CREDIT: LinkedIn
Companies across the globe have become more vulnerable to sudden geopolitical crises, unexpected competitors, and natural disasters. We recently sat down with Robert S. Kaplan, Marvin Bower Professor of Leadership Development, Emeritus, and Senior Fellow at HBS, and Herman B. (“Dutch”) Leonard, Eliot I. Snider and Family Professor of Business Administration at HBS and George F. Baker, Jr. Professor of Public Sector Management at HKS, to discuss how the Risk Management for Corporate Leaders—Virtual program can help executives turn unexpected risks into new business opportunities.
What’s The Main Focus Of The Risk Management For Corporate Leaders—Virtual Program?
This program centers on the principle that risks are inherent to strategy: no risk, no return. Companies able to anticipate and manage their strategy risks can take on riskier strategies with higher expected returns. Accordingly, we focus on how to help companies identify, assess, understand, mitigate, and manage the inherent risks in their strategy as well as those that are unanticipated, often from external events. The case method allows participants to take a deep dive into a company-specific situation and see how risks emerge, how to cope with them, and how to turn them into opportunities.
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What Are The Benefits Of The Virtual Program Format?
We designed the program for risk and critical incident managers, senior line managers, and board members. These executives, responsible for risk and crisis management, may find it challenging to be away from the office for 7 to 10 consecutive days to attend a one-week program on the HBS campus. By offering Risk Management for Corporate Leaders in a virtual format, individuals and executive teams can participate while maintaining continuity with their workplaces and families. Additionally, we can bring in more guests and protagonists and increase the variety of functions and industries represented during breakout group discussions and in after-class, informal meetings with faculty. The virtual format offers a streamlined opportunity for teams to participate together and eases the constraint of visa issues for some international participants. We believe a more diverse class, in addition to time and cost savings, will create value for participants and their companies.
How Does This Program Differ From Others On Risk Management?
Other risk management programs focus only on compliance with external regulations and standards. Our unique approach not only includes the management of compliance and operational risks but also features the firm’s strategy as the central component in the risk management function. These strategy risks cannot be avoided completely, but our program reveals how they can be anticipated and their likelihood either reduced or their impact mitigated. We also explore emerging or “novel risks”—unusual events you don’t anticipate that suddenly and unexpectedly happen. For example, one of our cases describes a technology company whose supplier of a core, proprietary technology had just been purchased, unexpectedly, by its largest competitor. How does the company anticipate and respond to such an event?
How Can A Company Prepare For These Novel Risks?
A company typically has no control over the many external risks that can adversely affect it. But the company can still reduce the impact of such uncontrollable external risks so long as it anticipates them and has already created a team ready to rapidly respond to them. Nokia effectively responded to a potential supply crisis when its “Chief Worry Officer” envisioned what could go wrong and took quick actions before the crisis developed.
What Are Two Specific Cases That You Use In The Course?
Our colleague Eugene Soltes conducts a session that analyzes how corporate executives, such as Bernie Madoff and Jeffrey Skilling of Enron, ended up in prison for fraudulent actions. These lessons help companies avoid such compliance failures, which often lead to corporate bankruptcy. We also feature cases on how companies have responded, both well and poorly, to natural disasters such as the nuclear accidents at Three Mile Island and the Fukushima Daiichi power plant of Tokyo Electric.
In The Program Curriculum, You Talk About Turning These Risks Into Business Opportunities. How Is That Done?
When companies get involved in this new approach, they find that there is both risk and opportunity. During Hurricane Katrina, national and local government agencies couldn’t get supplies to stranded people. But Walmart and Home Depot could. They anticipated the crisis, stocked their distribution channels with emergency supplies, and mobilized their people already in the affected communities. So, what initially appeared as a major risk event transformed into an opportunity for these companies to help local communities cope with a natural disaster. Another example of this kind of transformation that we study is how a travel company carved out an attractive, competitive niche by offering adventure expeditions—off the beaten path—for healthy retired people who recognize that “risk comes with the territory.”
How Can Companies Effectively Integrate Risk Management With Strategy Execution?
We describe how companies can identify and mitigate the principal risks in their strategy by leveraging Balanced Scorecard strategy maps (covered in depth in our Driving Corporate Performance program). For each objective and measure in a strategy map, executives ask: What can prevent our strategy from succeeding? What could go wrong? They can then brainstorm about how to reduce the likelihood and impact such adverse events can have on their strategy. Having a risky strategy is not bad, since earning higher returns often requires taking on somewhat more risk. The key idea is that as your strategy becomes riskier, you have to tune up your risk management processes to become even more alert and agile.
After You Determine What Could Go Wrong, How Do You Eliminate That Risk?
The idea is not necessarily to eliminate the risk, because risks are good opportunities. But what determines how fast you can drive a powerful car? Putting a really big engine in an economy car allows you to drive very fast, and many people find that exciting. But what determines how fast you can safely drive is not just the size of the engine. Imagine driving a small car very fast with a large engine inside when suddenly you see a little ball rolling across the road, soon to be followed by a three-year-old. That is a risk event that just materialized. How well you cope with that risk is now determined by how good your brakes are. Proper risk management is to ensure that you invest in brakes that are adequate for your engine size and driving speed. Investing in risk management is not intuitive, since spending a lot to install an excellent braking system contributes virtually nothing to your ability to win a race—you still need to be a great driver with a powerful engine under your control.
Have Key Risks Changed Based On Today’s Global Economy?
A few years ago, we really weren’t thinking about cyberattacks, global pandemics, supply chain crises, or a ground war in Europe. But now we see that extreme events can happen. We can’t predict when and where natural and manmade disasters, insurrections and wars, or economic crises will occur, or what their magnitude and impact will be. But in principle, you know a major earthquake could happen in California or a tsunami could be sitting somewhere in the ocean. You have to anticipate and plan what to do in advance, because you won’t have time to do it in real time.
What Is The Difference Between Risk Management And Crisis Management?
Crisis management is what happens when you have not done a good job in risk management. An unexpected event has occurred for which you are unprepared, and you have to improvise and put a crisis management plan in place in real time. Good risk management should recognize that unexpected events can occur, enabling you to put organizational or decision-making structures in place in advance. These can then be quickly deployed to adapt to the circumstances and mitigate the adverse consequences of the unexpected event.
Who Would Benefit Most From Attending This Program?
Risk management is an essential part of leadership, so this program crosses all functions and industries. It’s geared to a mix of professionals—seasoned or newly appointed risk managers, general managers, and board members—who want to learn how to make their risk function be a powerful partner within the formulation and execution of the company’s strategy. That is why we encourage a multifunctional team to attend Risk Management for Corporate Leaders—Virtual, where they can ask: What could go wrong in our company? Do we have the right people thinking about this 24/7? Risk managers, line managers, and board members from inherently risky industries—utilities, mining, financial services, aerospace, energy, and chemicals—would definitely benefit.
What Are The Key Takeaways Of Risk Management For Corporate Leaders—Virtual?
Participants leave with several frameworks for moving forward. On a micro level, the strategy maps and risk indicator scorecards provide an early warning about things that are going wrong. Another framework enables them to envision the external risks coming from geopolitical issues and natural disasters. Then there is the normal planning for risk versus the anticipating of events by a team that is already trained to cope with this particular emergency. Most important, participants return with a more rigorous approach to the nature of risk facing their company and with several frameworks for putting cost-effective risk management policies into action that protect value across the enterprise.
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