Posts Tagged ‘Crisis’

Top five risks for business in 2011

Sunday, January 30th, 2011

Our risk management systems constantly scan the immediate course ahead to detect those hazards that could put a hole in the ship of commerce, and potentially sink the business. Ongoing dialogue with leaders around the world, combined with environmental scanning and deep reflection, indicate that a number of significant issues will confront business this year. Here is what we believe are the top five risks:

1. One complaint becoming an epidemic

In the latter half of 2010 the power of a mass consumer complaint leveraged by connectivity became evident. Angry customers were able to register online to join a class action over bank fees. Vodafail.com, born out of the frustration of one customer, provided a flashpoint for disgruntled Vodafone customers.

The focus is shifting to insurance companies whose customers, having been adversely affected by floods, feel quite poorly treated. Retailers who have sent Australian jobs offshore by their purchasing policies, and now complain about Australian consumers purchasing products offshore, also risk a disgruntled customer creating a viral campaign.

The lesson is to take each customer complaint extremely seriously, and treat each person as you would want to be treated.

2. Social enterprise overtaking commercial enterprise

We are now witnessing the rise of social enterprises – profit making organisations which emerge in direct response to a particular social need – such as Fair Trade coffee and the Green Pages directory. They keep costs low in order that maximum profit can be directed at the immediate social need and fostering systemic change to eradicate the causes of the problem.

This contrasts with existing business models which have a primary focus on shareholder return. Social enterprises experience explosive growth as customers engage specifically to support the cause – and then tell all their friends.

Twenty first century organisations must look to harmonise social and commercial objectives as new entrants launch to fill a social need and scale too fast for traditional slow moving businesses to respond. They must review their original purpose, recast this in the context of 21st century needs, and align every aspect of the business with this renewed purpose, eliminating the fundamental dichotomy between market acceptance and customer fulfilment.

3. Failure to recognise the normalisation of complexity

During the last decade we have witnessed a never-ending series of natural and man made crises: 911, SARS, bird flu, GFC, devastating fires, hurricanes, cyclones and now floods. Crises are nothing new, but in a less complex and interconnected world we were largely quarantined from their effects by time and geography.

The deep global linkages between people and organisations now mean that our world can change overnight because of the ripple effect of a single major event. Last year’s eruption of a volcano in Iceland brought air transport to and from Western Europe to a complete standstill, impacting industry around the world. Economic shocks will become more frequent because of the complexity and connectivity of the system of which we are a part.

Our fundamental challenge is to work effectively and efficiently in this new normal and deliver results that move us towards our purpose, understanding that doing so will contribute to a sustainable business. Organisations need to develop people at every level of the organisation who are systems thinkers, who are comfortable with complexity, and who can function well in chaos.

4. Increasing self-interest

The crises identified above have deprived many people, organisations and nations of expected income, profits and living standards, creating a sense of scarcity and an inclination to guard what we have. This can drive a protectionist response, whether at a political or commercial level, which easily translates into inadvertently putting profits before people, control before collaboration, and politics before principles.

Self interest reveals itself in the person who takes advantage of a crisis to advance their own cause and further their own career, and in the firm which extracts an unreasonable discount from a supplier. It is not hard to spot in the increasing xenophobia dominating the agenda in many countries.

The solution to self interest is a combination of increased self awareness and social responsibility; appreciating that what is good for the other is ultimately good for me.

5. Wilful ignorance

One effect of living with a tidal wave of information is the capability to be selective about where we source our news. This allows us – both intentionally and unintentionally – to feed our biases and prejudices. Wilful ignorance occurs when we make an active choice to ignore what challenges our thinking, and consume what supports our thinking. One can readily observe increasing divergence between what many people choose to believe and what is actually the case.

Leaders need to carefully and consistently explain their rationale and message, educating and informing people, who may have built up resistance to new data, that will challenge their assumptions.

Conclusions

Although any of these risks taken alone could do serious damage, the combined effect of two or more operating together could be disastrous. For example, wilful ignorance and an epidemic of complaint in a complex world requires attention at the most senior level and a well crafted response to avoid customer backlash, staff disengagement and subsequent loss of value. Smart organisations however, will alter their trajectory ever so slightly to chart a course around and between these obstacles, ensuring they don’t fall foul of them in the first place.

Have you experienced these risk factors (or others) at work? Join the conversation and share your thoughts below.