Latest / The Decision Advantage / Risk Management: A Strategic & Competitive Advantage (Part 2)
Transcript
- speaker-0: Welcome to the Decision Advantage, a fusion intelligence podcast by Fernand Consulting. I'm Brian LeClaire, and today I'll be continuing my discussion with John Hart, the director of grounded risk management at Fernand Consulting. John, welcome back to the show. ⁓ in our last show, we talked extensively about your background and your experience along with a leadership concept that you have around leading with care. speaker-1: Thank you. speaker-0: So I encourage everybody to check out part one of this conversation. But today we'd like to dig in a little bit deeper into risk management and communications, if that's okay with you, John. At Ferdinand, you work closely with both intelligence analysts and executive teams. ⁓ in high stress global moments, why does communication between those two groups fail? And how do we bridge that gap so leaders can make more resilient decisions? speaker-1: Yeah, it sounds good. So first of all, I think the breakdowns that you're referring to are maybe not necessarily breakdowns, but slight disconnects at the very least, right? That occurs. ⁓ I I think that's something it's it's based on a on a structure, on a challenge that exists all the time, but then it's in periods of turmoil that sometimes it becomes more evident and more of a concern, right? So speaker-0: Right, you can see it better in those situations. speaker-1: That's right. And and it matters. Sometimes it's more impactful when there are quick decisions that need to be made. and and I think partly it's because of the vast difference in the scope of responsibility for the executives versus the technical experts or the intelligence analysts that they're working with. And that level of responsibility, the scope of responsibility and the importance of the decisions that need to be made by the executives, first of all, s oftentimes are not well understood by the people that report to them. ⁓ because you sometimes you just gotta walk that journey to really know it, right? The people beneath them are in their own worlds and and they don't really understand w what's going on above them. And then you talked about the geopolitical turmoil that comes sometimes. Well, it's in times like that the leaders really feel the pressure, even more so, to make good decisions fast. And so they are just even under that much more pressure. to ⁓ t to be able to ⁓ to to to make those decisions. And what can be the what they can be super challenged by is the flood of detail that e ends up being poured out to them. So I mean, executives often have thousands of pages of analysis and reports and recommendations to read and to work through in a single week just for the meetings that they've got to get through that week and the decisions that are going to have to be made. And What leaders really need to be able to do is they need to focus in on what matters most and make the decisions that matter most that are gonna move the needle the farthest on you know whatever the strategic challenge is or the objective is that they're trying to reach at the time. And they can't do that effectively if they're just given more and more detail to wade through. They need their teams, the experts, their analysts to sift through all of those details to exercise their judgment. about what really matters most and to tell them succinctly what matters, why it matters, and what should be done about it. At CBA we called it ⁓ the what, the so what and the now what, right? And we literally had that in our paper templates, right? To let people know how to write papers. It said, tell us the what, the so what and the now what, right? So and it's a really it's a it's a very hard thing to do. I I used to struggle with it myself because I wasn't always in the C suite, right? I started out as one of the experts also. And I had to I had to r escalate that information up. I remember one time I was I was dealing with a manager ⁓ or a leader, ⁓ an executive ⁓ at at in GE Money. ⁓ I remember giving this guy all kinds of details because that was a very difficult decision I thought that having made that was gonna have a big impact on my team. And and I really wanted it to go the way that I wanted it to go. So I I was giving all kinds of supporting information. So I thought if if anybody read through all this detail, they'd be like they'd be absolutely certain ⁓ we gotta do it this way. And ⁓ and it was also honestly partly sometimes it was because I I wanted them to know how hard it was gonna be to do what they might actually ask us to do. speaker-0: Right. And also prove that you had thought about this and did the work and speaker-1: Yeah, yeah, absolutely. Right. ⁓ and I remember him saying to me, I don't want all this detail. Just you know, and and sometimes he would say, Just tell me what really is the bottom line, right? And so then I'd give him that. But if I didn't give him all the details, sometimes I got an answer that said, Just do it. Right. He'd make a decision that I didn't think was fully informed and well informed. You know, and he would say, Just do it, just get it done. And I'm like, I don't think you understand. Now, in order for me to get it done, there's all these other things that we're gonna need this, you know. So ⁓ sometimes that's gonna happen, right? And then and then as a as the person that's doing all the reporting, you feel like I felt like the solution was just to give them all the information all the time. But that wasn't that really wasn't the answer. The answer was that I I ha I should have done a better job of recognizing how incredibly busy he was and making sure that I picked out, you know, only just a handful of things, not and don't bury them in a whole bunch of material that that he's not gonna want to or not even have the capacity to read. But then ⁓ so I understand that struggle, right, for people to figure out how to how how to reduce the amount of ⁓ of or the volume of information that you're putting up. But I've also seen the struggle from the other side, you know, ⁓ as being the one who's receiving all of those reports. And man, there's nothing that'll drive you more crazy than reading through. You you could be on page six hundred and thirty two of a pack and you're in appendix D and all of a sudden ⁓ you know, there's one line in appendix D that says something that you go, ⁓ my gosh. That could be that's like the make or break it piece right there. Why is it in the appendix? Why did I have to discover that on my own? Right. What if I had missed it? You know? so it's it can be frustrating to to feel that obligation from a a leader's perspective to get through all that. Well, in a time of crisis you can't. You you because you got too many decisions, you got too many things to look you don't you don't have the luxury of sitting around on a Sunday afternoon and reading all the papers for the you know, for for the meetings that are coming up on Monday. So because you're spending that Sunday afternoon instead in crisis meetings, right? So ⁓ so so it's that I think it's that gap between in terms of the level of detail, but also I I think there's a trust. So you asked how you how can you bridge that gap, right? I it it's not I don't think it's gonna be bridged immediately, but executives and their teams can work on building trust over time. The experts need to be able to have the the ⁓ well first of all said the executives need to be able to have trust that their experts are gonna exercise good judgment and they're only gonna tell them what they need to know. When experts have that level of trust, then they don't ask a lot of other questions. They don't they don't because when when they when the when the executives ask hundreds of questions, then the people think, ⁓ my gosh, I have to have all those questions answered ahead of time and I might as well put all the answers in the paper and then you try to predict all what questions the executives are going to ask and answer every possible question up front in the paper. That just leads to a cycle of misery for everybody. ⁓ but if the executives can can trust that they're they've built a capability in their team, they've they th that they can trust that the teams are making their judgments and telling them what they need to know and then making their decisions on the back of that, when they can leave the responsibility with the people who are reporting to them to make those decisions and then they make the decisions based on the information that's provided to them. Now that trust sometimes has a trust but verify, right? You do spend some times when you go and you check and you the the trust is earned over time and you do the work to build the trust. But once you can get to that point where you can trust and it's better for the for for the the leaders and for the people. And then the the experts then, you know, they can trust their their their own capability, but trust is built on capability, consistency, and communication. But they can begin to trust their leaders though too, right? It's a two way street and they trust that their leaders are not gonna all of a sudden you know, make them pay the price 'cause they didn't have all the all the detail in there up front, right? That I'm giving them what they asked for. Then see if you build that communication ⁓ style, then the leaders can manage, they can make better decisions, but they can manage their risks better as well. Cause too often people treat all risks equally. And and and and they just they they lay out, here's all the concerns that you should be worried about, right? And then the the executive's sitting there thinking, Well, I just got a bunch of chicken littles working for me, all they're doing is raising the red flag at everything. ⁓ but please I need to know what red flag is gonna hurt me the most. Focus my attention there, please. And then tell me what you're doing about it. speaker-0: Right. So I mean it sounds like there there might not be a solution if when a crisis hits, there might not be a solution there if you haven't prepared for it. speaker-1: Right. Right. So so it's good to prepare for it. Yeah. speaker-0: So this leads us to like just risk management in in general. It seems like there's there's too many organizations that just, you know, see risk management as a compliance checkbox. How can leaders change that mindset so that they're being more proactive and it's it's not just a checkbox that that they're actually trying to do these things ahead of time? speaker-1: Yeah, well, first of all, the leaders themselves have to change their mind that I they gotta change their mindset so that it's not just seen as a com administrative ⁓ checkbox, as you say. When leaders are really focused on their strategy and they recognize that strategy and risk always go hand in hand. No matter what strategy you put together, there are always gonna be some kind of risks to that strategy being successful. And so for you to take the time to evaluate those risks, ⁓ and then to manage those risks. all you're doing is improving your strategy. So if you see risk management as one of the greatest tools you have for effective execution of your strategy, then then that then then you don't see it as like a burden, ⁓ a compliance burden that you have to bear, but rather you see it as a protective ⁓ opportunity, then that that that certainly helps at least to change the mindset a little bit. But you also talked about turning it into a genuine competitive advantage. Right. And I think that can really make a big difference and that can really help the mindset as well if you can If you recognize that in any endeavor, there is always risk. And therefore, there is always a risk premium. There is always a cost to managing the risks and or if you don't manage the risk well, there's a cost to bearing the impact of risk events. Right? So in any endeavor, there is a cost of risk. It's just a fact of life. ⁓ and that risk premium will always affect Profitability. Right. So it it might increase expenses, it might increase losses. Likely it'll increase both. And if you have increased expenses and you have increased losses, then you are in a position where if you want to protect profitability, you have no choice but to raise prices on your customers. And if you raise the prices on your customers, you might put yourself out of business because your customers aren't going to come. All right. speaker-0: Everything could spiral out of control. speaker-1: Yeah, and and well where your customer's gonna go? They're gonna go to your competitor, your competitor who figured out the risk premium, who's better at managing risk than you are. They're better at assessing their risks, better at pricing their risk, better at more efficiently and more effectively controlling their risks. So and by the way, to manage your risks well, it takes a lot of intelligence. I mean a a you know, analytical ⁓ work, a lot of inform good information, a lot of good intelligence, but it also requires a really healthy risk. culture. And that's really hard to do in an organization is to have good risk frameworks and it it which includes a really strong risk culture. So if you can put that together, that will be a competitive advantage for you. Because a competitive advantage is an advantage that's something that's not easy for somebody to follow. Otherwise if somebody else can just do it, then it well, it might be a competitive advantage, but only for the two weeks it takes for somebody else to pick up on it, right? So so i if you can really manage risk well, it's a great opportunity for you to build a competitive advantage where your risk premium will be lower than everybody else's and then you can give people better prices for it or else you can give your shareholders better profit for it or you can give more to your employees in the process, whatever. The point is you've got more ⁓ more more capital available to to to spread out where it's wherever you need it for your strategy. speaker-0: Yeah, so at Ferdinand we talk a lot about intelligence as as a service or SA, and it sounds like that's essentially what you're talking about. Get management on board with these these things so that they can make faster, better decisions based on intelligence. speaker-1: What you really one of the things you really, really need to manage risk better is good information and and good intelligence. What you really want to focus on being able to do is an effective risk assessment and in order to and then build a risk management plan, those two things. Assessing, understanding your risks, identifying your risks, assessing what the inherent risks i are, what the likelihood and the severity is of an inherent risk. That's before and when I say inherent risk, I'm talking about the risk of of ⁓ to your organization before you put any of your mitigations in place, any of your controls in place, right? Or if you didn't have those controls, that would be the in the inherent risk. So because the likelihood of of of ⁓ of a cyber attack, for example, may increase ⁓ when there are more ⁓ you know more more bad players out there that are trying to attack you or when you become more important and you become more of a target or something like that, right? ⁓ and the severity could increase. ⁓ but that but that's a function of just the existence of the risk or the existence of who you are as an organization. But what's really important for executives is to evaluate your residual risk position. That's the position that's that's that's what the likelihood and and the severity is of ⁓ of of a risk event after consideration for your control environment, right? So you need to be able also to assess the overall effectiveness. of your control environment. That's how how how well designed are your controls. Are they designed to actually detect all the risks you think they're going to detect? Are they designed to pre to prevent you know the risks, all the kinds of risks that might come in or the little nuances that might come with this very specific risks that you're talking about? A lot of times control design is where it fails because you and the executives go away thinking, ⁓ we've got this great control in place and it's working really well, but we're not even It's like it's almost like saying I've got a lock on my front door and therefore my house is locked and everything's okay and we don't even realize that our control design doesn't recognize I got a back door that's wide open. Right? So ⁓ so but the point is and here's the thing, the way you need intelligence is sometimes you might be locking your front door, you might be locking your back door, ⁓ but what you don't realize is that you also got a cellar door that has a padlock on it. But that padlock is rusted and somebody else has figured out how they can get through it. I you know, ⁓ that's a silly example I know, but the point is that that you need to sometimes you don't know what the worst is when you don't know what you don't know, right? And then ⁓ but intelligence can can fill in those gaps for you so that you're in a better position to be able to assess the likelihood and severity of your inherent risks. You're also in a better position to be able to effect ⁓ assess the effectiveness of your control design and the operating effectiveness of your controls when you've got that that information and that and that intelligence. So I think that's a a key place where Fernand can ⁓ and intelligence as a service can be a really critical ⁓ opportunity ⁓ for people to build that competitive advantage that we talked about so that they can manage their risks better, have that better risk premium. keep their prices better than everybody else's and deliver better profitability for their shareholders. speaker-0: Yeah. A win-win for everyone. Yeah. ⁓ so so as we close out today, if there's like one key takeaway that you'd want to give to an executive leader, what what would that be? speaker-1: That's right. ⁓ well okay, so ⁓ you asked for one, but I'm gonna give you I'm gonna give you two. Because ⁓ because ⁓ my first message for executives is always to stay grounded. speaker-0: Give us a law. Right, which goes back to a conversation in the first episode. speaker-1: That's right, right. So that's the that grounded in your purpose, grounded in your vision, grounded in your values, your business strategy should already be aligned with your purpose and it should already be designed for you to fulfill your vision. But in that context, then my one core message for navigating today's dynamic global risk environment would be vigilance. Carefully identify and assess your risks. And the overall effectiveness of your control environment. Often one of the greatest challenges in assessments is getting the right information and intelligence, like we just talked about, right? So if if you're not able to identify your relevant risks, then you're not able to manage them. ⁓ and and and and then you know and if you don't have the right information, then you're not really necessarily doing it. You could be fooling yourself in what you've decided is the likelihood and the severity of those risks. And if you don't have the right intelligence, then you may not be able to effectively test your control design and your operating effectiveness, like we just talked about. So it's it's and it as I said also, it's often what you don't know that'll bite you. But with vigilance, you should always be on the lookout for what you don't know. You should always be looking for more intelligence. And intelligence by from in my perspective from my view per by the way, intelligence is information, but it's very specific information that's relevant and it's actionable. you know, to to to to the situation at hand, right? To for for your environment. So you need information, but you also need people who can take that information and turn it into intelligence that can really help you to in this case, in this example, manage your risks better and and to be vigilant. That'd be that that's that's my one core message. speaker-0: Sounds great. All right. Well, thanks, John, for that ⁓ great risk management chat. And ⁓ yeah, so be sure to check out our ⁓ part one of this conversation where John explains his leading with care initiative. And we also talk about a lot of other stuff that you should check out. So thank you for coming, John. speaker-1: Okay. Thank you. speaker-0: That concludes this week's show. Thank you for tuning in to the Decision Advantage.