This week, Mike Vernon and Gill Avery of Consulting People Ltd explain latent risk, its commercial, social and political implications, and how it can be leveraged to business advantage.
You may be familiar with the story of Kodak and the digital camera. How despite creating the first digital camera and display device in 1973, refining the technology and making the first digital SLR in 1989 the company capitalised on these inventions through patents – not in the market place, and ultimately filed for bankruptcy in 2012.
In our opinion, the Achilles’ heel of the firm was not technological know-how, or even the managerial process to support cutting edge research and development. The problem lay in the cultural dynamic of the firm that protected legacy products at the expense of innovation.
How many situations do you know where this is the case?
Not long ago we were working with a very experienced programme manager. They described, with disbelief, how a seemingly well-planned programme had gone well over time and budget, leaving them with a sense of personal failure and concern about reputational damage.
Cultural landscape
The problem was they’d devoted insufficient time and attention to investigating and understanding the organisation’s cultural landscape. This meant that the reality of the organisation’s cultural risk context surfaced while they were trying to implement the programme and threw the team off course. As a result, many of the people involved left because the problem was too intractable for them to resolve: a huge cost to the company.
Highly-educated professionals have the know-how to innovate, but even when they’ve identified the goals, planned how they can achieve them, and – ostensibly – allotted sufficient resources, this isn’t enough to prevent the prevailing culture of an organisation blocking their path.
Another example. One organisation’s board members viewed marketing data in terms of their own agendas. They were more concerned about their bonuses and personal status than they were about than the company’s long-term prospects. As a result, they maintained legacy production lines and the company began losing market share and profitability. Under pressure to restore the glories of yesteryear, the very culture that contributed to the problems was used to try and correct the problems. The result? Compounded failure that made matters worse.
Latent risk occurs systemically. It is a result of culturally-accepted and ingrained patterns and behaviours that are no longer productive, yet form a cognitive bias that key decision-makers appear to be unaware of – leading to a form of corporate blindness
So how can risk managers begin to address the latent risk that culture may derail strategy – especially when this politically-sensitive area is one in which risk and line managers tend to be undereducated? The key for transformation is to include cultural data in programme and project planning processes, and to use predictive modelling tools to assess different scenarios.
Harnessing cultural data
Luckily, the company in the second example had a forward-looking CEO. They began a transformation process driven by their customers’ needs and experience of doing business with them. Over two years, the company invested time, effort and money into understanding what their customers valued about their products and services. As a result, they made the buying criteria clear and simple, used lean techniques to continuously reconfigure their production and service lines, and assessed benefits in terms of outcomes for all key stakeholders.
The impact?
Their market share increased, margins improved and the company’s share price went up.
Risk, culture cycles and political change
Research we’ve undertaken at Consulting People Ltd shows that effective well-managed organisations always face cultural challenges at points of growth, or when there is a significant shift in the political, regulatory and/or economic context (eg: Brexit). Being able to surface an organisation’s cultural dynamics through clear and practical ‘maps’ (we call these ‘culture cycles’), enables its leaders to estimate the timing and cost of various courses of action, predict how effective each would be and, importantly, to design change and transformation programmes so they strengthen an organisation.
Having worked for some forty years with individuals in organisations facing this type of challenge, we have designed a suite of practical tools for surfacing the latent risk within an organisation. Whether that risk is a product of professional expertise being misapplied or lacking, whether managerial vision, systems and control are appropriate or whether patterns of interaction between people across the organisation create ‘designed error’ within the culture, we can help you identify what’s going on under the surface in your organisation.
Thinking, culture & risk
Of course, having a tool and sharing results about where latent risk lies in your organisation may add to a leader’s thinking. However, deeper intervention is required when, as above, that thinking itself is contributing to the current culture. Our approach is to support risk mangers and their organisational partners to understand how their own mind-set, attitudes, belief and behaviour are contributing to the very factors they wish to shift and how they can bring true leadership – through being the change they want to see – and learning what it will take others to do what is asked of them.
3 tips for uncovering and leveraging latent risk
1. Identify a situation in your organisation about which you have some disquiet. Ask yourself whether it is the technical component, managerial processes or the patterns of interaction around that issue that is concerning you.
2. Share your observations with a colleague – how do they see the situation? How does this information confirm or change your way of seeing the situation? What does it reveal that may lead you to take action or change tack?
3. When you have handled risk effectively, reflect on what you thought, felt and did to address this situation.
Co-founder of Consulting People Ltd,Mike Vernon is an industrial sociologist, electronics engineer, Member of the Institute of Risk Management and an MIT Fintech alumnus. His experience is multi-sector and he has a keen interest in supply chain development. Mike is a speaking partner for senior individuals seeking to change their personal or business results and has supported many people in transforming the lives, situations and companies through his Double Loop Leadership approaches.
Gill Avery and her colleagues at Consulting People Ltd and Consulting Women coach people in designing how they use their strengths to create flourishing lives and businesses.
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