5 Reasons Why Managing Risk Goes Beyond Tightening Rules
There is more to managing risk than ensuring external regulatory and compliance requirements are met. Indeed, a modern, fast-moving business faces risk every day. Alex Poppleton, Principal Consultant at Kotter International, here talks to CEO Today about the potential once compliance is no longer the pinnacle of every decision.
There are simply too many variables involved, right down to the most micro of operational levels, for codification to capture and mitigate risk in all its forms.
But certain organisational cultures are better disposed to understanding and managing risk than others. The more effective organisations tend to base decisions and behaviours on principles rather than rules, focus on learning rather than blame, and have a more fluid rather than rigidly hierarchal approach to management.
Understanding this is one thing, implementing it is an entirely different matter.
The first stage in initiating complex change such as managing risk differently is to recognise that there is a problem with the status quo. Even then, when an organisation reviews its attitude to risk and methods for managing it, there needs to be a clear understanding of the cultural aspect of how the organisation works and an ongoing commitment to achieving the most effective culture.
So, what steps can an organisation take to broaden and improve its approach to risk?
- Move from rules and procedures to principles
An organisation that relies primarily on procedures and rules for managing risk tends to have a reactive, compliant culture. People simply follow procedure, creating an almost machine-like, unengaged attitude towards decision making.
An organisation that manages risk based on effective principles rather than on procedures will be more adaptable and resilient. But these principles must be genuinely shared throughout the organisation as a lived reality and not simply exist as a set of buzzwords. Employees at all levels need to feel empowered to make decisions based on these principles and be trusted to do so.
- Move from a compliance culture to a values culture
A rules-bound organisation often sees decisions made based on questions such as, ‘Is this allowed?’ or ‘Can we justify this?’ It isn’t a stretch to say that in such cases decision making is often protective and inward looking resulting in ‘grey areas’ being shut down quickly rather than explored.
Decisions are far more effective, from an organisational growth point of view, when based on values that allow a degree of freedom and autonomy. Again, this needs to play out across the entire workforce with everyone encouraged to act on the organisation’s values rather than simply be mindful of its rules.
- Move from punishing failure to learning from it
An organisation that punishes failure does itself an injustice. It misses out on the learning that comes from experiment, innovation and tangential thinking.
Look at sport. While a sporting event only has one winner, all who take part can grow skills and enhance resilience. A strategy used at work which does not pay immediate dividends might nevertheless contribute to learning and lead to further innovation.
- Move from murky to transparent leadership
A hierarchical, structured decision-making regime where information is shared ‘as needed’, isn’t conducive to a feeling of collective ownership and shared purpose. Employees lower down the hierarchy are unlikely to feel a sense of belonging or ownership in the organisation’s successes. In such a culture, expecting people to take ownership of risk on anything beyond their immediate role description is a non-starter.
More openness and a greater sense of transparency and trust, even when outcomes are unknown, can foster a more experimental approach.
- Learning to let go
It is vital to a more open, shared attitude towards risk to develop people’s ability to make decisions based on clearly articulated principles and values. A principles-based approach engrained into the organisation’s DNA gives people freedom to express ideas, challenge and question practices, and make mistakes without feeling vulnerable to punishment.
Inevitably senior staff need to lead in creating this kind of organisational culture, and then to put relentless energy and effort into ensuring it is maintained. It is for the senior team to generate a culture of transparency and trust that is then embraced by all employees, and that a principles-based culture becomes the lived reality.
The leadership skills required to develop and foster a truly principles-based culture aren’t always present in senior managers who may never have worked in that way themselves. The first steps might be for the senior team itself to learn to let go of a rules-based approach, so that they can lead by example.
We hear often about modern business having to be agile, responsive, informed and disruptive. Such characteristics are more likely to be found when people are invested in the organisation and proud to be a part of it, than where they see themselves as bound by rules, hierarchy and fear of failure. Principles-based working is the route to freeing people up to be their very best, which results in accelerated success for the organisation.