The first duty of an organisation is to … anyone? anyone?

If you answered “to secure sustainable competitive advantage” or “create shareholder value” I would argue that you’ve identified the second duty. Your answers would have won first prize between 2002 and 2007, but they have been shifted due to lessons currently being learnt about ignoring risk.

Drucker says “The first duty of business is to survive, and the guiding principles of business economics is not the maximising of profits, it is the avoidance of losses” which we’ll agree with here.

If you are revising an organisational strategy, as you should be doing all the time, the avoidance of loss would therefore be a good and natural  place to start. This is a negative position, however, and does not address growth or competitive response. So lets rework that a bit and say:

Originate your strategy from your evaluation of risk

Risk can be destructive and threatening or rewarding and fortuitous – it all depends on how it is addressed, mitigated and what the appetite for risk in the organisation is.

  1. Define the organisation and the environment
  2. Identify and assess risks in and to the organisation
  3. Address negative risks and responses to opportunities
  4. Plug these in to the current strategy and determine modifications
  5. Action, monitor and review

You see, as negative and conservative as risk does sound, it is one of the only organisational analytical methods that force management to focus on the future. When asking management to innovate, forecast or develop scenarios one will get a poor response from untrained executives. By changing the focus to risk management is more comfortable with their business drivers, shortcomings and opportunities rather than untethered blue-sky thinking.

One could say that a person’s preoccupation with the past or the future can point to a dissatisfaction with present circumstances. In an organisation the same is true, although it is not unhealthy. Historic and future analysis help determine direction in a dynamic environment. Fixation on the present is fine for operational and support personnel, and these people look to the past to establish precedent and the future to gauge risk. Therefore to get people to think strategically the process has to be couched in terms of risk.

Focus on the past or future indicates dissatisfaction with the present