One thing is certain: there is risk in everything we do – day-to-day activities and actions driven by past and future decisions or even inaction. Risk mitigation is an ongoing business reality and should be a major part of business model design to give it increased justifiable credibility and lasting value to advance the mission of your business.
The active management of risk is an ongoing, orderly transformational competency needed for a business to have a durable lifecycle.
Planning for and being able to implement risk avoidance and recovery strategies with tactical actions needs to be an integral component of a business decision-making process in order to avoid crisis situations. Simply put, risk management is the ability to anticipate and be ready to react positively to industry influences and marketplace changes with risk-abating solutions.
So many businesses get mesmerized by one business model (envisioned or implemented) and strategic direction that they ignore the possibility that the business model may not succeed as planned or that it will be incurring a shorter lifecycle than anticipated. In short, they are operating in a period of short-term complacency. Some of the more notable examples can be seen in Kodak’s desire to stay in the photographic film business instead of moving to digital photography, or Blockbuster’s desire to not enter the internet world by acquiring Netflix.
Risk influences can appear from many sources, depending on a particular industry. For example, business conditions, customer perceptions, competitor inroads, business model acceptance, technology changes, environmental impacts, natural disasters and regulatory compliance. Ignoring risk influences is ignoring reality which can lead to:
- Growth declines
- Eroding profits
- Loss of market share
- Damage to brand reputation
- Stock price decline
- Valuation decline
Risk Mitigation Solutions
Put on your investor’s hat and evaluate a business. Look for risk mitigation solutions as part of their strategic plans. This is an indication that they understand the business landscape in which they will be or are operating. Executives developing business plans need to be risk knowledgeable to ensure they have an adaptable pathway to the future.
Risk perceptions are in the mind of your business’s overall audience…e.g. customers, employees, funding sources, investors, suppliers and partners. To them, the extent of risk is real and will constrict their desire to be a business supporter. Dealing with risk perceptions is a transformational requirement often placed low on the to-do list.
The good news is that the degree of the perception of risk can be managed. A winning formula involves having actionable plans to react to the perceived risks influencing your business. Strategic plans need defensive strategic components to reduce risk perceptions. For example:
- Always have migration plans for product/service lifecycle rejuvenations and extension
- Develop contingency plans to address alternate strategic directional requirements and opportunities
- Create barriers (such as patents) to competitive market entry
- Have validated rationale for strategies and tactics
- Operate in a creative culture of continuous innovation and flexibility
Consequences of Risk Perceptions
Risk Perceptions can cause a contraction of financing options
Unchecked risk perceptions impact access to capital and concerns from lenders regarding what could occur, such as the risk of default. Clearly, risk perceptions will influence the extent of access to capital. For instance, credit risk which requires personal guaranties (such as collateral) or terms and conditions restricting the use of funds without lender consent. Risk perceptions clearly influence the level of interest of investors, and the ability to recruit employees and potential business partners.
Well-executed strategic planning will include justification rationale leading to the least risky courses of strategic direction.
Well-positioned risk managed solutions will lead to long-term durability. Perpetual planning and continuous improvement of core capabilities lead to evidence-based substantiation. Successful businesses need transitional strategies and tactics that include risk mitigation plans as part of their strategic and tactical rationale.
Mastering risk avoidance will give your business a significant competitive advantage. Start by prioritizing risks influencing your business and periodically update these priorities as needed. This needs to be a seamless and orderly process included as a part of strategic design activities. This is a great creative way to focus on a path to become and to remain a relevant, resilient, durable business.