Opinion | How ERM Keeps Large Revenue from Becoming Your Biggest Risk
Can a company be too successful? Make too much money? Can the nature of revenues pave the path to pending problems? Can large revenues end up being your company’s biggest strategic risk?
If the revenue growth is achieved in a disciplined, anticipated manner and honors a well understood strategy, then no.
But if your organization is bringing in revenues while thwarting and tripping up the company’s long-term strategy and core values, then yes. It has the makings of a potentially huge strategic risk that needs attention.
What do I mean? A few years back I had a candid conversation with a global sports apparel titan that enjoys undisputed success and brand recognition.
I was invited to their headquarters to discuss their desire to deepen their enterprise risk management (ERM) practice globally. I couldn’t help but wonder why a company with such unparalleled “success” would be so anxious to become more risk savvy.
All day during my meetings with the executive team, I heard about how great and how innovative the company was, how well poised they were to continue to deliver their products. They raved about their superior corporate culture. It was a virtual utopia. It appeared, however, that they had never had a formal risk management practice in place. They were enjoying success by virtue of luck in many ways. Risk taking was conducted in a cavalier, less-structured way.
By day’s end, I landed in the CFO’s office and was able to continue my probing. I asked: “How do you think enterprise risk management will help you? Why do you need my help?”
“We are too successful. Our success is cannibalizing our strategy. We need to fix this.”
It was a refreshingly honest answer. The CFO cited a worrying trend. It appeared some of their key buyers were very enthusiastic about their products. These buyers used very fat pens when ordering their products. At the surface and for the sales force, this is great and incentivizing news. But when these same retailers failed to sell the products, the manufacturer discovered their products were being resold to discount retail stores.
“Our strategy is to be a bespoke high-performance, ground-breaking sport apparel manufacturer. We need to control our supply chain or we will never achieve this. Can enterprise risk management practices help us get this under control?”
It was music to my ears. The number one goal of enterprise risk management is to protect a company’s strategic plan. ERM should be considered a close protection system that assures the delivery of a strategy in the manner you want to achieve it. Otherwise without supervision, the means can most definitely disrupt the end.
Getting big can be a great thing, but we cannot let our organizations get so big that it trips up the most important part of the company: its reason for being. We can get fat with revenues but not let the sheer weight topple our mission, our vision. Without disciplined oversight, you can easily morph into something unrecognizable, which is dangerous territory.
Enterprise risk management uniquely offers extra eyes and ears to watch and listen for trends. It can highlight when you are stepping outside your strategic lanes and may need a course correction. It is especially vital when the horizon of the organization gets so far away that you can no longer see it from your executive office. &