Risk Enabled Strategies provide direction to your firm regardless of what unexpected events happen.
Andrea Ovans in “What is Strategy, Again”, Harvard Business Review (2015) describes “Strategy… is a matter of working out your company’s best position relative not just to pricing pressures from rivals but to all the forces in your competitive environment.”
Risk Enabled Strategies take this one step further.
The traditional strategy development approaches emphasize focus. Identifying who your customers are, what value you will provide them, and how you will compete. In doing so, you make several necessary assumptions. What happens to strategy when the key assumptions are wrong or change? Firms find themselves in crisis management rather than guided by the strategy. This can happen fast, and it can happen slowly. COVID 19 was a fast event. Online shopping was slower. Both events were unexpected and challenged strategies. When a strategy lacks a robust assessment of the risks, it is doomed to be challenged by the unexpected. A Risk Enabled Strategy provides clear direction in both expected and unexpected circumstances.
SWOT Analysis (Strengths, Weaknesses, Opportunities, and Threats), commonly part of strategy development, does not adequately identify risks. It is too general a framework and influenced by the biases of the participants. However, Risk Management does work. It systematically identifies, evaluates, and plans on how to manage the risks while reducing biases. Incorporating Risk Management into strategy development will lead to Risk Enabled Strategy.
Through Risk Management, by systematically considering a range of potential future situations (risks), you can enhance your strategy in three ways:
- You can identify opportunities missed using traditional strategy development approaches
- Your firm will be less distracted asking “What if…” because you will already have provided answers.
- Your strategy will be more resilient and able to provide direction regardless of what unexpected events occur.
Risk management finds new opportunities. By understanding what could happen, you can determine how best to respond. The impact of an unexpected event on a firm is more influenced by how the firm responds than the event. Take online shopping. Amazon created an opportunity. Department stores a threat. The reason: Department stores failed to recognize that their core assumptions about what consumers wanted were wrong.
Risk Management helps teams focus on what matters. Individuals, based on their experiences, will wonder about potential outcomes (risks). When the firm does not provide direction on these, the individuals will expend greater effort worrying about the “What ifs”. Unchecked, this worry leads to employee disengagement.
Risk management creates resilience. A Risk Enabled Strategy includes the focused plans we are familiar with and it includes a solid, relevant set of contingency plans for the unexpected. Risk Management also provides the tools to monitor these unexpected events and provide advance notice. When the unexpected happens, the team knows what to do, and acts with pace, often achieving competitive advantage.
Risk Enabled Strategies include both a clear focus on what you want to achieve and a robust understanding of what could happen. Your firm will:
- Become more focused on the key objectives of the strategy
- Identify new opportunities
- Increase employee engagement
- Increase operational resilience