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Managing Risk in Strategy Execution – Part 1

October 28, 2011 at 9:19 pm Leave a comment

At first glance, it may seem strange to talk about strategy execution and risk management in the same breath.  After all, isn’t strategy execution about taking risks? And isn’t risk management about minimising them?

If this is your view, you are not alone. However, you might be interested to know that international standards (ISO 31000:2009) definition of risk is:

The effect of internal and external factors and influences that make it uncertain whether, when, and the extent to which an organisation will achieve or exceed its objectives.

This definition of risk implies that organisational objectives, determined through strategic and operational planning processes, should be central to the exercise of risk management.

When considered in this manner, it should not be surprising that risk management should play at part in strategy execution. After all, strategy execution implies change – entering new markets, targeting new customer segments, developing new products, changing business or operating models, deploying new technologies, executing mergers and acquisitions, the list goes on – and, change is always risky.

In an uncertain economic environment, strategy execution and change takes on a whole new importance. Public, private and third sector organisations, as well as functions and divisions within them, often need a new strategy to thrive in these new realities.  While “a rising tide raises all boats” in good times, in leaner times, there is less margin for error in strategy implementation. Indeed, the very survival of an organisation may depend on it.

In my view, there are three key ingredients to successful strategy execution:

(1) a good strategy;

(2) a system for strategy execution, and

(3) good risk management.

Okay, maybe they are other key success factors, but certainly these three are necessary, even if they are not sufficient.

What is a good strategy? There are probably as many answers as there are strategy experts. From a strategy execution point of view, I would consider a good strategy as one that: (1) the organisation’s leadership all buy into, and (2) the organisation is actually capable of executing. Larry Bossidy and Ram Charan, in their book Execution: the Discipline of Getting Things Done, wrote: “No worthwhile strategy can be planned without taking into account the organisation’s ability to execute it.” Of course, building capability is part of the essential work of strategy execution, but it can be tempting to underestimate the amount of time, effort and expense required to do so – even if the organisation plans to “buy” capabilities through outsourcing, acquisitions or targeted recruitment.

Having started with a “good” strategy, it remains true that most strategies fail due to poor execution – research from Kaplan and Norton, in The Strategy-Focused Organisation, puts the figure as high as 90%. Leadership teams sometimes have a “just do it” mentality that glosses over the challenges of execution, and managing today’s business while building tomorrow’s is a tough juggling act. That is why a system – a process and set of disciplines – for strategy execution is important. I will be outlining a system for strategy execution, as well as identify elements from the international standards for risk management (ISO 31000:2009) that are relevant for strategy execution, in the next part of this article series.

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Entry filed under: Risk management, Strategy execution. Tags: AS 31000, execution, ISO 31000, risk management, risk management standard, strategy, strategy execution, strategy implementation.