Platt Perspective on Business and Technology

Building crisis management capabilities into the basic business infrastructure 2

Posted in strategy and planning by Timothy Platt on November 8, 2012

This is my second installment in a series in which I will more systematically outline and discuss risk and crisis management processes, and best practices for building them into a business’ basic organizational infrastructure (see Part 1.) My goals for Part 1 in this series were two-fold:

• To begin a discussion of risk management from the perspective of a specific organizational taxonomy in which businesses are characterized as being strategically fragile or robust (see also Operational failure rates, feedback and remediation, and risk remediation processes 3), and
• To frame this in terms of a specific and commonly deployed strategic analytic tool: the Strengths, Weaknesses, Opportunities, Threats (SWOT) analysis.

I begin here by proposing what might be considered a provocative starting assumption:

• A traditional SWOT analysis begins by dividing a business assessment into domains that can be seen as internal to the organization, with its strengths and weaknesses, and into separately considered external factors and forces. Those external assessment categories would represent more strictly marketplace-based and other outside opportunities and threats that also have to be taken into account. At least as an initial step analysis it does not matter if potential sources of risk or advantage are coming from inside or outside the organization: just that they be recognized and at least preliminarily assessed for potential impact if they are realized, and the likelihood of that happening.

I posit this assumption because in the real world, risk and opportunity rarely arise entirely and definitively from just one of internal or external source. Just considering one possible example here by way of explanation, a sudden threat coming from an innovative move taken by a direct competitor might be seen as coming entirely from the outside. But its significance and severity would in most cases be set by the internally prepared capability of the business to respond to marketplace challenges and to its capacity to be able to change and adapt.

So an immediate threat that your business faces might be coming in from the outside but only be a threat because of your business’ internally developed strategic fragility and from your business’ lack of robust flexibility in the face of change and its imperatives. And these internal factors that in effect determine the threat value of this seemingly entirely external event would in most cases have been building up for a long time – entirely internally to your business.

Not to belabor the point of this example, in this case the label placed on the event might be external/threat but its scale and even its probability, and certainly for its raising to a threshold of notable severity might be best characterized as internal/weakness.

And with that in mind as a foundation for further discussion, I turn to the issues of timing and of actions taken and not taken, and of what I identify as event valence. And I begin that by noting a fairly trite truism: an opportunity lost that could have held positive value for the business becomes a risk realized and a negative value event for that business – a source of weakness and loss. And a risk recognized and averted can with equal force become a positive and an opportunity realized.

Event valence is a conceptual measure of positive and negative values actually realized, as measured against the baseline set by business performance leading up to that event.
• And event valence is best measured in monetizable terms such as levels of sales gained or lost depending on how the business responds, reactively and proactively to their competitors’ activity and market positions. Pick and use the scales and metrics that make the most sense for your business. And make sure that if you try using more than one metric or scale, you know how to monetizably reconcile and compare them as if to a single scale and standard.

I am going to continue this discussion in my next series installment with a discussion of symmetrical and asymmetrical risks/benefits, and as a foretaste of that note that:

• Effective strategically robust systems are set up and managed operationally so as to asymmetrically shift relative risks and benefits towards higher potential rewards than risked losses, greater probability of rewards achievement than loss, or both.
• And that both sides of this have to be taken into account: relative scale and relative likelihood. And this can only be partly achieved through benchmarking from historical trends and events records, and particularly when working in a rapidly evolving marketplace.

You can find this and related postings at Business Strategy and Operations – 2 (and also see Business Strategy and Operations.)

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