by John Ludlow, CEO, Airmic
Risk management at its best is empowering, allowing businesses to take more risk, not less. John Ludlow, Airmic CEO, debunks the myth that risk management and innovation are contradictory forces.
The boardroom approach to managing risk has been transformed over the past decade. Risk management is now on the C-suite agenda, and regulators have made it clear that they expect chief executives to take the lead on setting risk culture.
Despite this, however, there remains a reluctance by some organisations to thoroughly embrace risk management. The small percentage of time dedicated to positive risk-management at boardroom meetings is indicative of the fact that many boardrooms, especially outside financial services, still view it with a compliance mentality.
Risk management myths
This is in part driven by the persistent myth that risk management and innovation are opposing forces. As a business leader, you want to make money, to seize opportunities, to be nimble in your strategic decision-making. In that context, risk management can be viewed as a roadblock to progress, a force for saying no.
This is not only untrue, it is damaging: there is a depth of evidence showing that companies which implement and embed effective risk management throughout the corporate culture are not only more resilient but also more successful and profitable.
Indeed, in our experience, organisations with mature risk practices – those who have a thorough understanding of their vulnerabilities backed up by sound risk management structures – have the confidence to take on more risk. The metaphor goes that if you have faith in the brakes on a car, you will drive it faster.
The biggest risk of all – irrelevance
This has never been more true than in the digital age we are in today. Organisations are facing an unprecedented array of threats from new technologies and cyber-attacks, many of which were inconceivable just five or 10 years ago. These threats are complex and interconnected – and can emerge at breathtaking speed.
At the same time, businesses that fail to embrace new technologies face the biggest risk of all – irrelevance. For large or well-established organisations this is especially true, as they are competing with nimble start-up organisations whose business models are centred on technology. Look at the impact of non-bank fintech businesses on financial services, or Uber on taxi firms.
Innovation and reinvention
Agility, therefore, becomes more important than ever in the cyber-world. Risk management in this respect is empowering. Finely-tuned horizon scanning practices can give you a head-start over your competitor, and well-practised crisis plans help you respond effectively in a pressure-cooker environment. And perhaps most importantly, a risk plan that is closely aligned to your core business model will help you quickly adapt strategy in a way that avoids the risks you don’t want but embraces those you are willing to take in the name of innovation and reinvention.
None of this is easy, but boards will have a significant head-start if they continually have a finger on the risk pulse of their organisation and operating environment – even when it feels benign. This requires a different way of thinking because it is about culture as much as processes.
Airmic is the association that represents UK risk and insurance managers. Its annual conference is on June 3rd – 5th. For more information, visit www.airmicconference.com.