The world’s a dangerous place at the moment, are the risks in competing
in the global market worth it?
Paul Moxey, head of corporate governance and risk management,
Risk is manageable but the question is: are we managing it as well as we
could be? Profit is the reward for taking risk and for managing it suitably.
Yet we have seen examples in the present liquidity crisis that had not been
identified fully and, for companies, possibly hadn’t been fully articulated, and
they hadn’t really understood the risks that they were taking.
There has been case after case after case recently where companies or boards
probably felt they had a good understanding of the risks that the organisation
has identified and then unfortunately found that things hadn’t gone quite as
they would have hoped.
Big risks that maybe had been perceived, yet not regarded as big enough to
be a sufficient worry to divert the organisation from the strategy or from its
operations should have been better understood.
We have to sharpen up how we understand risks. It probably does take people’s
minds off the strategic side of the business and it possibly also creates a
degree of complacency.
Maybe people think that they have got the risks understood and tolerated and
Recent events have highlighted that we haven’t, and we have a lot to learn.
Do hard facts or culture make the difference in providing for better risk
Ian McMillan, financial management consulting leader, IBM
Culture is an important consideration in doing business.
Of course, it has an impact on globalisation, but for organisations that are
executing across a global model, there needs to be some clarity in terms of how
you run a
global business while respecting different cultures, and trading practices and
languages. If you say ‘yes’ in India it is different to saying ‘yes’ here.
But there is something else in terms of running a global business across
borders which means that probably ten years ago we had this multinational
concept where you would have mini-me operations in every country, and you had a
sales arm that was probably country-led and a manufacturing site or a
distribution site located to that. That is no longer the necessarily the case.
Now goods are made in one part of the world, but lots of online sales and
skills are actually located in different parts of the globe. How do you manage
This is where I come back to our view that a degree of standardisation of
your data, of your processes, of how you go about doing your business is
essential if you want to be able to understand what is going on.
But, if you are in a position where you need to move quickly, you need to be
able to understand the levels of performance.
I guess the day-to-day and sort of strategic data needs to be the same piece
of information from Japan to China to the UK to the US.
If you haven’t got that clarity and insight, it will either take a long time
to get there or you will make assumptions which may prove unfounded.
What’s the solution?
Jasmin Harvey, product development specialist, CIMA
To really embed risk into the organisation, those at the top need to assign
risk appetite and reassess risk appetite for any changes in the business
strategy, and then communicate this throughout the organisation.
Simple things help, like reviewing ethical guidelines to ensure the
consistent listing approach to risk management, ensuring incentive and reward
systems are aligned to the company’s risk appetite and training programmes,
knowledge sharing systems and risk champions. All these can be something that
the finance function can advocate.
Recent product recalls highlight the risk of manufacturing in China, whereas
Rolls Royce have taken on building engines outside of the UK for the first time
in Singapore because they’ve got local state financial support. Looking into
expanding into other countries does have risk, but it also has opportunities.
For every unsuccessful venture into India there is one successful or even more
than one successful venture.
Concentrate on looking at strategic risks in future. Globalisation is only
going to increase the frequency and intensity of strategic risks. Use a
strategic score card which provides a structured approach for identifying and
prioritising strategic risk within an over arching strategic framework.
Companies really need to concentrate on strategic risk going forward.
Chaired by Gavin Hinks
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