Strategic risk and Strategy as a risk by Marius Meyer and Penny Abbott

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The future workplace leaders will take strategic risks more seriously.  The Deloitte (2013) study on strategic risk clearly indicates the future importance of strategic risk.   Deloitte states: “Although companies around the world have made significant strides to shore up their strategic risk management capabilities, most recognise they still have room for improvement. Given the increasing speed and global impact of risk (and the growing importance of innovation) organisations must be open to any ideas that could enhance how they manage strategic risk – even if these ideas originate elsewhere.”

Strategy has become such an essential component of business, and its importance will increase in future.  However, from a risk perspective, and rather than listing all your operational and other risks, strategy in itself could be a risk.  If there are weaknesses in your strategy, or if there are changes in the external environment impacting on your strategy, either your strategy needs major change and transformation, or it will be obsolete.  Therefore, much more emphasis needs to be placed on ensuring that your strategy is right.   Unfortunately though, very few top management teams have the flexibility, introspection, maturity, agility and resilience to admit that there may be flaws in their strategy.  They would rather put all effort in to make a weak or inadequate strategy work than to redesign strategy.  Staying in their comfort zones, they would rather adapt existing strategy than to develop a new strategy.

The new world of work will require a major paradigm shift regarding the thinking, planning and execution of strategy.  Moreover, a dedicated focus on risk management needs to be infused while developing or redesigning your business strategy.  As Reto Kohler of Barclays states: “When we develop a strategy we think about the risks associated with it, but also what risks are minimized by following that particular strategy.”  Similarly, HR Directors should build on this approach to business strategy by ensuring that risks are built into HR strategy from the start.  Then, rather than reviewing strategy once a year or two, it should be a living framework requiring continuous monitoring, introspection, and if necessary, change and realignment.  The role of the HR leader is also to study overall business strategy and see if the people component features adequately. Likewise, reviewing departmental business plans will be imperative for HR directors to ensure that the people component is strong enough to executive these plans.  In this way, the HR Director fulfils the role of HR risk manager for the whole organisation, and where necessary liaises with the relevant line manager, the CRO or CEO to take matters further.  Also, the HR Director should also pay attention to any risks within the HR function and department and mitigate these risks accordingly, for example policy deficiencies or process failures.

In conclusion,  directors and senior executives should spend more time and focus on strategic risk. In fact, strategy itself, especially if it is ineffective or disrupted, is a risk. This requires more agile and flexible management teams to adapt strategy when strategic risk becomes a reality in business.

Marius Meyer is CEO of the SA Board for People Practices (SABPP), and Penny Abbott is Research and Policy Adviser to SABPP. They were leading the design teams during the development of the leadership standard.  They are authors of the first South African book on HR Risk Management. This article is an extract from the book. More information about SABPP is available on www.sabpp.co.za