Enterprise Risk Management gaining ground

The seventh edition of Deloitte’s ‘Navigating in a changed world,’ surveyed chief risk officers from 131 financial institutions around the world, with aggregate assets of more than $17 trillion and representing a range of financial services sectors including banks, insurers and asset managers.

Major findings from the survey included:

* While the majority considered their institution to be either extremely or very effective in Risk Management overall, one-third (33%) of survey participants graded themselves below that level.

* Not only is the Chief Risk Officer (CRO) role more prevalent at financial institutions, but he or she is reporting to higher levels in the organisation. According to the survey, 86% of institutions had a CRO in place, up from 73% in 2008, and reports to the board level or to the CEO (or both) at 85% of institutions. In addition, they are playing a more strategic role.

* More institutions have adopted Enterprise Risk Management (ERM) programs: 79% of institutions reported having a program or equivalent in place or in progress, an increase from 59% in 2008.

* While the value of ERM has increased, so have the challenges of implementing the information and technology infrastructures to support a comprehensive program; the importance of information and technology management in effective risk management has only been emphasised by the events of the global financial crisis.

* The top-rated Risk Management technology challenge among those surveyed was integrating risk data across the organisation, which was rated as an extremely or very significant issue by 74% of executives.

Deloitte’s study also indicates that financial institutions may need their Risk Management programs to have greater flexibility to adapt to new business models and changing regulatory requirements.

“During the last few years, Risk Management assumptions and methods have been challenged as never before, and will be facing even more rigorous requirements in the future,” said Hida. “Regulators have numerous risk-focused efforts on the horizon including Basel III, systemic risk initiatives and various implementation efforts related to Dodd-Frank Act.

As a result, many institutions have been strengthening their Risk Management governance models, and there is likely to be a continued focus on enhancing Risk Management data and analytics capabilities. This is a very busy time for Risk Managers at financial institutions.”

The report can be found online at www.deloitte.com/fsiglobalrisksurvey

Enterprise Reinvention: How to Improve Corporate Performance through Enterprise Risk Management

Where companies have historically been able to improve results through specialization, successful reinvention requires a much greater emphasis on unification and facilitation—moving from managing the parts to leading the whole. This requires a different approach:

• Start with Your Customer
Every company's enterprise view and strategy needs to start with customers. Most executives agree with this tenet philosophically, but few enterprise reinvention and enterprise risk management programs follow this in practice. This requires that executives clearly establish, articulate, and integrate: where your company intends to go and why.

• Be holistic and systematic
Another principle to incorporate is to be both holistic and systematic. Without a shared enterprise view to guide companies in continually changing environments, companies often get stuck by focusing on the parts instead of the whole.

When competitive and organisational situations change, executives get caught working on the wrong things—on areas that used to be important but are no longer the bottlenecks.

• Don't Forget Your Community
A third insight—important for sustainable enterprise reinvention and effective risk management—is to systematically manage social roles. Companies are the only true economic engines for society, and strong communities are the only source of sustainable profits. When companies don't formally integrate into their communities and—instead—view themselves as separate entities, enterprise risk profiles will inevitably increase.

Integrating Enterprise Reinvention and Enterprise Risk Management
Enterprise risk management is an important tool for sustainable competitive advantage. Similar to the market and the enterprise itself, a successful enterprise risk management program requires holistic and systematic processes to support the following:

• Envision: An Enterprise strategy linked to customer needs, with defined operational implications, and well-articulated enterprise guidelines for managing risks and opportunities.
  
• Design: Formal risk mitigation and opportunity sensitivity analysis/monitoring/reporting.
  
• Build: Enterprise-wide controls, processes and infrastructure.
  
• Operate: Well-established personal roles and motivations for people to act in the best interests of their companies—at the enterprise level—through proper incentive structures.

For companies to successfully reinvent themselves, the enterprises can't be viewed as the sum of their parts. The enterprise overall is the goose that lays the golden eggs. Similar to a brand, it needs to be holistic, integrated and relevant—and continuously adapt through successful and accelerated enterprise projects.

Improvements

To improve your company, try taking your enterprise reinvention and enterprise risk management program to the next level. Integrate "Envision-Design-Build-Operate," to achieve your objectives through a shared enterprise framework, integrated roles and responsibilities, and adaptive monitoring/sensitivity analyses.

Holistic approach

Then, holistically address risks through independent program assessments to diagnose and correct identified weaknesses and take full advantage of new opportunities.

Given our rapidly changing and hyper-competitive business environment, there has never been a better time to reinvent your enterprise and your enterprise risk management program.

Clearly, this will require a different approach than the scientific management methods that worked so well in the old Industrial Age.

The new knowledge-based approach is at the heart of systematic and sustainable enterprise reinvention. The best time to start your reinvention is today.

Maslow’s Hierarchy of Enterprise 2.0 ROI Needs

You may be familiar with Maslow's Hierarchy of Needs, a theory Abraham Maslow proposed in 1943, that provides a structure of priorities that relate to human needs. At the bottom of the pyramid are basic physiological needs: breathing, food water, etc.

The fundamentals needed for basic survival. The needs then climb the pyramid, becoming more intangible as one goes along: safety, love/belonging, esteem, self-actualisation, variety.

The theory's structure of moving from tangible/tactical needs to those that are intangible and more impactful is used here to examine the software decision-maker inside modern companies.

Maslow’s Hierarchy of Enterprise 2.0 ROI
The decision to purchase an enterprise software application is one that generally demands a variety of different views about benefits. Because with most enterprise systems - Enterprise 2.0 included - there are a variety of benefits:



Cost Savings
Saving money is one of the easier ways for an enterprise decision-maker to justify an investment.

The savings can more than offset the costs of a enterprise system. This correlates to Maslow's original hierarchy of physiological needs. The dollars saved cover the cost to purchase.

Saving money occurs in multiple ways when it comes to software. While a traditional measure is that the new application replaces a more expensive one, that's a benefit that doesn't scale.
A stronger benefit is one which opens up a pipeline of new cost-cutting and operational efficiency measures.

You've covered the lowest level ROI needs with this one, the benefit that is easiest to see and measure. The importance of this should not be underestimated. However, it's also the benefit with the lowest impact on the organization.

Revenue Generation
Next rung up the ROI hierarchy is creating new revenue. In this case, the benefit is more localized to new products and services, as opposed to entirely markets. Increasing the top line is great for the social software ROI calculation. It's not surprising to see the social CRM space heating up.

Getting ideas from employees and customers that lead to new revenue-generating products is a solid business case for Enterprise 2.0. Employees have ideas, but have lacked effective means of making them known to a wider audience.

Customers have great ideas, and provide great direction for new products. They also love to hear about your new product concepts, and will gladly offer feedback.

The reason revenue generation is above cost-cutting is that there is an increased level of uncertainty as to how the revenue will come about, from which idea. Still, this is a solid level that deeply satisfies the ROI needs of companies.

Customer Satisfaction
Happy customers. What every great company wants and continually works for. Anyone with experience on the "front lines" of a company understands the importance of this. Enterprise 2.0 platforms that help companies find ways to increase customer satisfaction hit on an important need for companies.

Having customers suggest their ideas is a valuable approach to improving products and ideas. With an eye toward higher satisfaction and lower churn.

There's also a new factor emerging: social media. Customers who are unhappy can create publicity problems for companies. Companies should factor in the power that social influence has in total Customer Value.

The other value of engaging customers is that while their ideas may be incremental, there may be patterns companies can pick up in what the customers are proposing. In other words, look beyond the tactical feature or service idea, and see what the customer really wants from your service offering.

This benefit scales well, and is of high value to companies. It does have a softer ROI story, however.

Employee Satisfaction
Enterprise 2.0 has more highly engaged and connected employees at its core. The ability to make a more substantive impact. The ability to find that right person to help with an idea or project.

The aha moments of discovering information you need. Making connections with people who see the possibilities you do. The ability to carve out a basis for recognition more broadly than has been available previously.

All of these relate to the issue of more satisfied employees. Now a social software application cannot on its own get you there. But it can play an important role in making that goal a reality. In Ideas Are Core to Enterprise 2.0, four elements of ideas are identified relating to higher employee engagement:

1. Ideas are me
2. Ideas Are the Basis for Finding Like-Minded Colleagues
3. Ideas Are Social Objects
4. Ideas Become Projects

Now the benefit of employee satisfaction is moving higher up the pyramid. Which means its measurability is limited. But it also means its impact is higher.

Cross-Organisation Collaboration
An important objective of companies to getting employees to work together. It's not enough to have the expertise and experience resident in employees. People need to work together to achieve the various objectives of a company.

Cross-organization collaboration does three things:

1.Improves outcomes as a diversity of knowledge and perspectives are brought to bear
2.Strengthen bonds for the next initiative an employee works on
3.Reduces cases of duplicative efforts and unnecessarily starting from scratch

As has been discussed here previously, people with access to a wider range of viewpoints consistently produce higher quality ideas. That only happens when the full intellectual power of employees can be tapped through collaborative networks.

There is a tremendous opportunity for organisations to help their employees increase the closer ties and extract much more value from those who are more distant, away from one's strong ties. Because for most workers, those distant connections are practically non-existent.

We're getting pretty high up on Maslow's ROI Hierarchy. The previous level of employee satisfaction was more emotional. This level weaves in intellectual benefits as well.

Innovation Culture
Innovations that arise from a social software initiative can be measured; indeed they are the most tangible ROI of Enterprise 2.0.

Ideas that are discovered and turned into action have produce an economic return of business value. Where we are finding it tougher to quantify is, determining improvements in team collaboration, communication, individual productivity and the softer side of enterprise 2.0.

It's harder to measure; how deep is a company's innovation culture? This is a culture where the nine principles of innovation management flourish inside an organisation:

1. Innovation benefits from a range of perspectives
2. Four of the most damaging words an employee can say: "Aww, forget about it".
3. Allow some freedom to try things that don't work
4. Create a culture of constant choices
5. Looking at innovation as a discipline
6. Focus employees' innovation priorities
7. Recognize innovation as a funnel with valuable leaks
8. Establish a common platform for innovation
9. Innovation must be more than purely emergent, disorganised and viral

What is the value of creating a sustainable innovation culture - as opposed to a series of one-off innovations? Recent reports tell us that companies that are the innovation leaders in their industries generate 430 basis points more in shareholder returns than do average companies.

We're talking culture here, so it's a soft ROI discussion but the end-results are quite measurable and powerful for this part of Maslow's ROI Hierarchy. Combined with executive commitment, strong incentives and a can-do attitude, social software becomes a critical tool for helping companies achieve an innovation culture.

Organisational Agility
This is the equivalent of self-actualisation, the top of Maslow's needs hierarchy. Companies that have achieved the other benefits, both hard and soft, will find they have a much higher level of organisational agility. Including:

• Seeing changes in the market faster
• Shifting resources in response to new opportunities
• Mixing incremental and disruptive innovation
• Moving on from initiatives, programs,markets, products that no longer work
• Employees can recognise opportunities and threats themselves, and act accordingly

Chatter in Salesforce: Social Networking in Enterprise Part II

Bad Dreams, Nightmares and ERP Systems

I had the good fortune this week to be invited to the inner sanctum of the European Commission offices in Luxembourg. If it is not the famed 'Emerald City' of the European Community, then it is certainly a semi-precious substitute.

The offices themselves are tired, uncomfortable and functional, at best, lacking the sparkle and seductiveness of modern commercial enterprises and high-tech locations. There was a definite feeling of stepping back into Eastern Europe under the Communist regime.

Legacy mud baths
My hosts were very keen to distance themselves from the environment and the legacy 'systems' that they had inherited. They were seeking a rapid improvement in their physical situation and in their technological environment and that was why I was there. To help pull them from the clawing and energy sapping mud of stale and redundant legacy systems.

The offshore island of Luxembourg
Luxembourg is an island of prosperity in the vast ocean of unemployment and economic doldrums of France, Germany and Belgium, that surround it. It is the great white hope of some 120,000 people from these other nations that commute daily to work there. Beware of peak time traffic jams at the borders.

This does not take into account those that travel from much further afield, living in hotels for most of the week and travelling home on weekends. Expanding the catchment area into the UK, Spain, Italy and Eastern Europe.

My brief but interesting meeting with the technological worker gnomes of the Commission was both enlightening and concerning. The fear of legacy systems seemed out of all proportion to their overall threat and effect, a bit like the extreme measures that the UK government is currently taking against the H1N1 virus outbreak.

Bad Dreams and Software Solutions

The urgency with which these issues are driving the tactics, has more to do with political pressures than sound economic strategy. The pressure to appear active and 'moving' on the issues far out-strips the effectiveness of the results achieved. Never mistake 'movement' for 'action', or 'tactics' for 'strategy', they are completely different entities.

The headlong rush to implement a 'tool' that will absolve and absorb the responsibility for good management, is the 'holy grail' of all government bodies and corporation managers. This makes them very vulnerable and accomodating to the consultants' pitch to sell ERP system solutions, an SAP or a Tivoli, snake-oil software that will 'assume' command of the enterprise and take all your problems away.

Unfortunately, although ERP systems are sold as 'solutions' by 'solution providers', this is a 'misnomer', an elegant piece of marketing. An ERP system will not solve your problems but they will capture most of them in the one location, inside the ERP system itself. Does this help you?

'A fool with a tool, is still a fool'.

Operational Legacy systems
There are a number of reasons why a 'legacy' system remains operational; a) the management has not addressed the impact of the structural issues surrounding it, b) it is still economically viable and change cannot be justified on the grounds of a good Business Case and ROI, c) the outlay and investment in the original system has not been 'realised'.

a) The structural issues will not be resolved by shoe-horning a round-pegged ERP system into a square-wholed enterprise. Bite the bullet and address the structure first. In this way you have greater chance of success, by overlaying and mapping a new ERP system into an organisation, rather than inflicting one.

b) Unjustifiable ROI and Business Case. Do the maths, and if this is the correct answer, stick with it. Stand firm. Do not go back and change the question to fit the consultants' solution. This way monsters lie!

c) If the outlay and investment in the original system has not been 'realised' then loading another burden on top, with additional gearing, will also not work.

Who is the Villain here?

Rememeber that, although today your system is shiny and new, another year or so down the road you will have to face the withering criticism as to why your latest ERP 'rocket-to-the-moon' system is now overloaded, running out of power and falling back to Earth. Preparing to take its place as your biggest ever obsolete 'legacy' system.

'I have a garage full of tools to repair my car. Now, if only I knew why it wasn't working!'