Risk and Strategic Intelligence
One of the issues that has concerned me over the years is who is not only responsible for understanding what might happen (both risks and opportunities) but also has the capability to do so.
The easy answer is that operating management is responsible for understanding, evaluating, and addressing what might happen that could affect their business and its ability to achieve enterprise objectives.
That’s the easy answer, because I see the risk function as helping management do that. The risk function shouldn’t own the risk or be responsible for identifying and assessing it.
But do either have the capability to do it well?
A Wall Street Journal article, Building a Corporate Strategic Intelligence Program, got me thinking.
Should an organization establish a function whose job it is to survey and monitor the external environment? If so, should it be on targeted areas rather than the whole potential landscape? (The discussion in the article does not include threats or opportunities from internal sources.)
In the article (which has content by Deloitte but is written by an executive from Invesco, the company it profiles), the Strategic Intelligence function is not part of the risk function.
Effective strategic intelligence functions are often well connected across organizations, especially with risk management teams, and well positioned in the organization’s strategy-setting process. They also often report to a C-suite leader to enable intelligence to be elevated to the highest levels of leadership in the organization.
I think this is an idea that is worth exploring.
It would be a team with expertise in analytics and other tools, and access to other sources of research.
What do you think?
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Norman Marks on Governance, Risk Management, and Internal Audit 
Norman, definitely a good idea. Such a team needs to understand :
The business
Its competitors
The market in which it operates
The opportunities and risks presented by the market or new markets
The information available which highlights opportunities and risks
The tools available to analyse the information
The tools available to implement ideas
A board which welcomes new ideas.
In theory this is an attractive idea. I am concerned, however, that it will not deliver on its promise. There are some risk events and emerging unknowns where having a centralized function watching and assessing would be good. Cyber attacks, major acquisitions, geographic expansions, social media attacks, etc. all represent potential risk events that a central group could help explore and manage.
However, I would be concerned that this same function “expands” to believe they should handle most situations that are not functional based or extremely isolated, removing handling of most risks from the business. A central group is not needed just because there is overlap across business teams. When I was the global finance director for business, we clearly had risks that overlapped with other businesses – sometimes raw material, sometimes supply chain, sometimes markets. However, even in a $50B company, I personally knew the other dozen global finance directors and I would work with selected others to address common areas of concern. A central function would have been inefficient and the wrong party (I have several examples which are too involved to mention here).
If you could contain a centralized strategic intelligence function to only those areas for which they bring value – great. However, this is hard to pull off when you set some people up as THE “strategic intelligence function.”
I believe many, if not most, companies will benefit from looking outside itself on opportunities as well as threats to the current strategic direction. I am much less certain this should be contained within a single function as they may not have the capability and insights needed to find what is out there, even when looking.
Instead, I suggest a corporate explorative culture where everyone are encouraged to look for new opportunities and threats. The range could be extremely wide:
– Current/proven technologies applied in new ways (the most common disruptive approach)
– New, automated processing of e.g. administrative taks
– New market conditions
– New consumer/customer preferences
– New (of falling) competitors
– New focus areas
If I was to suggest what a risk function could add to this is:
– Support/expertise in “looking” approaches (e.g. bow-tie analytics, scenarios, pre-mortems etc.)
– Support/expertise in quantifying methodologies
– Potentially, if wanted, collection and reporting to management to streamline management processing
At the very least, the “risk advisory” function should be notified if/when things found which may be a threat as well as when opportunities are being pursued
I think that your question is straight-forward and appropriate. Certainly, many organizations employ economists to provide expert guidance in navigating that particular form of external environment. As a general statement, strategies should be informed by subject-matter-expertise. Wise organizations recognize that very important externally focused assumptions (e.g., interest rate movements, staffing assumptions, climate change) are always embedded within their strategies. But which assumptions are truly impactful? That takes expertise. If the organization lacks that expertise in its base management team, then using specialist advisors is clearly sensible.
This wouldn’t typically be thought-of as a risk activity. Although, as you correctly state, a well-formed risk function can often provide helpful analytical and reasoned-thinking as decision aids. But the management team must know what knowledge/data they actually need. Having a varied core team of advisors with different lenses and expertise (i.e., diversity – what a concept!) is helpful.