Beware the Gray Rhino, not just the Black Swan

Risk managers can be too focused on the Black Swan risks they fear might blindside their businesses, while neglecting the so-called Gray Rhino hiding in plain sight, the risk management and compliance director for IKEA China has warned 

The fast-changing risk environment means existing business models – if they are not questioned and refreshed – might be unsustainable within a few years due to societal or market factors that are already observable.

Robert Zhang (pictured), board member at RIMS and IKEA China’s risk management and compliance director, spoke to StrategicRISK at the recent RIMS 2018 event held in San Antonio, Texas.

Is your business prepared?

“People constantly talk about the Black Swan in risk,” said Zhang.

“But they should focus more on the Gray Rhino. Try to support the company with strategic and operational decisions, to the board and management levels,” he continued.

Such risks – defined as highly probable, high impact but neglected threats – can catch companies off-guard, despite being in plain sight.

“Take the Internet of Things as a potential example. Is your business prepared?” said Zhang.

“That’s going to happen regardless of what you do or don’t do as a company, because society and the market is changing around you.

“You need to consider the environmental and sustainability factors to your business model, and some businesses choose to follow but some choose to lead in this topic,” he added.

Enterprise risk management (ERM) plays an important role in bringing all aspects of the business with a holistic approach to support management decisions, he emphasised.

Disruptive technology will make business models obsolete, Zhang warned, putting increased onus on trying to plan long-term and taking global trends into consideration.

“You need to start considering these Gray Rhino risks, because the research and development and developing the right services and products within your own business doesn’t happen overnight,” he said.

IKEA’s China business was in the vanguard for launching its ERM practice across the company’s multinational operations and also being perceived as a leader in this area by peer companies in China.

“We started our ERM programme four years ago for China and at group level, and we were among the first countries to roll it out the risk management process (RMP),” said Zhang.

“We’re living in a rapidly changing business environment, and the risk registers we produce are seen as a valuable contribution to the management team and board,” he added.

Asia Pac perspective

Zhang started off his career as an insurance broker at Willis (now Willis Towers Watson) in the US. He moved to Shanghai in 2007.

“It was a huge change for me, talking to a different group of people with different priorities and opinions. It was a career changing moment when I made that move, to be part of day-to-day operations, focusing on ERM and internal controls, as well as insurance,” he said.

“Chinese investment overseas was starting to take off at that point. In China at that point there was only a small handful of full time Risk Managers. Still now, not every company has a Corporate Risk Manager,” said Zhang.

Zhang has been on the board of RIMS since January 2015, adding Asia Pacific perspective to the industry body which has global objectives, but the chapter-level membership of which is still mostly North American.

“I asked myself at the time what I bring to the RIMS board. There’s certainly a matter of perspective, as the only board member at that time working outside of North America, which fits with RIMS’ global objectives for learning and sharing experience, not just in North America, but worldwide,” said Zhang.

The recent RIMS event in Texas boasted around 900 participants from beyond North America.

E-commerce plans

In China, IKEA is on the verge of launching its new E-commerce business, Zhang said. “As we planned, it’s being rolled out from Shanghai later this year,” said Zhang.

Chinese consumers are very experienced in the E-commerce shopping environment.

“According to external agencies’ research, from concept and development, through to the service or product going live, tends to be around 6-9 months in China. Whereas in the US that could take up to one year, and in Europe perhaps a year to eighteen months,” he said.

On combating cyber risks – a recurring topic at the recent RIMS event – Zhang emphasised the necessity of thinking in terms of the global legal and regulatory environment.

He noted that the US government is reference the EU’s new General Data Protection Regulation (GDPR).

“GDPR is important, but China and Russia have also come out with their own cyber and data protection regulations, which are important to achieving business strategies globally,” he said.

Insurers can still do more to help risk managers better mitigate and transfer their cyber risks, Zhang argued.

“I still think we could get more cyber risk support from the insurance market.

“While the market has progressed in recent years, there’s still either not enough capacity in certain risk areas, or the covers are too expensive for many companies to consider,” he added.