Many senior management people in big businesses are struggling today with the next phase of growth for their companies. This struggle is sometimes complex to understand as it doesn’t stem entirely from lack of growth. Rather, it is deeply rooted in the desire and demand for break-away growth. Many feel that there is a good possibility that this Growth can be achieved endogenously, through better processes and systems. Such growth must also be rooted so firmly in the organization’s DNA so that it becomes sustainable over many decades. But the Big Question still remains – Can we create a blue ocean for growth?
One of the foremost ways of achieving this break-away growth is by shifting focus to one of the most critical areas of an organization – Risk Management. Research has shown that a majority of the companies that have a risk management process still see huge but avoidable losses. The reason is also well-known internally – Risk Management is mostly seen as an obligatory / reporting process, and adds little value to decisions of making or losing money. It is rarely used to measure and save costs, or to explore techniques for better capital allocation. Here are the top 5 strategies for Growth for big businesses and how to achieve them with better Risk Management:
1. Break Silos
Silos are not built in any organization deliberately to truncate growth. It is rather a natural way of evolution of any growing organism. As it grows bigger, its size renders it susceptible to break-downs. To avoid that, it re-organizes itself into smaller, more sustainable forms. However, these silos soon become quasi-permeable and act in a way that hinders growth, rather than contribute to it. Such examples are very pervasive today in many organizations.
Organizations need to break down these silos by making them more porous through which data, information and strategies flow through smoothly. But it is easier said than done. It is important to make knowledge of excess Risks relevant to various silos, and have a process so they can find ways to hedge it internally with other silos without sacrificing opportunities of growth. When Risk systems and processes make it easier for people to view and act on risks from their perspectives, it breaks silos and fosters growth since it achieves the best alignment of objectives.
2. Innovation Hunting Spree
Amidst the din of “Need for Innovation”, it can be often be overwhelming to find one closer home. Deep knowledge of constraints often acts as a deterrent to innovation. However, before going on an innovation hunting spree, it helps to know that Innovation can be applied using Risk Management to reduce the Total Cost of Risk (TCoR). For example, better risk management reduces hedging costs, while increasing its hedging efficiency. It also improves the average portfolio returns by reducing chances of flash losses / sudden crunch in working capital. Increased focus on risk-adjusted returns is positive side-effect, which most successful companies encourage.
3. KYD – Know Your Diversification
Diversifying often comes with its own set of questions and the cost-benefit analysis could be tedious and inconclusive. Besides, for most organizations, there are very tight boundaries within which diversification has to be achieved. In such circumstances, it helps to know the diversification yield – which is something Risk management is very well adept at. By delivering a clear picture of cost-benefit analysis of diversification, Risk management gives direction and confidence to organizational efforts.
4. Exploit Supply Chain Value
Supply Chain turns out to be a favourite when it comes to optimizing costs, which is why quite a lot of cost efficiencies are generally built-in already in operations, leaving scope of little else. Or so it would seem. A well-oiled logistics and supply chain operation is only worth it if disruptions are rare. However, in a dynamic world where changing demand and supply dynamics, changing consumer preferences and black-swan events cause severe disruptions in operations and budgets more often than ever before, it is important to be at the leading edge of anticipated disruptions. Such events can only be simulated and prepared for.
It is pertinent for exploiting supply chain value that different departments are well-knit and the information flow amongst them, as discussed in the first point, is smooth. Everyone in the organization needs to act as a Risk manager to achieve this. The marketing person needs to know intricately about better structured products that can be offered to the counter-party, the logistics person needs to know the delivery month with the highest amount of risk, and whether that is in-line with the organization’s strategy, the trader needs to build-in additional liquidity risks in the prices, while the risk manager needs to simulate stress scenarios to anticipate disruptions.
5. Building a Stable, Sustainable Organism
Market doesn’t just value growth; it looks for stability and sustainability in the growth as well. Many organizations on a very high growth path look particularly susceptible to failures to the market, as does any organism that’s growing too fast. Quarterly earnings that fluctuate wildly with markets give little confidence to stakeholders about the health of the organization, irrespective of how well the last quarter was. Risk Management can be used as a critical lever to stabilize growth, and to improve sustainability. Organizations with risk practices that they can boast about are frequently able to raise cheaper working capital, draw higher credit lines and much better credit terms, thereby fuelling growth.
Do you think these strategies could work for you? How have you implemented them, and what other strategies are you looking at for growth?
This post was first published on LinkedIn.