-centric Organization. Successful ones have discovered that driving customer-centricity depends, first and foremost, on building a Customer-centric Culture.

The Case for Customer-centricity

In the Age of the Customer, business as usual is not enough. Customers expect companies to interact with them seamlessly. Customers want companies to anticipate their needs and technology must have lowered barriers to entry to allow unorthodox competitors to disrupt markets.

The Age of the Customer has made it imperative for companies to have a customer-centric culture. A Customer-centric Culture can empower and control employee behavior. It is a culture that prioritizes the common understanding, sense of purpose, emotional commitment, and resilience. It is a culture where leaders and employees understand the company’s brand promise. Finally, and most importantly, a customer-centric culture is a culture that is committed to delivering exceptional customer experience.

Companies with a Customer-centric Design must integrate, within its core, primary and secondary cultural attributes essential to complete its customer-centric culture framework.

The Corporate Culture Framework: Its Primary and Secondary Cultural Attributes

In a customer-centric Corporate Culture framework, the primary cultural attributes are critical in building a customer-centric culture. It also has 4 Secondary Cultural Attributes to complete that transformation.

The 4 Primary Cultural Attributes

  1. Collective Focus
    This is a shared vision articulated on what it means to deliver great customer service. Significant resources are devoted to communicating the customer value and all employees understand their role in delivering value.
  1. External Orientation
    External Orientation is having a full understanding of the company through the customer’s eyes. Outside-in perspectives are taken, seeing themselves as customers see them.
  1. Change and Innovation
    In Organizational Change and Innovation, the corporate value system is in place that values failing fast and learning quickly. The notion that mistakes are learning opportunities is embedded in the organization.
  1. Shared Beliefs
    Shared Beliefs is an attribute where employees share a common ideology and commitment to core values. The company strongly encourage strong service mentality and the desire to help others.

The 4 Secondary Cultural Attributes

  1. Risk and Governance
    In Risk Management and Governance, the company must have a strong collective focus and shared beliefs about the boundaries of acceptable risk and appropriate behavior.
  1. Courage
    A Customer-centric Culture with this secondary attribute has the resilience to bounce back when things don’t go as planned.
  1. Commitment
    Commitment is the third secondary attribute where employees show dedication to the customer-centric ethos.
  1. Inclusion
    Inclusion, the fourth secondary attribute, is one attribute that reinforces values diversity, authenticity, and uniqueness.

Inculcating these attributes has become imperative to achieve a successful transformation towards a Customer-centric Culture. Strategy Development now requires organizations to master the necessary practices to instill these attributes and the essential reinforcement to ensure that it is sustained.

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Companies face increasing pressure from governments, competitors, and employees to play a leading role in addressing a wide array of CS sources of value pic2environmental, social, and governance issues in a company’s supply chain. It could range from climate change to obesity to human rights.

For the past 30 years, companies have responded by developing corporate social responsibility or sustainability initiatives to fulfill their contract with society by addressing these issues.

However, gathering the data needed to justify sustained, strategic investment in programs can be difficult.  Yet, without this information, executives and investors often see programs as separate from a company’s core business or unrelated to its shareholder value. While there are companies that have made progress tracking operational metrics or social indicators, they have difficulty linking such metrics and indicators to a real financial impact.

Needless to say, there are companies that are creating great value through environmental, social, and governance activities.  Increased sales, decreased costs, and reduced risks are being achieved.  Environmental, social, and governance programs can create value in many other ways. We just need to know where and how.

What is Corporate Social Responsibility

Corporate Social Responsibility (CSR) or sustainability initiatives are undertaken to fulfill contracts with society to respond to environmental issues. Environmental, social, and governance refer to a broader set of CSR Programs.

 Sustaining strategic investments in CSR Programs can be a challenge but there are already leading companies that are generating real value through environmental, social, and governance activities.

The Dynamic Ways of Creating Value

CSR Programs can create shareholder value. It is just important that companies must broaden their legitimacy in societies where they operate.

 

  1. Growth. As a source of value, Growth can be expressed in terms of New Markets, New Products, New Customers, Market Share, and Innovation. When this is created, it can deliver higher brand loyalty, reputation, and goodwill with stakeholders.
  1. Return on Invested Capital (ROIC). ROIC is generated when there is operational efficiency and workforce efficiency. When this is achieved, it can result in better workforce skills and increased productivity through participation in ESG activities.
  1. Risk Management. Risk Management is a source of value. It can be achieved when risk is lowered when compliance with regulatory requirements are achieved.  Public support is achieved and the ability of your company to secure consistent, long-term, and sustainable access to safe, high-quality raw materials and products are established.
  1. Management Excellence. Management Excellence can have an impact on leadership development, adaptability, and long-term strategic view. These are 3 key areas that investors consider most important when evaluating potential partnerships.  With Management Excellence, a value can be generated from these areas.

A Look at IBM: A Clear Example of CSR as a Source of Value

IBM has been recognized globally as one of the leading companies when it comes to Information Technology.  In creating new markets, IBM used Small and Medium Enterprise (SME) Toolkit to develop a track record with local stakeholders, including local governments and NGOs.  Free web-based resources on business management were provided to SMEs in developing economies. A total of 30 SME Toolkit sites were developed in 16 languages.

As a result of this initiative, IBM’s reputation and relationships in new markets improved.   Likewise, the relationship with companies that are potential customers was developed.  The strategic approach of IBM in creating markets through its CSR has provided IBM much value in creating and developing relationships which are essential in new markets.

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Big cross-organizational change can be difficult and not all organizational transformation is the same. Lean-led Transformation pic 1

Rapid advances in technology, a growing global creative workforce, and market with fewer and fewer barriers to entry are driving a hyper-creative volatile marketplace.  New ideas are making established business positions obsolete at an increasing rate.  Products and services that survive are exposed to commodifying price pressure.

The world has started to repeatedly demand operational excellence not only in innovation but in the delivery of customer service.  Continuous improvement has been deeply emphasized with the increasing demand in the marketplace. Companies must recognize the fundamental market shifts that are occurring and must learn to respond effectively.  This can be done by building an organization that discovers, shapes, and brings Lean-led Business Transformation to scale as part of its core business direction and purpose.

Lean-led Business Transformation provides the business the institutional capability and framework to adapt to rapidly changing opportunities

Understanding the Lean-led Approach

An approach based on Lean Thinking provides business tangible results that are evident in financial performance, customer and employee satisfaction, and risk mitigation.

Lean-Led-Transformation-Approach-595

From Lean-led Approach to Lean-led Transformation

Companies are increasingly under pressure to cut costs and grow. Applying the Principles of Lean Management allow companies to fundamentally transform their operating models.

Using a Lean-led Business Approach, the company can effectively undertake a Lean-led Business Transformation.  An effectively undertaken Lean-led Business Transformation can help the company build a robust, factual understanding of its current state, exposing improvement opportunities to design an end-state operating model with enabling capabilities.

In effect, the company can achieve insurmountable results that competitors will find difficult to follow.

  •  The company will achieve best-in-class efficiency.
  • It will reduce client, financial, and regulatory risk.
  • It will create measurable client impact.
  • It will lead the company to scale-up with growth.

A Lean-led Business Transformation embeds continuous improvement in the organization. It engages employees to help business leaders successfully govern and execute change.

What Companies are Facing Today

Changing market trends have pushed companies towards Lean-led Transformation.  These market trends are adding pressure on companies to simultaneously cut costs and grow.

  1.  Commoditization of Basic Services. The value of basic stand-alone services is declining leading to the increase in integrated services. As a result of the trend, there is a decreased unit margin per transaction
  2.  Increased Complexity and Globalization of Investments. There is growth in cross-border activity, alternative investments, and alternative exchanges. As a result, technology and compliance investment requirements are changing. Likewise, it has opened an opportunity for growth and revenue diversification.
  3.  Stricter Regulation. There is increased regulatory oversight such as consumer protection.  As a result, new processes and technologies need to comply with regulations.  There has also been an increased client need for advisory services.
  4.  Increasing Focus on Risk Management There has been an increase in risk aversion and a demand for risk management. In effect, new risk assessment capabilities and oversight practices have been developed.
  5.  Change in Consumer Behavior There has been reduced willingness to incur debt as well as deterioration of trust and customer loyalty. Because of this trend, businesses have been experiencing declining profitability and increased competition for creditworthy consumers.

These changing market trends are here to stay and more trends will soon evolve and affect business.  Failure to heed these market trends can lead to decreased margins and profitability that can be highly detrimental to business.

Undertaking this form of Business Transformation can drive businesses to undertake executable Lean Programs that will strengthen their capability to meet these challenges.

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