it had lost several million dollars of revenue through consumer
action.
Rethinking risk
In many ways, the constantly changing nature of today’s
global economy is not well suited to the cautious, risk-averse
e n t re p re n e u r. The need for flexibility and the ability to
embrace continuous change has introduced a whole new set of
challenges for executives around the world as they come under
increasing competitive pressure in the global marketplace.
These challenges have reshaped the way in which risk is per-
ceived.
Research has shown that many of the organizations that are
successful in the constantly changing business environment
place a premium on innovation, risk-taking and entrepreneur-
ship and strive to develop a ‘breakthrough’ culture – a culture
where ongoing experimentation thrives.
The benefits of risk-taking are clear. Pro g ress – economic or
o t h e rwise – implies risk-taking of some kind, to mark a bre a k
f rom convention and change for the better. Not only are there
tangible re w a rds at the end of the process that may come fro m
experimentation and the creation of new products, org a n i z a-
tions also benefit from the confidence and experience acquire d
in the process. The US economic environment not only encour-
ages innovative initiatives but also has a business culture that
does not stigmatize failure, but instead learns from it.
As organizations continue to need to take risks, risk managers
should try to avoid stifling this need by being over-defensive.
One very important cost of a risk management approach that
focuses on risk elimination when it is not appropriate to do so,
is a negative impact on initiative, innovation and entrepre-
neurship. Excessive emphasis on avoiding failure can ulti-
12 Operational Risk and Resilience
mately lead to failure, because survival of most businesses is
dependent on management taking risks in pursuit of opportu-
nities. Risk-taking is integral to the process of generating
shareholder value.
An important point made in this book is that the main ration-
ale for implementing operational risk management should not
be to defend an organization against hazard risks. Today,
defensive behaviour alone – for example, head count reduc-
tions on cost-cutting exercises – cannot lead to the generation
of substantial competitive advantage. Boards of companies
everywhere are revisiting their values at a strategic level in
order to achieve sustainable competitive advantage.
At present, risk management practices in many of the world’s
largest organizations still tend to be based around a narrow
definition of the word ‘risk’. In the past, many risk managers
were tasked with focusing on managing the downside aspects
of risk. Consequently, the focus has often been on managing or
controlling hazards – fraudulent behaviour, security breaches,
theft, compliance breaches, damage to property, and so on.
While these are important, they need to be complemented by
an approach that views risk in its upside potential.
Change is on the way. Many recently privatized organizations
recognize that their cultures do not encourage the kind of risk-
taking needed to maximize shareholder value. They also
realize that many of the risks they do take are poorly managed.
Moreover, in recent years, executives in a wide range of diverse
sectors including oil, biotechnology, mutual funds, consumer
products and banking, have launched major initiatives to
improve their approach to the management of risk. These ini-
tiatives focus on actively managing risks that must be taken in
the pursuit of opportunity and, ultimately, profit. This con-
trasts with the more traditional notion of ‘risk management’
which involves protecting the organization from losses
through control procedures and hedging techniques.
Risk management overview 13
One of the problems faced by risk managers is that the word
‘risk’ is used in many ways in different fields encompassing
competition risk, market risk, financial risk, litigation risk and
a plethora of other risks depending on circumstances. A good
place to start is to try to rethink the way in which the work
‘risk’ is used – which was a starting point for a research project
involving both PricewaterhouseCoopers and the Harv a rd
Business School.
The Business Risk Continuum
TM
(BRC) developed by Lee
Puschaver (PwC partner) and Professor Robert G. Eccles
(Harvard Business School) links the various types of risk and
is shown in Figure 1.4.
14 Operational Risk and Resilience
Figure 1.4 Business Risk Continuum
TM

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