Category Archives: strategic risk

Strategic Risks and Opportunities to Accelerate!

In the November HBR there’s a new piece by seminal uber guru of change management John Kotter called Accelerate! in which he proposes that organisations formally adopt a second, fundamentally different, strategic system of management to complement their operational management practice.

He claims, and my experience mirrors and agrees, that while traditional hierarchies and management processes do well at keeping the lights on in the short term, “what they do not do well is identify the  most important hazards and opportunities early enough, formulate creative strategic initiatives nimbly enough, and implement them fast enough.” Despite 15+ years of attempts to improve these processes, the pace of change is simply outstripping the ability of this system to cope. Organisation that face real threats or eye new opportunities or compliance requirements try – and fail – to cram through some sort of major transformation using change processes.

Kotter’s been researching, mentoring and watching transformation programs for more than 40 years and it may well be that these traditional change processes (many of which he influenced) did work in the past. In my own 25+ years observing hundreds of transformation programs of different scales, only a handful could be said to have delivered on their original promise. Irrespective of just when the myth may have started to overshadow the reality, Kotter now sees that the old ways are not going to work any longer and is prepared to call the Emperor naked.

His solution, in a nutshell, is to leave the traditional management structure to do what it does best – work on the assumption that your market will remain stable long enough to execute a pre-formulated strategy and ask most people to shut up, take orders, and do their jobs in a repetitive way. This will deliver returns for a while – until the environment changes to such an extent that your strategy is no longer relevant. This reminds me of Stuart Kauffman‘s use of the concept of fitness landscapes in evolutionary complexity.

In parallel with the traditional structure, Kotter proposes that you proactively engage a ‘strategy system’ which uses a structure of a distributed, loosely coupled network of peers across the organisation who’s passion for new ideas brings them together to develop more holistic situation awareness to identify extreme risks and opportunities and iteratively evolve new execution models to deal with those. This more agile approach ties in with much of the current state of the art in complexity and extreme risk management which proposes running many ‘safe to fail’ experiments in order to have the best chance of landing on the next fitness peak in the landscape.

The role of the traditional organisation structure is to facilitate the strategy system and foster new structures which may, in turn, one day evolve (devolve?) into another traditional management organisation suited to the next landscape.

In order to provide some kind of continuity and overall stakeholder / shareholder returns, it seems to me that the Board of Directors or equivalent governance body needs to have an influence on the assurance of informed decision making which sits at the intersection of the two systems.

Peter Whyntie, Executive Director of Compliance Australia recently wrote an article in the Chartered Secretaries magazine entitled “Strategic risk management – the neglected element of ERM'”. The article is behind a membership wall, but you can listen to a podcast summary here. Peter comes from a risk management perspective and, it seems to me, arrives at a similar place. Longer term strategic risks need to be seen through a much wider lens that the traditional risk and control structure found in operations management. The key difference is that strategic risk assessment is externally focused using the lens of your risk appetite.

My impression of much of Kotter’s earlier work is that it has been internally focused around leadership, culture and change management within the organisation. The strategy system he proposes now is focused externally and places the organisation in a role as an adaptor and adopter, resilient to change and co-creating in a complex environment where the distinction between internal and external is being redefined.

The take away from both of these is that you need to be more aware of your external environment and the assumptions you make as to how fit you are to exploit it and survive in it. This will require participation by a broader group of stakeholders who can help to formulate a more holistic common operating picture and show that there are many different senses of common sense out there.

An extreme impact exercise is a good place to start a process which leads you to exercise the unexpected.