Aligning your enterprise risk management framework to the board’s strategic objectives

Many industries are facing a high-stakes challenge; a combination of regulatory requirements, macroeconomic forces and ongoing industry trends that have combined to exert unprecedented pressures. 

In today’s increasingly dynamic and uncertain environment, a sustainable competitive advantage no longer arises solely from position, scale and first-order capabilities. While traditional approaches to strategy development and execution have assumed a relatively stable and predictable environment, the rise of the digital economy has disrupted traditional business models.

A well-defined digital marketing strategy combined with access to disruptive technology, has enabled many start-ups to secure funding, scale quickly and gain market share. In addition, start-ups and incumbents alike are finding ways to move into new markets, blurring industry boundaries like never before.

Boards increasingly expect risk leaders to engage in strategic discussions of importance, re-orientating the role of risk leader towards one of strategy development and execution. Boards make tough choices whether to innovate or diversify the existing business model, allocate capital to new projects or launch new products.

Risk leaders are increasingly being asked to align the enterprise risk management framework to the board’s strategic imperatives, increasing the need to develop adaptive frameworks that integrate risk and capital management with strategy.

This has created the opportunity to elevate the role of risk leader to one of an enabler of value creation and value capture. In today’s dynamic environment, risk leaders must be capable of taking a holistic view and providing insights across all activities of the firm. This may include contributing, or even leading an iterative open innovation processes to accelerate the delivery of value through collaborative engagement with start-ups.

To successfully rise to this challenge, risk leaders must adopt strategy mapping and risk assessment skills that uncover the linkages between uncertainty and strategic value levers. This approach improves business leaders understanding of the uncertainties that influence the “get-rights” for success, in order that strategic decisions can be made on a risk-informed basis.

Strategic decision-making

When asked how they demonstrate strategic decision-making, many risk leaders would point to:

• effective oversight of major investments such as large transformation programmes
• preparing a forward-looking strategic risk assessment

While valid in their own right, these two examples are often anchored to strategy execution –implementing what has already been agreed by the board.

To demonstrate the true value of enterprise risk management, risk leaders should first understand the changing business context in which the firm operates, and secondly complete a forward-looking assessment of the strategic options that are in the process of being formulated by the Board.

Influential networking

For many business leaders, enterprise risk management is seen as reactive and not aligned to the firm’s strategic imperatives and key metrics.

While many risk leaders have adopted dynamic risk management tools such as stress and scenario testing and horizon scanning to anticipate and respond to the changing context, this still leaves the challenge as to how these tools should be applied in practice? For risk leaders to increase their strategic influence, they must frame and position these tools purposefully to bring new understanding and insights about how to manage the impact of strategic risks on earnings, capital and reputation.

Summary

By adopting strategic decision-making and influential networking, risk leaders can:

• think ahead and be mindful of all stakeholder needs, whether they are present or not
• remain focused on actions that are within their control and are important (not today’s urgent list)
• remind themselves that success is driven by focusing on results and relationships
• solicit different points of view that are often contrary to your own

Risk leaders will increasingly be required to lead boards through complex discussions that reconcile difficult trade-offs between risk and reward. By developing strategic decision-making and influential networking skills, risk leaders can bring new understanding and insights to business leaders.