Tag Archives: organization

risks

Why Do Some Take Risks, Others Not?

Every time you breathe, you take a risk. But, usually, the potential for harm is greater if you don’t breathe. (There are exceptions, such as when your head is under water without a breathing mask.) Every time you make a decision, you take a risk; we take risk all the time, in pretty much every facet of our personal and professional lives.

But, when faced with the same situation, people will act differently from one another. A person may assess the risk differently from someone else. He may make a different decision regarding whether the risk is acceptable and which fork in the road he should take to address it.

In risk management, it’s fine to have defined risk criteria or appetite statements, but these rarely cover every decision a manager has to make. So, the manager has to make a decision based on what she thinks is best.

A number of experts will point to risk culture as the answer to this variance in decision-making. The experts seem to believe that some organizations are more risk-averse than others. But organizations are composed of people—different people in leadership roles with different backgrounds, experiences and biases. Organizations are not homogeneous. In fact, sections of an organization are not staffed with people who are identical in their attitude toward risk.

For example, on whether to select vendor A, B, C or a combination of the three, different people are likely to make different decisions. Manager X may have had a bad experience at another company with vendor A, while Manager Y used to work for that vendor. Manager Z may have lived through a disastrous experience where a sole-source vendor failed, so she will opt for a combination of two or more vendors. Manager Y may have just suffered a loss on the stock market that affects his desire to take risk, while Manager X has just heard he is a grandparent again. Even something such as a state of mind can influence a risk decision.

It’s not only that different people make different decisions in the same situation but that each person may make different decisions at different times. This is important because, as risk professionals, we want decision-makers to only take the level of risk that top management and the board desires.

To have consistent decisions on risk, we need to know the temperature and overall health of the organization and its decision-makers. We need to answer these questions:

  • Who are we relying on to take the risks that matter most to the organization’s success?
  • How can we obtain assurance that they understand the desired level of risk?
  • How can we obtain assurance that they will act as we desire?
  • How will we know when their risk attitude changes?

A survey will, perhaps, give you a moment-in-time view. However, people change. Managers and executives leave, new ones join and people’s perspective and desire to take risk changes, especially if they see their compensation or termination is likely to be affected by their decision.

This is a complex issue that risk professionals need to understand and assess within, and across, their organization.

Richard Anderson and I will be discussing this in our Risk Conversations coming up in April in London and Chicago. Details are at www.riskreimagined.com.

In the meantime, how do you address this variability? How do you know that your decision-makers will take the desired level of risk?

company

How to Build a Fail-Fast Culture

There’s a lot of talk these days about how failure is not just fine but fantastic.

Tech companies famously tout “fail fast”-style mantras. One of Facebook’s guiding principles is “Done is better than perfect.” Many start-up founders are known for having built companies that failed before finding long-term success.

The philosophy of encouraging mistakes and quickly learning from them complements the design-thinking movement. In this way of thinking, you’re encouraged to launch quickly, shipping imperfect product and iterating based on customer feedback.

But what role can this approach play in a slow-moving, large company? After all, many of the small start-ups that encourage fast failure will grow quickly, and maintaining that kind of culture as it scales is tricky. How do you treat not-quite-perfect, disappointing or outright failed ideas and projects as acceptable among hundreds or thousands of employees?

Here are a few guiding principles for instilling an innovative, fail-fast philosophy in a larger organization.

Set up mini innovation groups: I worked with an organization that set up small teams across the company with the mandate to drive innovations in the everyday routines of work. The teams discuss new processes, test their ideas and then present a summary of improvement initiatives. They share ways to extend their concept, and the teams look at other potential business implications. A review board makes the final approvals based on the portfolio and suggests ways to make wider impact. It’s an organized, civilized and, yet, wholly innovative way of working in a bigger company. And if the teams’  ideas fail? Well, at least they were given permission to try.

Focus on feedback year-round: If you were working on a new project and it failed to launch or didn’t perform well in a test, would you want to hear about what you could’ve done better from your manager a year later? Real-time development happens throughout the work days and weeks– not during an annual performance review – and allows you to constantly and more quickly improve. But this is a change you should make as part of a bigger talent innovation strategy in performance management – it can’t be executed effectively alone.

Recruit, promote and succession-plan differently: To encourage a fail-fast mentality, we must reimagine what we consider successful. Along with rethinking annual performance reviews, consider what guidance and framework you use to define a productive employee. Can you reward the team that boldly pushed new ideas, even if the ideas didn’t come to fruition? Is a top performer one who differentiated your brand in the marketplace with a new angle, even if it didn’t have the same broad reach as last year’s campaign? Adhere to what principles your organization’s strategy prioritizes, but ensure you’re not inadvertently punishing people who take smart risks.

Follow basic culture evolution lessons: Strategy+business magazine’s article “Culture and the Chief Executive” shared how culture can evolve by following four tenets, and they’ll of course apply here, too.  The basic steps to remember:

  • Demonstrate positive urgency by focusing on your company’s aspirations — its unfulfilled potential — rather than on any impending crisis.
  • Pick a critical few behaviors that exemplify the best of your company and culture that you want everyone to adopt. Set an example by visibly adopting these behaviors yourself.
  • Balance your appeals to the company to include both rational and emotional cues.
  • Make the change sustainable by maintaining vigilance on the few critical elements that you have established as important.

Know your limitations: Certain companies, organizations within an enterprise and missions can more easily afford to push the envelope and experiment than others. While inspiration can come from the tech world, there are limits to how far your organization can go. The key is to understand, challenge and ultimately work within these limits to foster a culture of innovation. Even in risk-averse circumstances, some businesses exercise the fail-fast philosophy on non-mission-critical projects that won’t harm the business, brand or customers if they don’t pan out. This approach can reinforce your culture and can empower and engage the team. It can even lead to new value if the idea can spark other future, more achievable initiatives.

It’s difficult to create a work world balance where innovation and creativity can quickly become executable projects or products in the market while also staying within the complex boundaries of a large organization — especially one that’s regulated.

But a learning culture that embraces fresh ideas, even those that could fail, is increasingly essential. More than ever, our clients ask PwC to help them stay competitive and innovative while smaller organizations threaten their growth. And, more than ever, big businesses risk losing talent to these companies, too.

To keep up, you’ve got to re-up. There’s little progress to be made by doing things the way you’ve done them in the past few years. If you consider how your company’s culture could better embrace risk and failed ideas, you’ll be better positioned to deal with more unpredictability and to grow in the future.

get along

Why Can’t We All Get Along?

More often than not, a large property and business interruption insurance claim turns into an “us vs. them” scenario, creating a rough process for all involved. Not unlike a football game, someone is always trying to win and is willing to do so at any cost. As a forensic accountant for more than 20 years specializing in quantifying business interruption losses and documenting property claims for policyholders, I’ve seen the good, the bad and the ugly. The problem is that the process is designed to focus on disagreements.

We’ve heard the concerns from our clients and the insurers, and we can understand both perspectives. Policyholders accuse the adjuster of being unreasonable, trying to stick it to the policyholder at every turn. Insurers accuse policyholders of trying to take advantage of the claim in an attempt to get more than they deserve. The battles can become very heated, even on a personal level. Once, during a claim meeting on a large loss, the discussion between the parties intensified until an executive from the insured side of the disagreement ordered the adjustment team to “get out of my building!”

Disagreement in the course of a property insurance claim is an anticipated part of the process, but there are ways to keep it civilized and productive. It is possible to come to a fair representation of the loss without all the aggravation. The fix is really quite simple, but it will require the insured and insurer to take responsibility for their contribution to both the problem and the solution.

Here are some ways insurers can improve the claim process:

Take time to understand the insured’s business 

Too often the adjuster wants to appear to know it all. It is better to listen first and try to understand the insured’s position. Understanding your customer is common business sense.

Adjusters should have superlative people skills

A big part of an adjuster’s role is to coordinate with experts needed for a given situation. These are management and organizational skills. In other words, the adjuster does not need to know all the technical aspects of every loss and would be better served knowing more about how to manage people and deal with customers. Whether it’s from retiring baby boomers or cost cutting, there is a lack of well-trained and experienced adjusters.

Give the adjuster more control 

Even the best adjusters are impaired by the current claim process; Adjusters seem to have limited authority to make decisions. Policyholders find it pointless to explain their issues in great detail when the real decision maker is somewhere in the background. When pressed to make a decision, policyholders just throw their hands up. It’s difficult to make any progress when the adjuster has to get every little decision approved by superiors. To the insured, it just seems like a delay tactic to put off payment and only adds to feeding mistrust.

Here are some ways policyholders can improve the claims process:

Give the process a chance 

While there are many times you will experience some of the problems mentioned above, the process can work with the right people involved. Communicate with the adjuster and his or her team. Be responsive to all requests that are reasonable and appropriate and ask for clarification and address your concerns right away.

Maintain good relations with realistic expectations

Set realistic expectations for what you want, such as advance payments and resolution of differences. Though insurers are not obligated to finance a rebuild project, they should be willing to advance money to stay ahead of the cash expenditure. By maintaining good relations with the adjuster, insurers will be more open to working with – rather than against  you.

The best defense is a good offense 

On your end, be prepared and organized so you can require the same of the insurance company. You cannot withhold information until the last minute and then demand resolution and payment. The faster you answer questions and requests, the faster the insurance company can review them. Often times, it takes them longer to review the support you provide because they review the information in a vacuum. Don’t assume they understand what to ask for or what has been presented. Promote frequent meetings and discussion to make sure misunderstandings are not made part of their reports to underwriters. Once it is on the record, it is harder to change.

Escalate when needed

If issues start to arise that cannot be resolved, rather than letting it fester, escalate it to the markets involved. It is no different than speaking to a manager at a restaurant. It’s better to deal with decision-makers when action is needed. However, this should only be used as a last resort to avoid litigation.

The insurance claim process has its flaws. I don’t think it’s intentional but rather a result of how it has evolved. The best approach to improving the process is by recognizing the challenges with an “us vs. them” mentality and finding a way to work cooperatively through the claim. Both sides need to help to fix it so that more claims get resolved as they should.

Communicate, Communicate

In an increasingly digital world, the modern day update to the old real estate refrain of “location, location, location” may be “communication, communication, communication.”

It may also be true that companies are only as good in the customers’ mind as the quality of their last transaction. That is particularly true when there are infrequent transaction, thus limited opportunities to make up for mistakes. In financial services, banks may have daily transactions with their customers, but insurance companies have far fewer transactions, many of which are associated with unfortunate events. Finding a way to make the most of these interactions can be important in retaining customers for the long term, in a world of low switching costs and lots of transparency.

I was reminded of this when I got an email alert from my personal lines property and casualty carrier. Like much of the East Coast, we found ourselves dealing with a winter wonderland over the weekend, which included icy roads, snowy hillsides and falling trees. Many people lost power.

In any event, the email alert reminded me that our carrier was aware of the potential implications coming from the storm and was ready to help. The message included various forms of contact info and was an opportunity to remind me of the benefits I can gain from the relationship. As my thumb moved to delete the message, I was reminded of the value of the coverage, and I realized this was one of the few messages I’ve gotten that didn’t convey a billing increase or some other “bad” information.

I had been thinking that the renewal would be coming in four months and that I probably needed to begin shopping for coverage to see what the market looks like, in anticipation of another premium increase. Getting the email reminded me that insurance is not just about rate but also about what happens when the world goes sideways.

This realization leads back to a challenge – which is to say an opportunity – for carriers to start thinking differently about the form and frequency of interaction with customers. Different demographic cohorts may have preferences for different communication channels, but one likely universal truth is that individuals want to know that they have the opportunity to do the same thing that other “smart people” like them are doing.

Amazon, of course, does a remarkable job with this. The retail brokerage investment company I deal with is nearly as good, and, as a consequence, there is little chance I will ever look to move assets. Conversely, the life insurance company I have had a relationship with for three decades only has a dialogue with me when sending documents required by regulation. In fact, when I have chosen to initiate dialogue with the carrier, it has proven to be both painful and incredibly time-intensive to get things done.

The recent example with my homeowners insurance was a pleasant surprise. It might even cause me to slow the shopping process or be more accommodating of the rate increase, which is no doubt coming.

All of this has potentially significant implications for the marketing and technology organizations for insurance carriers. Increasingly, the competition is not against other, similar companies. The issue really becomes how well carriers operate against a customer service standard that is being framed by retailers and financial institutions that are more transactionally intensive. As the lines between traditional industries and products families become blurred through the use of better technology, carriers will need to up their games considerably to maintain relevance.  Checking in on customers after an unfortunate event is a step in the right direction.

growing

If Growing Gets Tough, Tough Get Growing

Successful businesses continuously draw on their strengths – and their people – for growth.

How do you describe the strengths of your business now? How would you describe the strengths that you’ll likely need in a year? In a few years? And how do these strengths translate into the skills your people will need in the future? For most companies, the answers to these questions are always evolving, as disruption increases and the pace of business picks up.

We’ve seen the recent evolution of companies’ capabilities — like fast-food chains rolling out deluxe coffee-shop menus, or utilities delving into smart home appliances.

A lot of organizations have solid processes for evolving their business strategies. But as sound as the development and approval process is, it often leaves out an important aspect: Can your people evolve, too?

Most CEOs aren’t certain that theirs can. In our latest CEO survey, nearly 80% of U.S. business leaders say they’re concerned that a lack of key skills threatens their organizations’ growth prospects.

This stat raises the question: Are some of these organizations taking their growth strategies too far afield, beyond their core strengths, in a desperate search for faster growth?

In Strategy+Business Magazine, we recently wrote about how companies that deliver sustainable growth remain true to what they do best and take advantage of their strongest capabilities—what we call a capabilities-driven strategy.

It takes a substantial effort. As we say in the story, “If you respond to disruption by changing your business model and capabilities system, you can’t dabble. You have to commit fully.”

That level of commitment is only possible, of course, with the right people to step up and deliver on your company’s greatest strengths.

Think of the potential talent issues at hand for so many businesses: How does a legacy technology company avoid disruption and commoditization? How can a fast-food chain turn up its café side of the business without trained baristas on hand? How can a utility amp up the tech-savvy talent needed to design Internet-and-data-fueled thermostats and security devices?

They’ll all need to align their talent strategy with their business strategy.

In our advisory work with clients, we are in frequent talks with companies that need to make these moves. And talent is at the top of the priority list.

Before preparing to grow your strengths, think about the capabilities in your current ecosystem of people and where gaps might pop up: 

People strategy, leadership and culture: Does our people strategy support our growth initiatives (and, more importantly, is there a strategy)? Is the right leadership development system in place, including a robust global mobility program? Will our culture support the execution that’s required?

  1. Reward: Does our compensation and benefits strategy still fit? Is pay competitive? Are there areas to be restructured that could free capital for re-investment?
  2. Talent acquisition: Do we need to pull in brand-new talent by strategically hiring from the outside or by making strategic acquisitions?
  3. Organization design and operating model: Have we designed an organizational structure and operating model that have clear links between all our capabilities?
  4. Change management and communications: Do we have the right program management structure and strategic change methods for execution? Do we know who the real information brokers are in the organization who will informally drive the change?
  5. Technology: Do we have the right technology to support the kind of employee experience our people need? Are we leveraging workforce analytics to retain our top-performing people, and are we conducting frequent employee surveys to understand the pulse of the organization?

These are just a few of the talent areas that are important to understand.

Odds are you won’t need to revamp all of them. But a carefully designed and innovative talent strategy underlies the successful evolution to get growing.

 To read more details on the strategic changes you may need to make to stretch your growth, read the full article, “Grow from your strengths” in strategy+business magazine.