Every organisation operating in the Connected World needs to know and understand their exposures. Yet, for such a simple idea, many organisations fail to do this. This ranges from failing to accurately identify their risks in their annual report to not embedding a corporate risk culture across all departments and operations.
Consequently, this lack of information flow will mean that organisations are often slow to react to modern perils such as cyber, geo-political, environmental and other risk drivers, just at the moment when these potentially disruptive forces are becoming ever more powerful.
Risks that are occurring in real-time. can be locational (e.g. local weather, economic status and regulatory) and cross border (e.g. capital, supplier, currency and cyber nature).
The guiding philosophy of any organisation is to turn a negative loss into a profitable opportunity. This can only be achieved with a transparent information flow. Such a climate would allow an organisation to predict the effects of change as they begin to happen and test those predictions against what is really happening. Let’s take an example where you have unlimited processing power, network speed and data; in other words, a frictionless information environment. Now the information is frictionless we can ask where we are against our plan, map this against where we expected to be, model what have we learnt, recalibrate the plan and restart for the next quarter. So now each quarter we have the original plan, actual plan, and the recalibrated plan. This sort of information can help drive huge costs out of a business while also increasing ROI. An obvious benefit is that as speed of execution increases corporate decision makers can react quicker according to what the business needs not what it thinks it needs. This will allow corporate to chase opportunities and put resources where they actually need them. The first people to do this effectively will have genuine competitive advantage.
Organisations need to understand the whole connected universe along with the business environment they are operating in. This will inform their business strategy that customers, suppliers, partners and competitors are all connected.
Finally, where does risk management fit in all of this? Well, risk management is crucial for any organisation as it plays its part in setting the strategy in dealing with new risks, barriers to entry etc. Only by understanding and managing risks, can a sustainable business be created. At the heart of this is aligning risk management with business strategy. An alignment symbolised by the head of risk reporting directly to the CEO, as the risk landscape is interwoven into the corporate landscape. For now, the corporate balance sheet is interconnected in the sense that it is reliant upon the success of other operations, outside an organisation’s control. Similarly, tensions and contortions exist within a business network, as an organisation cannot grow without support from its partners, a challenge that can be overcome with data, which equals knowledge, which in turn delivers power – the power of connected risk.