Research shows that there is a direct link between business performance and managing risks, as Infinitive Executive Lou DiSerafino explores in depth in this white paper.
Small operational issues can pile up, turning seemingly small problems into significant – even existential – threats to the business.
Clearly, organizations need to be prepared to deal with the side effects of risk, both internal and external. Yet they should also prepare the organization to take advantage of the opportunities and value that effective strategic risk management (SRM) create.
In the video below, Lou lays out five key points that company leaders need to understand about managing strategic risks.
Five Differentiators for Robust Strategic Risk Management
As Lou explains in the video, there are five important things that executives must understand about the strategic risks facing their companies.
1. SRM is about creating value for the organization.
It also reduces uncertainty surrounding the execution of the strategic plan, whereas operational risk management focuses on dealing with unplanned events that could affect operations. However, once these risks impact the brand itself, they become strategic concerns.
2. Strategic risks are not black swans.
Think of Lou’s example of Blackberry. Disruptive competitors such as Apple quickly turned into strategic risks that hurt the company’s long-term vision.
3. People often look for risk in the wrong places.
Many organizations focus far too much on operational and financial risks and not enough on strategic risks (where the biggest potential impacts are). Research shows that strategic risks lead to the big losses.
4. Building a risk-focused culture is key.
Strategic plans that are inherently risk-aware prepare the organization to take advantage of opportunities for advancement as well as to successfully recover from catastrophes. Those organizations that do well in the recovery stage also do well in terms of brand impact and payoff.
5. Successful SRM reduces the uncertainty of success.
A robust strategy for managing strategic risks allows the organization to take the right gambles and have confidence in their plan and outlook. Such a strategy also enables organizations to monitor real-time performance to mitigate the effects of potential threats.
Effective Strategic Risk Management Means a Proactive Approach to Risk
As Lou suggests, there are many benefits to thinking about SRM differently from operational risk management. Strategic risk management takes a proactive approach to risk, focused on both protection and value.
Risk management needs to be comprehensive. Organizations that think of risk management as purely preventative or defensive are missing out the business-enabling benefits.
Effective SRM creates opportunities for value creation by providing better insight into risk, which can allow the business to take better and potentially more risks to move the business forward.