What will Business Look Like After Covid 19?

As we've reach the point where we have been living with (or locked down by) Covid 19 for a year it is difficult to remember what impact the pandemic has had on all of us. We have become conditioned to living in lockdown. What started as a novelty, the no commute working lifestyle of Zoom and Teams, became a slight inconvenience, then a limiting way fo life. 

I've been working with people across multiple business sectors, from public sector to senior leaders in both PLC and SME leaders throughout, supporting them through the unforeseeable pandemic challenges.  As governments clumsy responded to the emerging pandemic, so business tried to keep everything running as normal as possible throughout the turbulence. 

Business leaders like stability, normality and predictability, it lets leaders work within the known parameters of a market and deliver results accordingly.  So uncertainty creates a whole series of challenges for business leaders depending upon their sector. Some where shut down over night, others were not immediately affected at all, but most fell somewhere in-between left to pulled back to a survival model or  tried to pivot into this new market reality. 

Uncertainty unsettled all. Every basic business assumption overnight was challenged. Leaders were left with shifting foundations of their business. What was solid and certain, became quicksand and uncertain. Were order books valid? Were orders still able to be honoured or delivered? Where had customers (b2B and B2C) gone? Confidence took a hit and business assumptions evaporated.  

The debate and planning for Brexit had taken years of analysis and scenario planning across every business sector, while many businesses had no time to plan their response to the Covid pandemic. We watched what was happening in Wuhan and elsewhere for months without fully understanding its impact on our business environment. 

Covid 19 Impact

UK business was suddenly trying to deal with the complete unknown, and even worse than that, ever changing business scenarios. From complete shutdown and furlough staff, to the yoyo open, shut, partly open and shut again, through to the carry-on your essential workers, to adapt and onto expand as you are now the future.  

Many sectors such as travel companies have shut down (nearly full hibernation), the high street (bricks only) through to events and leisure sector. These casualties of the pandemic are now about to reopen as the vaccine reaches the tipping point, but are they opening just as they shut, or will they have seen the shift in the market. The Government may provide a prime pump investment to kick open these markets (and significant pent-up demand and money exists), but will it be 'business-as-usual' or will the real shift be understood by these sectors? 

Other business sectors which has operated and thrived (yes there are sectors which have seen significant growth from home improvement, builders, home deliver and technology companies) who have seen exponential growth such as those involved in every aspect of lockdown Britain. 

Business did not stopped, but it has changed and here is what we know so far.

There's No Going Back To Normal after Covid19

The impact of Covid has been to jump the economy 5 years forward from its natural evolution for nearly every sector, and for some that could well be 10+ years forward.  That's not an evolutionary move forward but huge leap forward throughout society and one that it will not step back from. This is described as a paradigm shift within a market. In the same way a the iPhone changed the world of mobile communication so Covid19 has changed the business world forever. 

As we unlock post covid, many voices just want to get back to normal, book holidays, get back to the office and reopen the high street. These leaders voices are those who have not seen (or refuse to believe any change has happened). The reality is that while a semblance of what was normal may be seen (Government money often puts a short-term smokescreen over reality), in reality each of those markets has irreconcilable changed.        

Will the high street simply return once the lockdown ends? This is unlikely as much of it has been mothballed, some of it permanently, but the impact of a year of lockdowns has changed how society looks at shopping. The customer and business has changed, what and how people shop. Home delivery is now the normal for many people and the sector has changed. Why would it change back?  While segments of the population like the old shopping experience, the high street is not there to support it. It has been replaced by pure online / home delivery coupled with click-and-collect services.  The large format stores have shut up shop permanently or reinvented themselves as online retailers. 

The high street is not just mothballed but has jumped forward. Home delivery of fast food now dominates the market. For example Cinema's once the preserve of the new blockbuster release, must now compete with straight to home services form Netflix, Apple, Now (etc) services.  Huge investments by vertically aligned providers supported by the customer who have upgraded their home cinema experience and new infrastructure of 5G  (and 6G on the horizon). With home delivery of food and drink (you can order anything by Uber/Deliveroo (etc), why go out?     

So this is not a short-term hiatus between the norms, which normal can bounce back from, this is a complete paradigm shift across the entire business world. Let me explain why.

PESTLE Impact

In any market the macro factors which drive the market are defined within the PESTLE assessment of macro drivers.  PESTLE (Political, Economic, Social, Technology, Legal and Environmental impacts) a good as any model to summarise this, defines changes and their impact upon a market. A pandemic does not just impact on one factor for a short period time. A fuel shortage does make people sell their cars, but not needing commuting cars, city centre offices, business HQ's or regional offices through to high street shops, mean that the business world has changed forever.   

What governments' have done to insulate this change through bounce-back loans, furlough payments, tax breaks and deferred loans, will soften the impact, but will not be able stop the change for the normal to return, but soften the rate of change for a new normal to emerge with the least impact that any society can afford. The impact fo Covid is not just on one element of a the PESTLE analysis, but on every aspect of the macro environment within which any business operates. Learn more at: PESTLE

People's behaviours have irreconcilable changed. Let me start with just one simple example: Work From Home will become the normal, it was on a growth curve, now it will be the expected normal for a workplace.  Why commute to an office, if people do not need to?  People are more productive working from home and provide lower costs to the company and less commuting will means that while the office is still needed, it is now somewhere to connect with the team, it is not the place to actually do the work.  

If people are not going to work then the commuter travel, parking, petrol stations, work fast food outlets, shops and support services are all redundant. While some can pivot, the fast food outlet can joint the Just East home delivery network, others such as the large format high street shops designed for high footfall cannot. The later high street features were slowly dying as pure shopping moved online through Amazon home delivery, this shift will mean that the high street will need to look very different.         

Our towns and cities can become something else. Somewhere where people can connect with society, but not somewhere people need to be 5 days a week.  PESTLE macro market factors cannot be ignored by business. PESTLE factors drive markets and create growth.

Where's the Growth?

For business owners in every market sector even those which have successfully pivoted so far, this shift is only the start of this unknown and unchartered new world. Change in business is usually seen at the edges, with a paradigm shift, the whole world shifts, except for the laggards (who just complain louder). 

Looking for growth is therefore a real challenge. Leaders cannot just look to their innovator or early adopter customers, but need to recognise that everything has shifted, new players, substitute products and services and whole markets have sifted overnight. 

The first thing for leader's to recognise is that the people have not gone away, they still exist, and so do their needs and expectations. They have been moving house, upgrading their homes and becoming more self-sufficient at unprecedented rates.  Customers still have needs and wants, it will simply not be the business suit.  Growth will come as the vaccine rollout takes effect, but will companies be ready for tomorrow's growth opportunities. 

The First Bounce of change is happening now across all sectors as a result from the Covid paradigm shift. The growth in markets from house sales, home building is just the tip of the iceberg off the growth that will come from this shift. As change happens so clarity fo the change will be seen and Second Bounce growth will also happen, as new and emerging markets become established and begin to shift into profitable volume.  

Looking for growth from historic analysis will be challenging for business owners. Paradigm shifts require owners to look for horizontal parallel examples rather than linear historical analysis.  Is Covid19 more the the arrival of the internet to a sector rather than your business performance over the last 5 years?   

Uncertainty is the New Reality 

Now is an excellent time to review your business model. We know that markets will open up, but what they open up looking like is not yet certain. For some markets such as tourism (in hibernation during the pandemic) knows that people want to go on holiday and that delayed and latent demand will enable an immediate short-term bounce-back of this sector as people will still want to travel (and probably more than ever before).  

The longer term effect of change for travel will have several major long-term impacts. Business travel will certainly change, why travel around the world when you can click a button and connect to them through Teams?  Couple the introduction fo 5G and the move to SaaS delivery of many services and suddenly established travel models will need to be redefined. Couple all of those factors with people's rapidly growing awareness about the environmental damage which long-haul flights have on their carbon footprint and suddenly safe assumed business models, may not be any more. 

This is true for many markets, every market has become uncertain.  But do remember that uncertainty is always an opportunity for the entrepreneur. It's the entrepreneur leadership mindset, between fixed and growth, do you see the opportunity or see change as a threat?  

Strategic Planning Workshop

Strategic planning enables leaders to review and plan out where they are going and how how they will compete and succeed within their chosen market(s).

Looking for direction, focus and an action plan to deliver success? 

Like to review your business strategy, find growth and develop a growth mindset and look for growth and plan where you re going and where, then why not look at our Strategic Planning Workshop  to support you redefine your market.

Learn more see our other blog posts or see my website for support leaders grow and develop their business at www.richardgourlay.com

What to focus on when looking to sell your business.

What to focus on in selling your business. 

The time to sell your business is when you want out. The best time is when you have a new exciting project that you want to commit to. The optimum time to sell is when investors are excited by your sector and your business is in tip-top fighting condition within a dynamic market. 

This simple checklist should be at the heart of all business owners when looking to define their exit strategy timetable.  Buyers buy because of the potential they can see in making money from the business they are buying. They will pay a premium for a well-run company, with a motivated and dedicated management team, delivering efficient processes to loyal customers.     

Buyers Expectations

Buyers look at potential business acquisitions through the lens of perceived financial risks and rewards. Buyers weigh up the potential rewards over 3 to 5 years both in terms of profits coupled with its potential asset value (share value) as their return on their exit plan. The stronger your key business drivers, from the market you operate within through to how well you deliver your products and services define the start-point of the business value. In essence how you manage the risks around and within your business combined with how well you maximise your opportunities is what buyers are prepare to pay 

The strength and quality of your key business drivers is critical to receiving the highest possible price. In every business there are a whole host of significant business factors, depending upon industry, but the key common ones are consistently recurring income streams from diverse sources, strong strategic business plans delivering sustainable growth, strong future profitable cashflow all being delivered by a strong management team with appropriate operating systems.   

Business owners today looking to sell need to build each of these drivers to maximize your company’s purchase price.

1. Business History

The first driver buyers look at is a history of increasing revenues and profits year over year for the past three to five years. Remember, buyers buy businesses to make money. They want to see the track record, based upon the old adage that the past is the key to the future. Your history reduces risk to buyers as it shows your position with your market, and explains your product / services in terms of income and returns and it shows consistency of you operations.   

2. Strategic Business Plan

The second driver, the strategic direction (business plan) demonstrates the businesses strong organic growth, what happens if the new buyers do nothing once they have bought it. This provides buyers with a base case or buying the business.  Is it sustainable without the purchase, or is the purchase propping it up, if so the investment is being salted away on running the business not in creating value for the investors. 

The second fundamental element of this driver is the buyers investment plans, or often called their the inorganic growth plan.  Their plan must create a compelling competitive advantage within the target market for scalable growth.  High-growth markets are key target for investors particularly where that can be coupled with multiple market development to accelerate that growth. So if your business operates across multiple sectors, or can be able to then it is more appealing to investors than one which operates within a single or limited market.   

3. Future Cashflow 

Expected future cashflow is the third major business driver of business value. Cashflow in all its elements, from profit generation to working capital and investment capital requirements (including any future CapEx) all fit into the mix which financial assessment will include. 

The future EBITDA, as this is assessment is expressed are all-dependent upon the business owners strategic business planning. Understanding your market from the macro factors through to the micro drivers all combine into a well throughout plan which demonstrates sustained profitable sales and market growth. The strategic business plan needs to thoroughly explain how your business is both organically able to grow but also how the buyer will be able to leverage enhanced growth through its investment.  

4. Operational Risk

The fourth major business driver is in operational excellence through a strong management team in place supported by effective operating systems. The more your business revolves around only you or another “key people,” the greater the perceived risk among buyers. If that person is the owner, then any sale will buy them in, so owners need to make themselves redundant within the business. 

A strong management team, from leadership through to operational delivery people, is an ideal buyer purchase scenario. So metrics such as a high quality recruitment strategy and low staff turnover are highly desirable. What buyers are looking for is a strong culture and a stable labour force for future growth.

Next Steps

If you are looking to sell your business then the first steps are to get some professional advice to see where they are compared to where they need to be. Owners need to understand the key business drivers, which they can influence and take steps early towards developing these to improve your business drivers. That will drive your business value upwards and begin the process of polishing your business, making it more attractive to potential buyers.  

Strategic planning is one of the most effective things that business owners can do to add value to their business. Like to learn more then contact us to learn about our strategic planning services enquiries@cowdenconsulting.com or learn more at www.cowdenconsulting.com/strategy

Strategy: The Leader's Role by Richard Gourlay

Strategy The Leader's Role by Richard Gourlay

Strategy The Leader's Role is a book which brings together courses all the key tools which a leader needs to use to create a successful business strategy. 

These tools are carefully explained, with step-by-step guides as to what and how to develop your business strategy. 

Each step builds upon one another enabling the leaders to develop a comprehensive business strategy to lead your business successfully.

The Importance of Strategy

The leader is the person ultimately in charge of defining the corporate goals of any organisation. It is the one role which a leader cannot delegate.  Strategy is the course to take to achieve your organisation goals. 

Without a strategy any organisation drifts aimlessly within its market, loosing its position and its customers. A clear set of goals allows a strategy  to be developed to achieve those goals, enabling the organisation to focus, find its direction and pull together towards those goals. 

Strategy: The Leader's Role by Richard Gourlay, provides both the hard tools to assess and develop your goals and strategy and the soft tools which enables leader's to successfully implement those strategic shifts within their organisation.     

Leading From the Front

It is difficult to lead if you don't know where you are going and in this book, Richard Gourlay explains how to use key tools and concepts to assess your market and define your goals and set your direction of travel. How to weed out the noise which often drowns the clarity of thinking which leader's need to see where markets are going and enables them to define their vision for their organisation. 

Leading from the front can only happen if a leader is confident of where they are going and why they are taking that route. This book provides that clarity of purpose for leaders to assess and understand how to define what matters form what does not so that they can step up and out and lead from teh front.

Strategy: The Leader's Role 

In Strategy: The Leader's Role each step in building your vision, goals and strategy is explained with relevant tools and aids to enable you to develop your own unique strategy to fit you and your organisations circumstances. 

From assessing your core competancies as an organisation through to understanding where your market (s) are going. Strategy the Leader's Role explains in step by step chapters how to undertake your own assessment with models an examples of how others have achieved their strategy.

Tools include external market assessments well as internal market assessment tools to create strategic options. How to assess your organisational capability as well as how to use theses to create a strategic advantage. 

To buy this business book, just click the image or the link below:-    

To buy this book today, click this link NOW: https://www.amazon.co.uk/Strategy-Leaders-Successful-leaders-business/dp/1508761965

Strategic Vision Drives Organisations Success 

Drive Your Vision or Aimlessly Drift!

In today’s world, driving your business vision is the only way to ensure you stay focused on where you want to go and not pulled by short-term fads and fashions. 

The words strategic planning used to mean a once a year offsite discussion about where the organisation is headed. That thinking would be turned into an updated business plan with expectations and outcomes to be delivered over that next year. That type of strategic planning the corporate away-day provide very little in the way of strategic thinking and subsequently provided no or very little strategic value. Corporate away days became more a morale booster, with team building and bonding as the only measure of development. The reason why was very simple, if there is no strategic intent, no strategic review or re-evaluation them there will be no strategic outcomes.   

Strategic thinking is more vital today for leaders of organisation than ever before. The need for organisations of any shape and size to be able to determine why they exist and where they intend to exist in their market has never ben stronger. Whether it is new players finding their first footing in their market, through to established players redefining where they are within their sector, the need for leaders to define their vision and validate their strategy to achieve that vision has become more critical than ever. The drivers of urgency are not just those of ever more powerful stakeholder expectation, but more demonstrably the globalisation of every market sector and the transparency of strategy in what it delivers to business. 

Problems with Strategic Thinking

The problem building a long-term strategic plan, the traditional cycle of business planning is that it is too long and therefore slow to react to rapidly changing business environments; particularly the slow speed of implementing traditional business plans, which has damaged the reputation and credibility of strategy. 

The slow pace of organizational change driven by traditional strategic business planning results in strategies which are out-of-date before they ready to deploy. 

The net result of this process is that organizations are sluggish to respond in fast-changing markets, left wrong-footed by new entrants in dynamic, high-growth markets leaving leaders frustrated and impotent in competing with agile, new entrants. In an technology driven world where disruptive online behaviours enable markets and customers to change overnight, thinking strategically can seen to be an outdated way of thinking.     

Developing effective strategies is vitally important because without them organisations become inward looking, focusing on efficiency at the expense of growth opportunity. Without strategic thinking leadership teams becomes operationally efficiency driven rather than customer focused.  

The key element of strategic thinking is the ability of leadership teams to look at what is driving change within any sector. Inspiring vision is about drawing intelligence from scratchy, vague or even 'invisible' data to make informed decisions about tomorrow's market and develop an aspirational strategy to achieve that vision.

Planning for Tomorrow

What do we know about what tomorrow will look like and what opportunities it will offer? Here are my five defining statements about the need for strategic thinking:- 

1. It will happen whether we like it or not.
2. Markets are always changing, new opportunities are always arising.
3. If organisations strategically plan ahead they can successfully compete, rather than just survive by being a me too player.
4. Strategic thinking has to be achieved and implemented faster than a market is developing if players wish to stay or move into more profitable, growing and sustainable market segments.
5.  Without strategic thinking every organisation will go backwards in its market.

The Strategy Gap

The strategy gap: the lack of proactive strategic thinking is most often blamed on the lack of hard data 'facts' as the basis of making defined decisions. This has always been a factor in undermining the confidence leaders have in making plans for the future. 

As a result, strategic planning often focused on predicting the future based on historic trend lines, over-invest in gathering all available data, and produced a small number of safe directives often focused around the very near future, for the rest of the organization to execute.

This safety first approach to strategic planning leads to little steps, but is not really strategic thinking.  

"Genuine strategic thinking requires leaders to think of the future not based upon the past, but based upon the future market potential".   

                                                                        Richard Gourlay

With the advent of the internet there is now huge amounts of easily accessible affordable good data which is instantly and cheap to acquire. The world today has become a turbulent place, speed of change is no longer slowly evolutionary, but has become rapidly revolutionary in virtually every market. 

This has left the traditional strategic planning process with a fundamental problem, since the trusted, traditional and slow approach to strategic planning is based on assumptions that no longer hold. The static strategic plan is dead.

So why do strategy at all?  

Strategy is therefore under pressure as a process unlike never before.  If the outputs from traditional strategy, a traditional business plan with incremental evolution are no longer valued, then the value of strategy is being rightly questioned.  

The reason why strategy is not dead is that the strategic process, the way strategy is developed is essential in learning what is ‘right’, what is the future in a business sector.  This strategic approach to step out of your organisation and look at the market, defining internal aspirations and building the steps through experimental activity and forward pattern development enables shift culture to occur enabling agile strategy to be deployed. 

There are many renaming ceremonies for today's strategy process, all focusing on the move to redefine the strategic planning process, away from the traditional top-down long-term evolutionary strategic planning process to quicker, dynamic and responsive strategic thinking culture. This systematic and seismic shift in thinking away from process driven top down command and control process to one of continual strategic thinking culture. 

To make this shift to modern strategic thinking, leaders need to move away from traditional predictive planning to rapid prototyping supported by multifaceted experimenting.     

The second shift is that of 'frontline first' where leaders must enable the frontline with real decision-making authority. Successful strategic thinking requires objective and direction setting with a whole team focus.  Instead of a plan, the planning process is about whole team involvement in the mindset of goal achievement.              

The third and final major shift leaders need to focus on where the organisation is adding value to customers. As markets and customers rapidly change, who would have thought Google, the online search engine would be producing driverless cars, or Apple the IT company is managing middle-class health. 

What value any organisation customers value and are looking for is one of the major shifts which today's digital age is driving.   

 https://www.amazon.com/Strategy-Leaders-Successful-leaders-business/dp/1508761965

Author Richard Gourlay, provides mentoring and leadership support to leaders, learn more click here

Managing Strategic Risk

What is Strategic RISK

Many business leaders do not understand the strategic risks within their business. Risk analysis often focuses solely on management and operational risks but fail to mention or underestimate the likelihood to possible impact of strategic risk on their business. Strategic risks though are far more critical in the determining the success or failure of an enterprise.

When leaders think about risk management in business they are too often talking about legal compliance or about the operational risks around issues such as health and safety.  

Drawing up lots of rules and making sure that all employees follow them on the other hand can solve operational risk. Many such rules, of course, are sensible and do reduce some risks that could severely damage a company. But rules-based risk management focuses on legal requirements, not complete risk management. 

Management and operational risks have attracted leaders attention for obviously important reasons around safety and compliance, but the risks have become over prominent in leadership thinking about risk. This is a common misunderstanding of risk by leaders, not seeing risk as primarily a strategic issue in business. This view of risk misses the strategic elements of risk, which leaders need to actively consider in defining their business model and in making strategic decisions. From start-up to exit risk is a strategic issue, which should underpin all strategic thinking.  

Risk is an essential element of strategic thinking. Every business idea creates and must deal with strategic risks. When someone comes to me with an idea and their opening phase goes along the lines of "no-one has done this before, that's why it will succeed" immediately gets me thinking is there an obvious reason about why no-one has done this before? In the real world there are no natural vacuums. So why has no-one else done this before.   

Strategic risk must be the first risks which entrepreneurs, owners, leaders and stakeholders (the shareholders, NED's, advisors and accountants etc) need to identify and identify and scrutinise. Strategic risk defines the real opportunity a business has to succeed, as an entity or within any chosen opportunity it sets to undertake, from a new product or service through to entering a new market.

Risk v Opportunity

All opportunities carry a risk. The two elements are tangibly linked, there are no opportunities that do carry risk, and the direct link between the two means the greater the opportunity so the greater the risk.  Too few business leaders identify that clearly and develop a clear plan to deal with those strategic risks. In Dragon's Den the reason why the dragons often want so much of the shares for their investment is to deal with that risk. I the risk is low (clear market, clear routes to that market, experienced and viable leadership team and clear plans to get to market with an plausible exit strategy) then they fall over themselves (trample over each other) to make corresponding offers for a far smaller share of the pie. This is a simple example of the value of understanding strategic risk in setting up a new business. But this is what experienced consultants like myself assess when we strategically plan a business. 

As an independent experienced strategic planner identifying the strategic risks, profiling these and then assessing these risks is critical for leaders to understand and actively overcome in their strategic thinking.     

Developing leadership risk skills is an important element for leaders to understand that their approach to risk defines how the lead and what they lead. Strategic risk defines the type of business model that leaders develop through to which markets and where in them they choose to operate. 

Understanding strategic risk and learning to how to manage key business risks throughout your business is an important skill set for leaders to develop in establishing their judgment in risk considerations and ensure they are integrated into strategic thinking.  There are two parts to risk, firstly identifying your strategic risk and then secondly how to actively manage the identified risks, which this article covers. If you would like to know more about strategic business planning then click this link here.

Here are some key questions to consider in identifying strategic risk:  

1. Risk Appetite 

The first stage in managing risk is to look at the leadership team and its surrounding stakeholders, both formal (Board, NED, shareholders) and informal (employees, advisors, channel partners) to map out the appetite to risk. The leaderships' risk appetite determines the overall approach the business will take to risk. Risk is always directly linked to opportunity and therefore reward, take no risk and you take no reward. Conversely take high risks and you could achieve high rewards (think Amazon), but equally exposes the business to potential high failure. 

The more the leadership diversifies from its core skill sets so it increases the risk it is likely to face. This is why investors want to see both  the leadership teams track record but also their relevance to the market. Diversity in its self is also vitally important, too many people from within a narrow field often limits risk taking due to lack o wide and group think mentality. Leadership diversity increases risk, and lack of diversity reduces risk appetite.

Risk appetite is also directly correlated to the experience of the sector you are operating in, the more established and known the sector is to the leadership team has so the lower risk the leadership team sees in operating with in it. than emerging and unknown.       

2. How well is your strategy defined? 

Without a defined strategy your business is at high risk. If the leadership does not have a clear and articulated strategy, which is shared and owned, then the business is vulnerable to strategic drift, living in a dream without clarity and purpose. Having a strategy in place, provides the context of the business, with strategic goals, intent in positioning and outcomes defined which enable the business to drive forward. To learn more about strategy click here.

Inside a good strategic plan the strategic risk must be identified, clarified and clearly mitigated, with realistic, affordable and attainable mitigations in place.  A great strategy does not avoid risk but embraces it.  Many of the leading and successful businesses were begun by entrepreneurs who fully embraced strategic risks.   

3. Strategic Risk Analysis

A business strategy must define the risk environment within which it operates. Strategic risk starts by looking at the risks that exist within a market (and defining why and how you will succeed despite them) as we as the strategic risk in entering a market compared to the risk of not entering a market. Strategic risk management should compare not only the risks of the strategy but the reverse risks of not doing the strategy, the gap risk of missing the opportunity. Why are we going here not there is a classic question which I ask, and so often hear no coherent argument as an answer.

Strategic risk also covers risk analysis of the leadership and its approach to risk, how comfortable it is with risk reflects in how leadership teams actively manage risk which reflects its established risk skill set and appetite to risk across the board. How well can the senior team deal with risk, and to just ignore it, is an important element of risk analysis. 




4. Strategic Risk Assessment

Risk, any risk is defined by the potential impact of the consequences from it. The manifestation of its likelihood of occurring is the assessment which must be undertaken, this is often scrutinized by undertaking scenario analysis (driven by board, NED and expert support and advisors) will encourage the leadership to consider a range of scenarios that can result in significant adverse consequences for the business and assist the leadership to make sure full width and depth analysis of strategic risk is undertaken.

This assessment provides the basis of mapping the risk and determining the investment in mitigation required to reduce or remove that risk. Often risks are not seen across the business, the strategic risk assessment fails to understand that a company is a whole entity not just a product or service, so its IT, people, location and environment  are as vulnerable to strategic risk as is the market it operates within. Strategic risk is as (and often more) likely to occur within the infrastructure of a business as it is within a market. 

The other strategic risk assessment that is often under assessed (if at all) are global risks. The era of global issues from terrorist attacks, natural disasters or global pandemics are now part of strategic risk assessment.




5. Strategic Risk Mapping

The
leaders must see risk in the context of how shareholders or stakeholders measure value in the organization. This essential mapping of risk enables the leadership to articulate to stakeholders how the risks they are taking or the risks the business is exposed to may affect the organization’s ability to realize its strategic goals. By identifying common metrics for risk and performance also allows the leadership to define the priorities of risk management activities and focus on the mitigation of relevant and important and decision defining risks the board.

Defining Strategic Risk

The second step, in creating an effective strategic risk management system is to understand the qualitative distinctions among the types of risks that a business could face and determining how to actively manage those risk. Risks typically fall into one of three categories and here's how leaders should be managing them:

1. Managing: Strategic risks.

The leadership having determined the level of risk it is willing to take in order to generate the returns from its strategy, its risk and reward profile, leaders must then develop appropriate channel partners to achieve that strategy. From its bankers credit risk, its strategy of launching new products through to its channel partner selection, all these decisions impact upon the strategic risk strategy. 

Strategic risks are quite different from operational risks because they are not inherently undesirable; they are quite the reverse they are deliberately accepted as part of operating within that industry. A strategy with high returns requires the business to take on higher risks, and actively managing those risks is a key driver in achieving those potential gains.

Strategic risks cannot be managed through a rules-based control models, such as compliance to legislation. Instead, the leadership must install a risk-management system designed to reduce the probability that the assumed risks actually materialize and to improve the company’s ability to manage or contain the risk events should they occur. Such systems enable companies to take on higher-risk, higher-reward ventures by identifying drivers of strategic risk, most often these are identified through 5 Forces analysis within markets and systems usually include primary (and secondary fallback) detailed objectives which must be achieved which underpin the strategy to actively manage the strategic risks.    

2. Managing: External risk factors

Certain strategic risks arise from events outside the company and are beyond its influence or control, often identified through PESTLE analysis. These major macroeconomic risks are outside the market but directly influence it. PESTLE identification and analysis enable leaders to manage the external risks effectively, through proactive identification and mitigation of their impact. For example changing economic conditions may raise global interest rates, which put pressures on even successful businesses, which impacts upon costs and profits.

Businesses need to build a defined risk management processes to these different PESTLE categories. By identifying key drivers of external change leaders can devise stress testing through scenario planning and devise alternative strategic options should external risk factors come into play.

3. Managing: Preventable internal risks. 

Conversely internal risks, arising from within the organization, that are controllable and ought to be eliminated or avoided. Businesses should have well defined internal risk systems in place which includes a tolerance level, such as 95% of all calls must be answered within 3 calls, in other areas health and safety for example mandatory 100% requirements for the use of PPE and operating systems must always be in place.  

Businesses should seek to eliminate these risks since they get no strategic benefits from taking them on. This risk category is managed through active prevention by monitoring operational processes and guiding people’s behaviors and decisions toward desired norms.

Identifying and managing preventable risks is about good management of existing best practices within the legal and industry best practice.  Companies cannot anticipate every circumstance or conflict of interest that an employee might encounter, so ensuring that risk is talked about, reviewed and assessed against best practice. 

Managing Risk effectively

Risk is a difficult subject for leaders, precisely because it is seen as an operational detail rather than strategic in nature. Business planning sets over optimistic forecasts, from unrealistic timescales to launch new products and services through over inflated revenue streams.  This form of linear extrapolations, how leaders have done it before will be immediately repeatable with something new is compounded by the use of conformation bias, selectively picking supportive data and ignoring unsupportive data. This form of groupthink often limits the risk discussion by narrowing the discussion down to it will happen rather than taking a holistic approach to risk.

Other key drivers of strategic risk failure come from leaders ignoring industry activity, how fast and quickly competitors will react to any new strategic initiatives to minimize their impact upon the status quo and how channel partners and customers will sound supportive but will measure the risk to them and mitigate it by limiting their exposure to risk. How industries react to change is one important consideration from an effective 5 forces analysis of any market. How do they players react to change is often analyzed by war-gaming with scenarios played out in theoretical games to see the impact of industry competition.

By strategy mapping your business leaders can often assess all risks linked to objective setting, looking at risk events associated with each objective and generate a risk profile for each risk and associated mitigation strategy.

Recently the adoption of the balanced scorecard has become a major way of mitigating risk, by linking mitigation to performance driver indicators of behavior within the organization. This highly effective risk management tool enables companies to engineer risk out of departments through positive mitigation strategies.  

For areas of risk which cannot be mitigated from within the company, such as natural disasters or acts of terrorism, then developing contingency plans act as mitigation to unforeseeable external risks. Not putting all leaders on the same plane is a simple example of contingency planning as is having secondary operational site, should your primary site be unusable from either natural causes such as flooding or from acts of terrorism.

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Good leaders embrace risk, they do not avoid it and investing time and skills into understanding and actively managing risk is an important element of leadership.  Good strategic planning encompasses strategic risk assessment and leadership teams need to invest in understanding their risk if they wish to succeed in their market.