Improve Corporate Performance through Risk Management

Enterprise reinvention and enterprise risk management have been a challenge to implement in many large organizations. The key to unlocking the potential of both is to understand and overcome why the traditional implementation approach consistently struggles.

The underlying problem is that we have been trained on, and most companies have been built upon, the "scientific management" principles from the early 1900's. These are the principles that were designed for the Industrial Age--and produced wonderful results for that type of work (e.g. rigid quantitatively based procedures resulting in the automation of manufacturing processes via assembly lines). But the dynamic nature and complexity of our large and globally interdependent companies have changed dramatically since then.

Most companies have continued with and further tried to automate their scientific management approaches. Unfortunately, this isn't working very well. For example, with large enterprise technology projects, the Standish Group consistently finds that they underperform 70 percent of the time. These enterprise programs, implemented using objective scientific project management practices, have not resulted in "reengineered" companies as promised. They have more often resulted in "over-engineered" organizations--with frozen decision-making processes and company routines.

After researching enterprise reinvention for the book Reinvent Your Enterprise for nearly a decade, it's clear that companies must manage enterprise-wide initiatives differently. Moving beyond scientific management, and consistent with the work of legendary management thinker Peter F. Drucker and more than 200 industry experts, it's clear that enterprise reinvention needs to be managed differently--and this requires the same enterprise view as is required for effective enterprise risk management.

Reinvention Requires that we Systematically Move from the Industrial Age to the Knowledge Age

Legendary management thinker Peter F. Drucker was the first to identify the need to transcend scientific management in the Knowledge Age. The implications for enterprise reinvention and enterprise risk management are significant. Where companies have historically been able to improve results through specialization, successful reinvention requires a much greater emphasis on unification and facilitation--moving from managing the parts to leading the whole. This requires a different approach:

• Start with Your Customer

Every company's enterprise view and strategy needs to start with customers. Most executives agree with this tenet philosophically, but few enterprise reinvention and enterprise risk management programs follow this in practice. This requires that executives clearly establish, articulate, and integrate: where your company intends to go and why.

• Be holistic and systematic

Another principle to incorporate is to be both holistic and systematic. Without a shared enterprise view to guide companies in continually changing environments, companies often get stuck by focusing on the parts instead of the whole. When competitive and organizational situations change, executives get caught working on the wrong things--on areas that used to be important but are no longer the bottlenecks.

• Don't Forget Your Community

A third insight--important for sustainable enterprise reinvention and effective risk management--is to systematically manage social roles. Companies are the only true economic engines for society, and strong communities are the only source of sustainable profits. When companies don't formally integrate into their communities and--instead--view themselves as separate entities, enterprise risk profiles will inevitably increase.

Integrating Enterprise Reinvention and Enterprise Risk Management

Enterprise risk management is an important tool for sustainable competitive advantage. Similar to the market and the enterprise itself, a successful enterprise risk management program requires holistic and systematic processes to support the following:

• Envision: An Enterprise strategy linked to customer needs, with defined operational implications, and well-articulated enterprise guidelines for managing risks and opportunities.

• Design: Formal risk mitigation and opportunity sensitivity analysis/monitoring/reporting.

• Build: Enterprise-wide controls, processes and infrastructure.

• Operate: Well-established personal roles and motivations for people to act in the best interests of their companies--at the enterprise level--through proper incentive structures.

For companies to successfully reinvent themselves, the enterprises can't be viewed as the sum of their parts. The enterprise overall is the goose that lays the golden eggs. Similar to a brand, it needs to be holistic, integrated and relevant--and continuously adapt through successful and accelerated enterprise projects.

To improve your company, try taking your enterprise reinvention and enterprise risk management program to the next level. Integrate "Envision-Design-Build-Operate," as detailed in the book, to achieve your objectives through a shared enterprise framework, integrated roles and responsibilities, and adaptive monitoring/sensitivity analyses. Then, holistically address risks through independent program assessments to diagnose and correct identified weaknesses and take full advantage of new opportunities.

Given our rapidly changing and hyper-competitive business environment, there has never been a better time to reinvent your enterprise and your enterprise risk management program. This will require a different approach than the scientific management methods that worked so well in the Industrial Age. The new knowledge-based approach is at the heart of systematic and sustainable enterprise reinvention. The best time to start your reinvention is today.

Jack Bergstrand is author of Reinvent Your Enterprise, creator of the Strategic Profiling enterprise project acceleration instrument and the Action Planning workshop, and founder of Brand Velocity, Inc.--the project acceleration company. Prior to founding Brand Velocity, he was chief information officer of The Coca-Cola Company, board member of Coca-Cola Nordic Beverages, and chief financial officer of Coca-Cola Beverages Ltd.

This story, "Improve Corporate Performance through Risk Management" was originally published by CIO.

Copyright © 2010 IDG Communications, Inc.

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