These questions occurred to me while catching up with the executive of a large mining services contractor recently. The conversation shifted to the new word on everyone’s lips – COVID-19 – and what the material impact would be due to the outbreak in China and across the globe. We agreed the obvious impact is simple – material impact due to supply chain interruption.
The conversation moved to a broader discussion around risk, more specifically, disruption risk.
Disruption not as unusual as we’d like to think
Historically, disruption risk referred to risks associated with man-made and natural disasters. We both agreed that disruption risk should not just be isolated to events that impact supply chain. We now need to consider broader risks, with the potential to impact profitability and growth, arising in business. These include new technology, sovereign risk caused by increasingly turbulent political environments, increased regulatory pressures or new competitors entering the industry, to name a few.
On further consideration, the discussion reminded me of a report earlier this year from Accenture: Breaking Through Disruption: Embrace the power of the wise pivot. In the report, Accenture found that 13 of the 18 industry sectors surveyed experienced increased disruption over the past eight years, leaving exposed $41 trillion in enterprise value (market capitalisation plus net debt). Additionally, four out of five industries spent at least five years between 2011 and 2018 experiencing some form of disruption. This suggests disruption is not a flash-in-the-pan scenario, but is persistent, pervasive and is giving boards and executives alike endless restless nights. Covid-19, which is definitely a black swan event, provides the backdrop for not only crisis planning but also long-term reshaping of organisations.
It’s unsurprising then, that my executive coffee chat partner was considering large-scale investment in caffeine companies.
Leadership in turbulent times
This conversation echoed many similar conversations my colleagues at Gerard Daniels and I have been having with executives and boards across a variety of industries over the last 18 months, particularly when managing executive search processes. Deep consideration needs to be given to the ability of potential key executive appointments to be nimble and astute enough to manage and prepare for risk while leading organisations and teams through the turbulence of a constantly changing business climate.
In addition to embracing new technologies and developing disruptive ideas of their own, companies should be developing the necessary skills and resources internally to manage change and disruption risk within the environments in which they operate. This may also require companies – even on a short-term basis – to partner with like-minded advisers to assist in scaling new ideas and assist in attracting the necessary skills in order to manage risk effectively and continue to thrive in an ever-changing world.
The new world order for organisational risk management
Outside the core tenants of leadership, strategic thinking and execution, communication, high EQ and integrity, boards and CEOs are now seeking an agile mindset and proven experience in leading and executing organisation-wide change management programs. Transformational change may be a buzzword but, like many clichés, it comes from a basic truth. To manage risk, organisations need to be able to change and change quickly when necessary. Being able to lead organisations and teams through change is at least one way to manage risks that can’t always be predicted and can also have an upside – if led well.
Ultimately, the management of risk sits with boards and executives. Disruption risk is nothing new, but it is becoming less predictable and having a more immediate impact. However, this doesn’t have to be a negative situation, especially if boards and executives have the skills to formulate their own plans to quickly deal with emerging trends in the market that may materially impact how they operate their business. More importantly, they must have the capability to quickly take advantage of upsides that may be present, as well.
Putting strategy to building the right team
If you would like more information about how to find the right executive to manage disruptive risk in your business, It might also be time to think about succession planning to ensure your executive team continues to manage disruptive risk.