Risk management improves business performance

Innovative enterprises act dynamically.


Enterprise reinvention and enterprise risk management have been a challenge to implement in many large organisations. The key to unlocking the potential of both is to understand, and overcome, why the traditional implementation approach consistently struggles.

The underlying problem is that we have been trained on, and most companies have been built upon, the "scientific management" principles from the early 1900's. These are the principles that were designed for the Industrial Age, and produced wonderful results for that type of work (e.g. rigid quantitatively based procedures resulting in the automation of manufacturing processes via assembly lines). But the dynamic nature and complexity of our large and globally interdependent companies have changed dramatically since then.

Most companies have continued with and further tried to automate their scientific management approaches. Unfortunately, this isn't working very well. For example, with large enterprise technology projects, the Standish Group consistently finds that they underperform 70 percent of the time. These enterprise programs, implemented using objective scientific project management practices, have not resulted in "reengineered" companies as promised. They have more often resulted in "over-engineered" organisations, with frozen decision-making processes and company routines.

After researching enterprise reinvention for the book Reinvent Your Enterprise for nearly a decade, it's clear that companies must manage enterprise-wide initiatives differently. Moving beyond scientific management, and consistent with the work of legendary management thinker Peter F. Drucker and more than 200 industry experts, it's clear that enterprise reinvention needs to be managed differently, and this requires the same enterprise view as is required for effective enterprise risk management.

Peter F. Drucker was the first to identify the need to transcend scientific management in the Knowledge Age. The implications for enterprise reinvention and enterprise risk management are significant. Where companies have historically been able to improve results through specialisation, successful reinvention requires a much greater emphasis on unification and facilitation, moving from managing the parts to leading the whole. This requires a different approach:

Start with your customer

Every company's enterprise view and strategy needs to start with customers. Most executives agree with this tenet philosophically, but few enterprise reinvention and enterprise risk management programs follow this in practice. This requires that executives clearly establish, articulate, and integrate: where your company intends to go and why.

Be holistic and systematic

Another principle to incorporate is to be both holistic and systematic. Without a shared enterprise view to guide companies in continually changing environments, companies often get stuck by focusing on the parts instead of the whole. When competitive and organisational situations change, executives get caught working on the wrong things, on areas that used to be important but are no longer the bottlenecks.

Don't forget your community

A third insight, important for sustainable enterprise reinvention and effective risk management, is to systematically manage social roles. Companies are the only true economic engines for society, and strong communities are the only source of sustainable profits. When companies don't formally integrate into their communities and, instead, view themselves as separate entities, enterprise risk profiles will inevitably increase.

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