A Universe of Uncertainties

Thank you Nathan McBride

How are you managing the risk of risk?  Put another way: How is your family business’ strategy leveraging clarity of purpose, internal processes and human resources to ensure your legacy by managing the risks your company encounters daily or will encounter in the future?  If the answers is “not very well” or “I don’t know”, all you envisioned and all you had worked so hard for could be in jeopardy.

Gone with the wind are the days when leaders thought of risk management only in terms of how much insurance coverage they had to purchase.  Now they acknowledge the growth of risk in five organizational dimensions; strategy, operations, capital structure, human capital and brand.

To quote Harvard Business School strategy experts Robert Kaplan and Dr. David Norton: “We must elevate the topic of risk management to a level of visibility more in alignment with the dynamic nature of the ever-changing marketplace.” Today I define risk more broadly as the universe of uncertainties that affect one’s business. In a family business especially, this extends to how best to prepare the next generation for leadership, how to create a framework for acknowledging the interests of those family members not working in the business and even tackling the issue of caregiving head on (more on this in a future installment).

While I acknowledge this perspective may be more common in larger businesses it is fundamentally critical for established yet smaller companies where many of the same risks call for clear thinking in strategy and the prudent use of scarce resources every day.

When you add to these risks the challenges associated with increased competition, shrinking margins, concerns over capital and the loss of institutional knowledge through attrition or turnover, the need for recruitment and retention strategies becomes abundantly clear as an important component of risk management.

So what are you doing to address these areas?  How are you questioning your answers to challenge the status quo?

WHERE TO START

I recommend starting with an assessment of your company’s current situation as a means of better understanding its risk profile and risk awareness levels beyond the traditional areas of insurance.  Distractions come from many quarters and their cumulative affect can cause the sort of organizational drift that a “pause button” like this will help restore.

Distracted by the urgency of day to day operations, why the business exists and what it stands for may no longer be clear.  Whether we’re doing the right things poorly or the wrong things well are questions we fail to ask anymore.  These represent real and immediate opportunities for your family business.

Leaders and managers within the business making an effort to manage risk might consider adding the PESTEL analysis to their toolbox.  PESTEL can be completed by anyone, anywhere without the aid of an outside advisor.  Traditionally used to analyze trends in new or emerging markets, it is an acronym that represents six dimensions of the macro environment in which you operate: political, economic, social, technological, environmental and legal. I think you will find this a versatile tool with application value beyond its original use.

So what’s in your toolbox that you haven’t used in awhile?  Consider expanding how you define and manage risk.  Start by taking your “risk temperature” to better understand your comfort with risk.  Then consider using PESTEL as an environmental scan to assess your current situation as it relates to the risk in your environment.  You’ll be glad you did it and you’ll sleep better too.