“The future belongs to those organisations that can integrate strategic management, risk management, enterprise performance management, and integrated reporting. Get them all right and you own the future. Integrating these disciplines is becoming the essence of true strategic risk management.” – Andre Bezuidenhout, Risk Management and Compliance Department, SA Reserve Bank (SARB).
Managing risk has always been a touchstone of the most successful companies. However, in today’s risk-filled business environment, it can be hard for executives to have confidence that their plans and strategies will play out as expected.
A big reason for this is that strategic risks – those that either affect or are created by business strategy decisions – can strike more quickly than ever before, hastened by rapid-fire business trends and technological innovations such as social media, mobile and big data.
“Risks are increasing both due to the evolution of the business landscape, new technologies and the interconnectedness of global and local economies. As a result, companies have access to vast quantities of data. Additionally, this has been met with advances in technology that allow businesses to use this data to make intelligent decisions in the face of the new risk environment, where fast decision-making has become critical to survival,” says Colin Hill, Senior Solution Manager: Risk Management and Financial Crimes at SAS South Africa.
Companies that fall behind on the innovation curve may quickly fall prey to innovation’s evil twin: disruption, which is one reason why managing strategic risk has become such a high priority for many of South Africa’s executives. Organisations are focusing more aggressively on strategic risk, explicitly managing it rather than limiting their focus to traditional risk areas such as operational, financial and compliance risk.
They are also taking a broader view of strategic risk; instead of merely focusing on challenges that might cause a particular strategy to fail, the emphasis is on any significant dangers that could affect a company’s long-term positioning and performance.
Reputational risk is seen as the biggest risk concern globally and has become increasingly prominent in South Africa, primarily due to social media. Online platforms enable instantaneous national and global communication, which has given stakeholders across the board the ability and power to damage an organisation’s reputation. It is harder than ever before for companies to control how they are perceived in their marketplace, and some have felt the negative effect of a damaged reputation on their balance sheets.
Additionally, risks specifically related to South Africa include economic trends, talent acquisition and retention, political legislation trends, business models, energy and service costs and supply, and labour relations and union activity.
These risks have provided a stark reflection on some of the local strategic challenges faced by domestic companies, who often cite human capital, innovation, collaboration and innovation as their top strategic assets.
Companies are confronted by what Tom Friedman, Op-Ed columnist for The New York Times, called “The Great Infection”, a hyper-connected world grounded in social media, cloud computing, ultra-high-speed bandwidth, 4G wireless and mobile devices. This makes managing risk a growing necessity in the country.
Changing how strategic risk is managed
In the past, many South African organisations focused on embedding the process of strategic risk identification. However, it is becoming increasingly more about how to change business strategy, as well as both manage and take advantage of strategic risk. There is also a significant focus on local challenges, and the top strategic risks are focused on corruption, fiscal crisis, credit rating downgrades and economic slowdown or a recession, all increasing the likelihood of strike action.
These key strategic risks are emblematic of the significant challenges faced in South Africa and how risk is continuing to reinforce the lack of competitiveness of local companies against global organisations.
Given that geographic expansion is often a top strategic initiative, South African companies also see both the threat and the opportunity in technology disruptors on their future business.
Future of South Africa’s Risk Management
In an era where risk is a major reality, South African companies have sought new capabilities and approaches to strategic risk management.
In particular, they are now considering a much broader set of risks and strategic assets, which include people, intellectual property, customers, marketing efforts, and even “the crowd.” Yet these risks and assets are often much more difficult to measure, capitalise on, and hedge against, thus demanding a much more systematic and sustained approach to monitoring and managing uncertainty.
South Africa’s companies should look outside of their traditional corporate structures to address the risk challenges of the future today and adopt more of an “outside-in” perspective when assessing their strengths, challenges, and opportunities.
This will require a fresh focus on gathering data and appreciating external perspectives from “outside” sources, including customers, online influencers such as bloggers, information trendsetters, and marketplace and security analysts. It will also demand learning from their competition.
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 those ideas originate elsewhere. To operate with confidence in an expanding universe of strategic risk, companies need to explore every possible advantage.
For South African organisations this idea is even more critical given the increasing impact of global risks on local strategy and the growing need to compete in an open global marketplace. Looking ahead, it will not be an easy road, especially given how perceived future risk challenges the areas of leadership, technology and strategic alliances.
South African companies do, however, see future investment potential in human capital, innovation through collaboration, as well as partnering with other organisations in terms of the innovation pipeline. If these are driven as core components of their business strategy, they will ensure a greater competitive advantage overall in the global market.