More than ever, boards get the importance of having a very clear and common understanding of the strategic risks facing their organisation (see Better Boards). When I say “common” I mean a common understanding of the risks amongst directors AND the executive teams. If you understand your risks, you are much more likely to devise a better strategy.
So what does ‘better’ look like? US professor Richard Rumelt, who has specialised in business strategy for over 50 years, reveals in his acclaimed book Good Strategy, Bad Strategy that good strategy is designed to overcome challenges, which are, of course, risks. However, if you do not use a risk lens on those challenges, you are missing out on an opportunity. Prioritisation of those challenges is therefore key to creating a better strategy.
A typical approach in the absence of using a clean risk lens is to pop the challenges onto a quadrant diagram with axes, such as ‘complexity’ and ‘opportunity’. The bigger the opportunity and the less complex the challenge, the more your strategy should focus on tackling it.
If you apply a risk lens first, your challenges are prioritised. Moving forward, you are very clear on which challenges are the greatest risk of maintaining a successful organisation and those that present the greatest opportunity. The former due to damage done, the latter because the organisation is not well placed to take an opportunity, which means you miss out. Worse still, a competitor wins out because they see the same opportunity and take it.
Once you have your strategic challenges articulated, assessed using a risk lens and prioritised, you can then set about designing your approach to tackle them, starting with those at the top of the list.
Has your organisation used a risk lens to clarify the challenges your strategy must address?