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Resources / More innovation, less risk: a Director's dilemma
We are living in unforgiving, unpredictable times for business worldwide. Equity markets are in turmoil, credit markets of vulnerable nations are in meltdown. Economic growth is sluggish among OECD members and even China shows signs of slowing the breakneck speed of its relentless expansion.
In this environment, directors of public companies, government institutions and city leaders alike are faced with a fundamental dilemma. Revenue growth, operational efficiency and improved asset utilisation remain key strategic imperatives. Yet potential risks lurk at every turn of efforts to improve organisational performance, whether in the form of exposure to spiraling energy prices, over-geared balance sheets or operational breakdowns.
So directors need to establish a framework of corporate governance that can deliver two things that normally go together like oil and water: more innovation and less risk.
As tough as it may seem, this dilemma is at the heart of every director's duty.
Delivering on stakeholder expectations demands improved performance. For corporations, this means finding new revenue streams and ways to achieve brand differentiation. Moving from wooden pallets to plastic ones (CHEP vs. IGPS), creating new products we had no idea we needed (iPod, iPad), new games that millions of people love (Farmville by Zynga), turning industrial strengths into green credentials (GE's ecomagination) or finding ways to conquer established markets with a radical cost advantage (China's Chery automobiles).
Yet in the quest for profitable growth, directors must also ensure that attendant risks are identified, monitored, managed and effectively mitigated should they occur. Our experience of the past decade shows that no amount of increased vigilance, regulation or insurance has taken these risks out of play. In fact, when performance pressure increases to an extreme level, in the absence of a strong culture of integrity and risk management, employees can be tempted to behave in a way that ultimately damages corporate reputation.
Think of Satyam's accounting troubles, AIG's financial product woes, Nokia's smart phone stumble or Toyota's safety crisis and massive product recall program. Is this simply a case of businesses with seemingly bulletproof brands and respected corporate leaders inexplicably dropping the ball?
No. We argue that both outcomes - breakthrough innovation and breakdowns in risk management - owe their genesis to the same source: culture. Our work with dozens of companies over almost three decades continues to show us that people, process and technology investments are necessary but not sufficient to achieve enduring, resilient business performance.
Corporate and government leaders diligently manage many tangible and intangible assets, including operational infrastructure, physical facilities, motor vehicle fleets, brands, IT, patents and trademarks, and even a CEO's image in the investment community. However, in so many organisations, culture is left to chance.
We firmly believe that culture is also do-able. That culture is a valuable asset we can design, manage and leverage to drive innovation at less risk, and ultimately deliver better performance. Sounds too good to be true? Perhaps, but if you are interested in finding out more about how to make culture do-able, we’d love to hear your thoughts.