Today, senior leaders are measured not on how they manage problems, but on how they manage change. A strong case can be made that managing change should be the top priority of senior leaders because it speaks to one word: context. In the world of risk management, context is king. It informs the downstream decisions complex organizations make with respect to the capabilities it needs to build, the technical and organizational capacities it needs to develop, and the way it communicates internally and externally.
Being able to meet the changing demands of stakeholders will require most companies to transform their approach to risk management. We see four major drivers that are changing the context in which complex organizations operate. These will influence the definition of materiality, what risks are managed, and how risk information is measured and communicated to internal decision-makers and external stakeholders. Neatly packaged, the 4 Ds that influence context are: Decarbonization, De-formalizatoin, Decolonization, and Digitalization. This was brought to my attention during a conversation I had and I expanded on that discussion. Let’s explore them in more detail.
Decarbonizing the economy is on the critical path of our existence on this planet. The timing to do this is aggressive and the challenges, while many, are not insurmountable. There has been a growing number of businesses announcing emission goals and climate change initiatives to reach net carbon neutrality by 2050. This is a positive movement, but to reach net carbon neutrality companies need to do more and stakeholders are expecting more. Today, businesses must have actionable plans to reduce their carbon footprint across their business and throughout their supply chains and disclose this information publicly. Businesses that prioritize sharing details including carbon emission data, processes, and performance metrics related to their decarbonization efforts will earn and maintain the trust of stakeholders and emerge as industry leaders. This is a significant shift in what businesses are expected to do.
In the age of smartphones and instant access to information, organizations that can de-formalize their engagement with stakeholders will be perceived as more trustworthy. Giving people throughout the organization access to accurate information and the authority to respond to stakeholder concerns ensures that information can be disseminated quickly. Stakeholders receive information from a trusted source that incorporates local context which help makes the message relatable. Gone are the days of ivory tower communications that disseminate ‘the message’ through stodgy channels only for the message to be out of date by the time it arrives to the stakeholder. Being seen as ‘out of touch’ is no longer an option. Making risk information relevant, timely, and of high quality will help separate leading organizations from their peers in the eyes of their stakeholders.
A phenomenon of organizations that operate in foreign jurisdictions is the adoption of a one size fits all approach to all phases of an operation’s lifecycle. It assumes that what works in one place can be replicated and applied effectively in another. Decolonization refers to changing business processes, approaches, and the mindset of senior leaders to treat each jurisdiction as having unique needs, interests, and challenges, and require solutions that reflect these. Not incorporating local context, practices, and people into the solution all have the hallmarks of an outdated colonial model that simply will not work in the 21st century. Think of the push towards standardization in the 1980s and 1990s in the name of ‘efficiency’. Billions were spent with that goal in mind only to make organizations more brittle at the time of asking when local context dictated a different approach to delivering products and services thousands of kilometres away. Context cannot be standardized across sub-national regions. It is now seen as hyper-local as the definition of stakeholder has evolved to become more inclusive of those adjacent to an organization’s value chains.
Digitalization is the process of modifying business models through the adoption of advanced technologies to create value. Organizations that focus on strengthening data literacy will lead the way. Having the capacity to collect, analyze and visualize the right risk data will uncover insights that help improve processes, develop new products, identify new customers, and measure performance in a dynamic fashion. It also enables new ways to deliver products and services to new markets, and disseminate information to stakeholders. Digitalization is not the same as digitization. Digitization refers to doing what you are already doing better. Think of the ‘efficiency’ services that made consulting firms successful in the 1980s and 1990s. This is an important distinction, and anyone confused between the two should read an excellent piece by Jeanne Ross of MIT Sloan Management Review.
Viewing context through the lens of decarbonization, de-formalization, decolonization, and digitalization will enable organizations to build the capabilities and capacities to dynamically manage change. They won’t be the only drivers, but they are ones that cross cultures, time zones, and business models. Leaders who are stuck managing problems may find themselves being replaced by those who have a clear eye on the contextual factors shaping decision-making within organizations and engagement with stakeholders. Doing so will help these organizations become the resilient stewards the decarbonization economy desperately needs.