It’s Complicated: Organizational Risk Management

The biggest challenge in improving enterprise risk management is the complexity of implementation, according to 45.9 percent of respondents of a Deloitte online poll.

"Executives relying on conventional wisdom often miss the unconventional realities that can make risk management appear insurmountably complex," said Frederick Funston, a principal with Deloitte & Touche LLP and author of the recently released book, Surviving and Thriving in Uncertainty: Creating the Risk Intelligent Enterprise.

Respondents reported that most risk management initiatives spearheaded by senior leadership within organizations are focused on developing sustainable and repeatable skills, processes, and tools (29.7 percent) and improving the transparency of risk management for the board, employees, and other key stakeholders (17.9 percent).

Meanwhile, target areas for improvement include failure to challenge fundamental business assumptions (22 percent); inability to anticipate potential causes of business failure (15.6 percent); and failure to maintain constant vigilance for threats and opportunities (13.1 percent).

Funston recommends that executives and boards work toward risk intelligence as opposed to mere risk management. Methods he recommends include acting on knowledge on-hand, but being prepared to adapt; creating the tone at the top to incorporate risk intelligence into core business processes; leveraging the best of organizational culture, while improving cross-functional preparedness and coordination; focusing efforts on the few vital risks and opportunities, as opposed to ones that are trivial; and demanding discipline and accountability in execution by linking metrics to compensation and performance management.

The poll was taken during an April 2010 Deloitte webcast, which included more than 1,650 business professionals from the following industries: consumer and industrial products; financial services; technology, media, and telecommunications; and energy resources.

Recession Woes Change to Talent Management Worries

As the recession gradually wanes in its intensity, companies are growing increasingly concerned about key talent leaving. Sixty-four percent of companies are worried they may lose managers in a better job market, according to a survey of 262 companies by global talent management firm OI Partners, while 48 percent are worried they may lose executives.

Organizations may not be off base in their fears as more employees voluntarily quit their jobs in February, March, and April of 2010 than were laid off, based on information from the U.S. Bureau of Labor Statistics. February 2010 marked the first time in 15 months (since October 2008) that this was the case.

"There is a lot of pent-up frustration among employees who have survived layoffs, cutbacks, salary freezes, and other givebacks," said Tim Schoonover, chairman of OI Partners. "Companies have to demonstrate to employees that they are valued by investing in their career development, or they may lose them.”

The costs of replacing employees at the managerial and senior levels are quite significant when considering recruitment and training of both the employee who leaves and the new worker, lost business, and severance pay and benefits. For an executive, these expenses would amount to two and a half times her salary, and for a manager, two times his salary.

To retain managers and executives, 44 percent of companies are offering better salaries and benefits, and 60 percent are using in-house trainers and coaches.

In addition, organizations are also paying closer attention to who they hire in the first place as hiring the wrong managers and executives has been reportedly tied to low employee morale (83 percent), decreased worker productivity (78 percent); lost business and market share (53 percent); and high employee turnover (54 percent).

“Companies need to adopt an effective talent management strategy to identify, develop, and retain top talent and ensure that employees are achieving their full potential,” says Schoonover. “The survey demonstrates that businesses need to focus on coaching executives and managers in motivating employees, engaging them in their jobs more fully, and promoting better teamwork.”

Matrix Management

1. Is the matrix structure increasing in your organization? Let us know if you are seeing a trend towards flatter reporting lines and increased emphasis on collaboration. How does this relate to the strategy? What are the implications for the training function?