How business misses, mistakes lead to value destruction
While misses and mistakes can destroy an organization, they can also help uncover opportunities.
Value destruction arises from misses and mistakes undertaken by businesses. However, those two words don’t represent just the threats risk managers must take into account but also highlight opportunities not taken, according to Christopher Palm, chief risk advisor for The Institute of Risk Management South Africa.
Misses occur when an organization doesn’t do what it should have done, Palm explained during a RIMS LIVE 2021 session. He gave the example of South African retailer Stuttafords and how the clothing merchant missed the opportunity to stay abreast of changes in the world and consumer preferences.
“One of South Africa’s biggest retailers failed to evolve, failed to stay relevant to its customers and failed to differentiate themselves from competitors,” Palm explained, adding because of those misses, the retailer’s footprint has shrunk dramatically in South Africa.
Conversely, mistakes happen when a business does something it should not have. Palm offered up multinational Woolworth’s acquisition of David Jones as an example. Following the deal, the purchasing company failed to follow strategic objectives, and the acquired company lost 50% of its value “within no time,” according to Palm.
To combat this, he explained that organizations’ risk managers shouldn’t just make a list of the “bad” in order to manage those risks but also consider the “good.”
“For us to leverage every opportunity, we have to not just do less of the bad to prevent mistakes, we have to do more of the good to identify and unearth what we might have missed,” Palm said. “In that, we are making excellent decisions, creating value for the organization and ensuring sustainability as well.”
Yet, even the best-laid risk management plans face unexpected hurdles. In fact, Palm noted even when decision-making processes are outstanding and executed flawlessly, things can still go wrong. This is where risk managers can really shine if they are willing to integrate strategy and risk with resiliency by learning and adjusting when things do go wrong.
“In that is the definition of resiliency: Setting good strategy, using good risk management and learning from when things wrong to adjust strategy to survive and thrive,” Palm said.
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