I usually start my risk management trainings with the question “why do cars have brakes” and examples of some of the responses I get include:
- To stop the car
- To prevent accidents
- To slow down
These responses seem logical and they are correct , however, these are incomplete answers and they indicative of how people understand risk management . People believe that risk management is only to minimize losses, prevent bad things from happening and generally approach risk using only defensive strategies. This is a narrow notion that only focuses on Value Preservation.
High Growth Companies understand the “Uncertainty Advantage”
The Hyundai story below from Gary Lynch( Author: The uncertainty Advantage), explains how a company was able to turn recession to its advantage;
In 2008 and 2009, the recession in the United States deeply affected auto sales. John Krafcik, CEO of Hyundai Motors America (HMA) explained that people were not buying cars, and the reason was well understood by Hyundai. “Dramatic drop-off in car sales was due a general sense in the public that people were losing their jobs everywhere. he stated that they recognized that people weren’t buying cars out of fear of losing their jobs,” Krafcik explained. Hyundai discovered that it was possible to navigate this situation to create market advantage rather then reducing manufacturing.
At that time, an insurance company (EFG) had gone to the Big Three auto manufacturers with an idea to solve this problem, but all three companies rejected it. The timing was right once the company came to Hyundai. Their idea led to development of the Hyundai Assurance Program. Customers were able to take their new cars back to the dealer and give them up if they lost their job, and there was no negative effects on their credit scores. Krafcik touched on the core issue: “We saw this as an opportunity.”
Why did Hyundai recognize the value of this program when the other auto companies had not? The differentiator was that Hyundai’s management team had a growth leader, market-driven mind-set, and performed its internal analysis to better understand uncertainty among customers and competitors.
The great lesson here is clear; companies that commit to deeply understanding the origins of uncertainty and reconcile mind-sets (market, leaders, and managers) can better address it. Listen for it, sense it, pounce on it when it arises.
For risk managers to justify having a seat at the table , they will need to demonstrate how their organizations can navigate uncertainty through a changed mindset, leveraging on their capabilities and competencies to beat the competition.