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HR As Strategic Partners In Managing Risk Presentation V.3

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    Notes on slide 1

    Give a bit of profile of who ICORM is and linked to riskWaves Focus of ICORM

    There is a new generation of risk to your objectives: They can be discussed in three different ways: Management must agree on the key objectives of the organizations and how will decisions be made in the achievement of those objectives (Clarity of Direction) To those objectives, what could stand in the way in the future? What emerging risks might be identified that is not already a problem? What strategic capabilities do we need to ensure we can sustain our business model and execute strategies? What future opportunities and threats must we prepare for now and take actions for effective risk management? What role does HR have in positioning now for future opportunity? HR has several roles, but what matters more is the level of effectiveness they bring to their role > > > > > > > >

    Perspective in HR versus accounting, sales, marketing or production depts. One might initially think that HR is only about people. People are an integral part of the organization that makes up an operating system that includes processes and technologies . Risk to human resources and to the organization can have many categories: Financial Reputational Environmental Social Legal And others The role that HR plays at a strategic level of the organization is an important contributing factor in the formation of a risk philosophy in the organization. HR is positioned to articulate not only the organizational culture but also the risk culture

    Notes: Remember your role: Setting the standards and expectations with respect to conduct and behaviour Ensuring that effective risk management is enforced through an effective performance management system I will suggest to you that there is no point going into any kind of strategic planning process until Organizational Objectives are crystal clear in your and your team’s mind If you have more than 3-4 objectives you have too many and some won’t get done or looked at as a priority Execution and Risk Management are dependent on the clear articulation of the “4 Boxes” . . . What is an objective? What will we achieve? The ‘thing’ we are all here to achieve and the centre of all we do How will we know when we’ve achieved it? The strategy must be clearly linked to achieving the outcomes of the stated objective. Each strategy will require a whole different set of criteria and will suffer from different types of gaps, or possibly surplus capacity. Make assumptions and continue to check them Typically this is quite a difficult exercise for Executives to engage in. It does not allow for any ‘muddled’ thinking One of the ways to reduce the challenge is to think of strategic and operational alignment

    We were trained to solve problems with questions and experience. Each of Audit, Compliance and Risk have a distinct and recognizable place in the organization. Audit and compliance help you to look at the known “issues” . . . Dealing with Emerging Risk goes beyond the known issues to look at the links and interdependencies that define Risk The key is to challenge assumptions about the future. You can no longer look at risks independently of each other.

    Culture is one of the greatest assets or detriments an organization has that largely contributes to how effectively they achieve objectives. You are the keepers of the culture We bring our own cultural biases and have to blend them with the organization Communication is the single greatest factor in being effective or NOT

    Notes: One of the greatest influencers of how risk is viewed is the mindset that prevails. How risk is viewed (positive/negative) will impact how the risk philosophy is developed and stated Risk averse mind sets, will typically not embrace change and will view opportunities laden with risk They typically see risk as a threat and are often thought to have a “Bottom Loop Bias” indicating a preference for situations to remain static. Conversely, individuals that embrace change and growth , focus on opportunity. They are often thought to have a “Top Loop Bias” indicating their preference for growth. Organizations that have a Top Loop Bias, understand that new opportunities are addressed through the setting of clear objectives and alignment across the organization. The blend of the culture around performance, innovation, communication, collaboration and the general mindset lays the foundation for how gaps are created to exist. Gaps that create risk and impact performance. HR has a significant role in what happens in organizations that have gaps – and every organization has some > > > > > > > >

    HR has a number of different roles in identifying and dealing with various gaps: Asking Questions Aligning capabilities to performance expectations Creating the environment for Innovation Providing support for resiliency Promoting and encouraging Adaptabliliy Adaptability is not a new concept. We have been focusing on ‘Change’ for many years and change will continue to occur, but just that word alone cause anxiety. Adaptability is the ability to be flexible without the same anxiety

    Key Points: Much like a suspension bridge it is not enough that the horizontal and vertical alignments are maintained. Each of the quadrants of an alignment have diagonal tensions that create a balance/pull on the strategic or operational capability to meet objectives. The underlying tools allow an organization to know which gaps are creating risks and providing direction to know where management focus is required.

    Risk Tolerance and Risk Appetite can be viewed as: Your ability to name how much you will tolerate and in what areas . . . Strategically and operationally is paramount. How will you do that? What are we willing to accept in our level of effectiveness in achieving our objectives if we are not at 100%? That means: There will be some decisions errors Some objectives and their outcomes just may not be achieved There may be some strategies that are not executed well or at all There may be some operational problems that we have to deal with, some may be significant There may be problems with having the right talent and/or capabilities in the organization

    In positioning to achieve objectives, more and more organizations are taking from leading practices of very successful organizations . . . . Use capabilities as a strategic advantage Be outward looking . . . . To the customer HR Role is to strategically engage all the leadership to look outwardly from which to develop strategically coherent capabilities Seek a portfolio of capabilities that includes: Ideas Skills/Competencies Products/services Distinct practices/processes Tools Make it hard for competitors to copy or catch up Determine what you have Determine how to close the gaps Divest if that’s what you’ve got to do

    I had an opportunity to read through several documents that outline what the implications of the Green Energy Act will be. Some of the new opportunities may actually be new sources of risk for the sector if decisions There are fundamentally two types of decisions to make: > > > > > > >

    Key Points: Management will have a different view of risk depending upon the opportunity to realize a vision or the threat of a crisis. The tolerance for risk typically diminishes over time if the uncertainty is not contained or if the expected outcomes don’t meet expectations The tolerance for risk while driven by its culture, we might also understand what the overall risk mindset is embedded in the culture To the risk mindset > > > > > > >

    Complexity: When a situation is simple (i.e., consisting of only a limited number of variables and contingencies), decision making becomes trivial Uncertainty: (closely related to complexity). Not all possible outcomes are known, so probabilistic information is inevitably incomplete. If a decision maker would be able to calculate the odds of success for each option this process would take a considerable amount of time, but in the end he/she would be able to find the single best option, based on mathematics. Mathematical outcomes are not always sought. Rationality: Assumes that there is calculation and intention behind the rationale; in other words: the decision maker tries to rationally analyze the odds to achieving each outcome. The rational decision maker is expected to have extensive knowledge of all the relevant aspects involved in the decision situation. Rationality in decision-making is nothing but a basic assumption of decision-making models Control: If a decision maker has no form of control over the situation, decision making becomes irrelevant. Adaptability: > > > > > > > >

    What contributes to failure in decision making – What is it about managing that is failing??? These are significant contributors to poor performance as well

    Military: Medical: Financial: Telecommunications: Energy: Health Care: Municipal: Transportation: Natural Resources: The Service Industry:

    There is a story from the UN campaign in Kosovo in the late 1990’s, when large numbers of Muslin Kosovans fled the country to become refugees in neighbouring Albania, the British . . . .

    3 Steps to building strategically coherent capabilities: Identify the strategic capabilities you need to build ID drivers of demand Those that will help you deliver products/services Focus on capabilities that would characterize your entire co. not just a business unit (i.e. GEC has Six Sigma) Understand how those capabilities distinguish your company – precisely what tools/processes enable superior performance (i.e. Pfizer advertised that Listerine reduces plaque – using scientifically backed claims - credibility) Ultimately: sold to Johnson & Johnson for $16.6 Billion – more than 20X earnings Fill in the Gaps: Risk Based Decision to Build Focus on the product/service development investment and business/talent acquisitions that would give you the capabilities you need most, while complementing what you already have Example: Bank of America acquires MBNA in 2005 – already had a massive retail customer base . . . Adding credit cards 2008 – purchased CountryWide Finanical – mortgages & loans Merrill Lynch – brokerage Despite the financial crisis – acquisition was consistent with strategy Divest business or capabilities that don’t fit: This will save you money – if you are not developing your highest priority capabilities Bank of America and P&G continue to build distinctive innovative capabilities that are applicable to their sector and business categories Central to achieving objectives over the next few years will be knowing what opportunities and threats may face your sector > > > > > >

    Notes: This is an example of how one health care organization positioned the ‘strategically coherent capabilities’ they will need over the next 3-5 years in order to execute on all the priorities. On the Y axis (Peformance) Identify the level of performance needed: Strong, Adequate, Weak On the X axis (Importance to) this signifies what contribution makes to the organization staying static, advancing or having a successful breakthrough (innovation) The Strategically Coherent Capabilities, don’t all have to be in place at the same time. They will be staggered depending on the organization’s need. This applies to Boards also. Many of today’s boards are competence based. How will the mix of competencies change over time as accountability grows on different fronts? How will capabilities of Management Change? How will the Board determine what is strategically coherent today and what will be needed in 2-3-5 years??? The capabilities you describe must be linked to your objectives and strategies How might you initiate this discussion at the next Board/Executive retreat?

    By identifying your gaps and capabilities (Knowing your current limitations – strategically and operationally) By understanding your opportunities (which capabilities to fund – strategic and operational) By examining what to divest y Optimize capital (what’s at stake financially?)

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    HR As Strategic Partners In Managing Risk Presentation V.3 - Presentation Transcript

    1. HR: A STRATEGIC PARTNER IN MANAGING RISK SUTTON PLACE HOTEL, OCTOBER 6, 2009 Dragica Grbavac, Executive Director, International Centre for Operational Risk Management HR Summit 2009
    2. A New Generation of Risk Objectives & Decisions Strategic Capabilities Emerging Risks Objective Strategic Clarity Do we have a process to Identify and Manage Position now for future opportunity or threat
    3. Role: Maintain Perspective Three people can look at precisely the same thing and see or think something entirely different THE RISK
    4. Role in Setting Strategic Direction The Most Fundamental Element of a Risk Management Framework Objectives WHAT will be achieved? Outcomes How will we know when we’ve achieved the objective? (evidence) Strategy HOW will we get there? (Strategic & Operational Plan) Assumptions What assumptions must be continually checked?
    5. Role: Strategic Accountabilities AUDIT Yesterday COMPLIANCE Today Tomorrow
    6. Role: Keepers of the Culture Risk Culture awareness reporting decisions learning Values Assumptions Beliefs Norms Collaboration
    7. Risk Mindset
      • Risk Bias:
      • Bottom Loop Bias
      • Focus on Challenges and Threats
      • Top Loop Bias
      • Focus on Growth and Opportunity
      Remain Static Grow & Innovate Fixed Mindset Risk Intelligence remains static Growth Mindset Risk Intelligence is continually developed
    8. Identifying Gaps
      • ASKING THE QUESTIONS
        • How do our current capabilities or structure contribute to or deter the achievement of objectives?
        • What sorts of attributes and behaviours do we need from our employees if they are to contribute fully to achieving objectives?
        • If we were to start again, how would we design, in totality, the sort of organization we want?
      • Creating the environment for INNOVATION
      • Providing support for RESILIENCY
      • Promoting & Encouraging ADAPTABILITY
      • ALIGNMENT of capabilities to performance expectations
    9. Strategic & Operational Alignment Processes and/or Systems Customers & Stakeholders Strategy People X Responsive Informed Suitable Oriented ICORM © 2008 All rights reserved May not be reproduced in whole or in part
    10. Gaps in Effectiveness = Risk Strategy & Results 90% © All Rights Reserved Processes Systems 80% Clients Stakeholders 90% X GAP: 10% GAP: 23% GAP: 40% GAP: 22% People & Leadership 85%
    11. HR Effectiveness and Capabilities Driven Strategies
      • Use capabilities as a strategic advantage
      • Be outward-looking . . . To the customer
      • Seek a portfolio of capabilities
      • Make it hard for competitors to copy or catch up
    12. Risk-Based Decisions Made Today . . . . Impact the Reality . . . . . . . in 20 years Wind Solar Biomass
    13. . . . . In the Context of Current Tolerance and Appetite for Risk Opportunity Threat Uncertainty Vision Crisis  
    14. Most decisions are operational risk-based decisions vs. Strategic Decisions What’s the difference?
      • Complexity
      • Uncertainty
      • Rationality
      • Control
      • Multiple outcomes
      • . . . . But which outcome
      • Multiple (logical) paths to outcomes
      • Conflicting inter-dependencies and priorities
      Strategic decisions are those that make a commitment to large amounts of resources in order to achieve organizational goals through appropriate mean s
    15. How HR can drive effectiveness & performance Source: Kelley School of Business, Indiana University, 2007
      • Effectiveness of Communication
      • Ineffective Leadership
      • Person to job mismatch
      • Clarifying expectations
      Frequency of decision errors &/or managerial failure :
    16. Ineffective Communication (Training/Learning) If we don’t know what’s expected, how can we be productive? 81% of the time Failure may be attributed To failed communication or Lack of Training
    17. Ineffective Leadership/working relationships 78% of poor decisions are due to weak leadership or ineffective relationships
    18. Capability and Capacity: Who’s doing the job and how? 69% of decision errors are due to ‘Job Mismatches’
    19. Who’s expectations need to be met? Who makes the decision ? 64% of expectations are not clearly defined Ext. Stakeholders Your Organization Customers/Employees Corporate Ideas & Thought Leadership Risk
    20. Building Strategic Capabilities . . . Navigating TOWARD the needs of the future © All rights reserved
    21. Adaptability with Foresight
      • “ The British Army recognized that it needed to become more adept at quickly and efficiently assembling large quantities of tents and building temporary encampments. They didn’t know to whom to turn for help. Then someone had a brainwave: Ask a circus. Who would know better than those in a circus how quickly and efficiently to assemble temporary tent structures? They do it all the time!
      • It is unlikely that the circus people had ever realized that their ability to erect tents quickly and efficiently was something marketable. They probably thought they were in the entertainment business.”
    22. How to get started
      • Identify
      • Build
      • Divest
      Objectives Strategic Capabilities Decision Making Emerging Risk
    23. Bridging the Divide
      • The future needs the relevant skills that will meet the changing organizational expectations
      • Will the capabilities be coherent??
      RISK
    24. The future in the next 4 - 5 years Emerging Opportunity Emerging Threat 1. 1.
      • Capabilities Needed:
      • To Advance the Strategy:
        • Managing
        • Resilience
        • Risk–Based Decisions
      • Create a Breakthrough:
        • Performance
        • Innovation
        • Adaptability
      Capabilities Needed: To Advance the Strategy: Create a Breakthrough:
    25. EXAMPLE: ILLUSTRATIVE EXAMPLE in HEALTH CARE Strong Alignment Adequate Weak Performance Importance to . . . Surpluses Gaps Customer Responsiveness Strategically Coherent Capabilities Performance Management Status Quo Advance Succeed Finance Cost Management Technology Supply Chain Management Audit
    26. Capabilities Driven Strategies in HR
      • Identify: Understand your current limitations
      • Build: Decide which capabilities to fund
      • Divest: Optimize capital (human and other)
    27. The Benefits
      • Open Innovation
      • Focused Decisions
      • “ Better Fit”
      • Long-Term Advantage
      • Higher Margins
      • Capabilities drive strategy 5-10 yrs.
      Source: Strategy + Business, Issue 53
    28. Think outside the Cave
      • This is not easy
      • The alternate is worse
      • Weather the storm
      • Build on genuine need
      • It takes time
      • Foresight is crucial
      • Get equipped
      • Getting to results
      • Questions?
      • Dragica Grbavac
      • Dragica.H.Grbavac@icorm.org
      • 416.449.7475
      Thank You
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