Five key steps for managing future business risk
The route to business success is strewn with the debris of failed corporate giants who failed to plan for the future and prepare for the disruptive new technologies that lay ahead. But how do boards create the strategies they need for an uncertain future? How do they manage the risks before they appear? And, how do boards understand what intelligent automation will mean to their business? In this blog, I aim to provide the answers.
When Darwin wrote his famous theory it was about human evolution, but it applies equally to company evolution. If you look at the list of most valuable companies in the world today against the list of 20 or even 10 years ago, then it is clear that there have been major changes in the rankings. Some companies seem to have come from nowhere and some have gone for ever.
There are clearly a number of reasons for this but, if you analyse the winners and losers, it is clear that technology plays a major role. Most of the big winners are technology companies, but so are some of the losers like Kodak who did not see the threat coming.
These companies were steered by boards who avoided the big business risks. I’ve no doubt they did a great job of focusing on the small risks. Is your company one of them?
Understanding business threats and opportunities
In my last blog I looked at the threats and opportunities of intelligent automation and said that boards should take these very seriously. All the evidence that I have gathered so far talking to people on this topic is that, far from taking the issue seriously, boards are either not recognising there is an issue or are choosing to ignore it.
For the reasons I explained in my last blog, this is really not an option because in technology races the laggards lose. So if you are on a board, what should you be considering and more importantly how? Very few boards have a process for looking at the threats and opportunities that face them, that is probably the reason why half of companies fail.
How do businesses plan for the future?
So how do you create a process that is relevant to your industry?
Firstly think about how you currently look at the future. You probably have two processes:
1. The risk management process. After all, the competition from intelligent automation is a straightforward business risk. It may be a risk unlike the others that you routinely think about but it is a risk nevertheless. So you will/should have a process for looking at risk.
2. The strategic planning process. You almost certainly have some form of annual process for planning in the medium term.
The problem with both these processes it that they look at the blindingly obvious and are bottom up, they start from where you are. “What happens if the factory burns down?” “what if the Chinese economy explodes/implodes” etc. Neither of these is particularly helpful when you are looking at the Rumsfeldian “unknown unknowns”.
Mckinsey, in an interesting article called “Rethinking the role of the strategist”, noted “we’ve sensed a growing recognition that traditional strategic-planning processes are insufficient to absorb the shocks and disruptions characterizing their markets”
How does a board plan for the future?
So if what you have is not fit for purpose, then how does a board create and drive a new type of strategic process?
1. Realise that this must be driven by the board but also that the board is highly unlikely to have the knowledge or expertise to drive the debate on how intelligent automation could transform your business. Realise also that this is not a once a year issue but an ongoing debate where you will need to constantly review your plans.
2. Create a small group of senior people who are trusted by the board (and ideally will contain some board members). This group needs to meet and report back regularly. It needs to have the time and funding for market and technology research and it needs to understand the criticality of what it is being asked to do.
3. Get some outside help to provide information and to help you with the questions you need to ask. Do NOT hire consultants to tell you the answers for your industry, only you can do that. What good externals can do is to give you a broader perspective on what technologies and applications are being developed that could be a threat to your business.
4. Get all the internal input you can. Take a broad view of this. Look at how you can use social media within the company to get input from younger, junior levels within the company. These are the digital natives. They understand technology in a way that the digital immigrants (that’s you) do not. Take them seriously.
5. Allocate time quarterly for board briefings and debates. Don’t have time in your busy governance cycle? Realise that the threats and opportunities from intelligent automation will transform your company. If you are taking your responsibilities as a board seriously then you will want to drive that transformation.