Enterprise Risk Management

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Nov 6, 2013 (3 years and 9 months ago)

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Enterprise Risk Management
,
Strategic Management and
Knowledge Management

Understanding the linkages

Presentation

by

A.V. Vedpuriswar


November 2006

Introduction


What is Enterprise risk management?


What is Strategic management?


What is Knowledge management?

Enterprise Risk management


Identifying risk


Measuring risk


Monitoring risk


Decreasing risk


Increasing risk

Strategic Management


Who are our customers?


What are they looking for?


How do we give it to them?

Knowledge Management


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
organizational capital?


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
doing


Being clear about our strengths and weaknesses


Being clear about the direction to take and the
way to implement

Understanding the business
environment


Deregulation and changes in public policy have increased
competition.


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
have eroded.


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
entities


Understanding KM


Learning


Knowledge creation


Classroom


Structured


Explicit


Instructor facilitated


Experiential


Unstructured


Tacit


Mentor/coach facilitated


Sharing knowledge across the organization


Human interaction (explicit knowledge)


Technology (tacit knowledge)


Knowledge Strategy


Knowledge strategy effectively means identifying and developing
the knowledge required for serving customers, more effectively
than competitors.


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
dimensions.


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
customer segments

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
important


Learning about competitors(Market and
Business Intelligence)


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
corporate strategy.

(
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

Learnable risks


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

Experience


Classroom learning is less important as a source of
competitive advantage.


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
replicate

Key questions


How frequently do our experiences relate to
risk?


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?

Frequency


How often are we learning?


Is this more than that of rivals?


Do we encourage learning?


How intensive is our learning ?

Relevance


How well do our experiences typically
discriminate among factors influencing the risk?


Do our experiences provide more insights about
the risk?

Surprise


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.

Diversity


Variety is important.


The more diverse the experiences the better the
learning.


Diversity helps to broaden the mindset.


When we have diverse experiences, we can
approach risks from different perspectives.

Record keeping


Do people take notes in meetings?


Do we keep electronic records of important
results?


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?


Conclusion


Strategy is all about deciding how to compete


About deciding what kinds of risk to take and what not
to take


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

References


Risk Intelligence
-

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
Wisdom by

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
-
April, 1999.