Enterprise Risk Management
Strategic Management and
Understanding the linkages
What is Enterprise risk management?
What is Strategic management?
What is Knowledge management?
Enterprise Risk management
Who are our customers?
What are they looking for?
How do we give it to them?
What is our business?
What do we need to know?
What do we know?
How do we bridge the gap?
Do we know what we know?
How do we convert human capital into
How do we expand our social capital?
The common thread
Being clear about who we are
Being clear about what business we are in
Being clear about who the competitors are
Being clear about what the competitors are
Being clear about our strengths and weaknesses
Being clear about the direction to take and the
way to implement
Understanding the business
Deregulation and changes in public policy have increased
The formulation, funding and operation of commercial
enterprises has become easier in recent years.
Competition can come from unexpected sources.
Trade liberalization and information technology (IT) have
facilitated the globalization of operations.
IT innovations have helped reduce interaction costs and enabled
companies to create more value at lower costs.
The traditional structural sources of competitive advantage,
geographic barriers, regulatory barriers and economies of scale
Intra and Inter organizational knowledge sharing and knowledge
creation are at a premium today.
Companies can no longer depend on their own capabilities. They
have to build networks involving other companies.
At the same time, unless they have extra
ordinary capabilities in
some areas, they will find it difficult to work with and mobilize
the resources of other world class partner companies.
Being clear about what we want to do has also become critical
This is increasingly an era of specialisation
One must be specialised and learn to work with other specialised
Sharing knowledge across the organization
Human interaction (explicit knowledge)
Technology (tacit knowledge)
Knowledge strategy effectively means identifying and developing
the knowledge required for serving customers, more effectively
Identifying which knowledge based resources and capabilities are
valuable, unique, and inimitable as well as how those resources
and capabilities support the firm's competitive position form the
core of a knowledge strategy.
The way the firm intends to compete with respect to
technologies, products, services, markets and processes
determines the kind of knowledge required to compete and excel
in an industry.
On the other band, the level of knowledge available within the
firm limits the ways in which it can actually compete.
Making trade offs
Putting in place a well thought out knowledge strategy
involves making major trade offs along three
The first addresses the degree to which an organization
needs to increase its knowledge in a particular area
(exploration) as opposed to exploiting its existing
knowledge resources (exploration).
The second dimension addresses whether the primary
sources of knowledge are internal or external.
The third dimension is concerned whether the KM
initiatives are IT centric or people centric.
Exploration vs exploitation
When an organization has less knowledge than that
needed to execute its strategy, when competitors know
more, when the industry is changing rapidly, and when
competitors are rapidly innovating, creating new
knowledge becomes the priority.
On the other hand, when existing knowledge resources
and capabilities are more than adequate to defend the
current competitive position, the organization can
further exploit existing knowledge within or across
business units and sometimes enter new businesses or
External vs Internal knowledge
Internal knowledge is found within individuals,
embedded in behaviors, procedures, systems;
recorded in various documents; or stored in
databases and online repositories.
External knowledge can be accessed through
publications, universities, government agencies,
professional associations, consultants, vendors,
knowledge brokers and strategic alliances.
IT vs Human contacts
Some companies focus on codification, i.e.,
codifying and storing knowledge in databases.
In other companies, the focus is on
personalization, ie building contacts among
experts, the role of technology being limited to
facilitating such connections.
The choice between codification and
personalization, must clearly be driven by the
company’s business strategy
Drilling down : It is all about learning
In today’s fast paced environment, learning is
Learning about competitors(Market and
Learning about customers(CRM)
Learning about creating new value(Innovation)
Learning about delivering value more efficiently
(Process efficiencies, Use of IT)
Learning about risk
Ancient wisdom of Peter Drucker
Businesses face four types of risk:
The risk that is built into the very nature of the business
and which cannot be avoided.
The risk one can afford to take
The risk one cannot afford to take
The risk one cannot afford not to take
Developing a deep understanding of these risks lies at the core of
Ref : Managing for Results
Learning about risk
Companies which can learn about their risk
better and faster will win the game
Trick lies in identifying the risks where the
company has an advantage
The jargon for this is Core competence
Existing level of knowledge determines how
effectively the learning can take place
These are non random risks
Different risk takers are in different positions to
learn about what drives them
Some risk takers can reduce their uncertainty
more than the others.
So companies must choose their strategy, and
the associated risks accordingly and develop
knowledge around these risks
Classroom learning is less important as a source of
Experiential learning contributes to deep smarts.
Past and future experience decide what kinds of risk the
company can take.
Risk intelligence is about making choices that our
natural run of experience can really penetrate.
What kind of deep tacit knowledge do we possess?
That others do not have and will find it difficult to
How frequently do our experiences relate to
How relevant are these experiences to what
might influence the risk?
How surprising are these experiences?
How diverse are these experiences ?
How methodically do we track what we learn?
How often are we learning?
Is this more than that of rivals?
Do we encourage learning?
How intensive is our learning ?
How well do our experiences typically
discriminate among factors influencing the risk?
Do our experiences provide more insights about
The surprise element complements relevance.
Surprising or relevant experiences tell us more
about the world.
Controlled experimentation under the guidance
of a coach can help.
Look at the tails of the normal distribution.
Recall the major disasters in the past 10 years.
Variety is important.
The more diverse the experiences the better the
Diversity helps to broaden the mindset.
When we have diverse experiences, we can
approach risks from different perspectives.
Do people take notes in meetings?
Do we keep electronic records of important
Do we keep records in such a way that people
can access and understand them easily?
Does this happen across geographies?
Is there knowledge hoarding?
Strategy is all about deciding how to compete
About deciding what kinds of risk to take and what not
KM is about building knowledge around these risks
Making sure that knowledge is widely disseminated and
available to the larger organisation
The connections between KM, Enterprise Risk
Management and Strategy are strong
Learning to manage what we don’t know, by
David Apgar, HBS Press, 2006
The Only Sustainable Edge: Why Business strategy depends on
productive friction and dynamic specialization, by John Hagel III
& John Seely Brown, HBS Press, 2005
Deep Smarts: how to Cultivate and Transfer Enduring Human
Dorothy Leonard & Walter Swap, HBS Press, 2005.
Zack Michael H., “Developing a Knowledge Strategy,”
California Management Review Spring 1999.
Hansen M.T, Nohria N and Tierney T, “What’s your strategy for
managing knowledge?” HBR, March