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Managing Strategic Risk: It All Starts With a Plan

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There are many ways a company’s long-term strategy can fail.

The problem may be execution. Or perhaps continually shifting the plan aka moving the goal posts (*cough* … Hewlett-Packard). Another common downfall is expanding too fast (*cough* … Toyota). Sometimes companies fall victim to their own success, deluding themselves into believing they can thrive in areas in which they aren’t suited to succeed (*cough* … Bank of America buying Countrywide) or emerging areas they simply don’t understand (*cough* … AIG insuring mortgage-backed securities). Or companies can fail via the inverse: resting on their laurels and failing to change as the world around the does (*cough* … Blockbuster).

In short, there are eight millions ways to die.

There may only be one, however, that predestines a company to fail: starting with a flawed plan. Or, to play on the cliché: failing to plan may be planning to fail — but planning poorly might be just as bad.

To that end, Forbes has compiled a “top ten ways strategic plans fail.” Head over there for the full list but these are the five I consider to be the most insightful lessons.

1. Having a plan simply for plans sake. Some organizations go through the motions of developing a plan simply because common sense says every good organization must have a plan. Don’t do this. Just like most everything in life, you get out of a plan what you put in. If you’re going to take the time to do it, do it right.

3. Partial commitment. Business owners/CEOs/presidents must be fully committed and fully understand how a strategic plan can improve their enterprise. Without this knowledge, it’s tough to stay committed to the process.

7. Having the wrong people in leadership positions. Management must be willing to make the tough decisions to ensure the right individuals are in the right leadership positions. The “right” individuals include those who will advocate for and champion the strategic plan and keep the company on track.

8. Ignoring marketplace reality, facts, and assumptions. Don’t bury your head in the sand when it comes to marketplace realities, and don’t discount potential problems because they have not had an immediate impact on your business yet. Plan in advance and you’ll be ready when the tide comes in.

10. Unrealistic goals or lack of focus and resources.

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 Strategic plans must be focused and include a manageable number of goals, objectives, and programs.

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Fewer and focused is better than numerous and nebulous. Also be prepared to assign adequate resources to accomplish those goals and objectives outlined in the plan.

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Risk Management Links of the Day: 12.17.09

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credit suisse sanctions 536 million

  • Forbes published a good piece on how Credit Suisse has aided clients from rogue nations like Iran, Cuba, Burma and Libya sidestep U.S. sanctions for nearly a quarter century, an infraction that will cost the Zurich bank $536 million for violating the the International Emergency Economic Powers Act as well as New York State law. “Credit Suisse first started dealing with rogue regimes that were sanctioned by the U.S. government in 1986, when the Zurich-based bank began to assist Libyan customers in evading sanctions by executing payment orders without stating their names, according to U.S. authorities. Later Credit Suisse started to refine its methods, processing payments for clients in sanctioned countries with payment messages that concealed the identity of customers by using false codes. Credit Suisse did this kind of business for other clients in countries that faced U.S. sanctions, including Sudan, Libya, Burma, Cuba, and Charles Taylor’s Liberia, the Treasury Department says.”
  • The SEC approves enhanced disclosure about risk, compensation and corporate governance. “The Securities and Exchange Commission today approved rules to enhance the information provided to shareholders so they are better able to evaluate the leadership of public companies. Beginning in the upcoming annual reporting and proxy season, the new rules will improve corporate disclosure regarding risk, compensation and corporate governance matters when voting decisions are made.”
  • RSA Insurance Group and the WWF (the environmental group, not the wrestling association that was renamed the WWE) began a three-year partnership that will center on conducting joint research efforts into all things Mother Nature and risky.
  • The percentage of commercial insurance buyers who have an exposure insured with Chartis has dropped from 90% in July to 80% now. Still a high number, but a significant drop. Although Barclays is saying that most of those who are still on board with the AIG insurance arm now plan to stay. “Of commercial buyers that insure with Chartis, Barclays said roughly 75% of those customers plan to stay with the unit despite AIG’s troubles, up sharply from 40% of customers who said they would stay with Chartis in July.”
  • A guy named TJ Sullivan who is CEO of CampusSpeak, Inc. has dubbed the crackdown on Greek life shenanigans on campus as “the risk management era.” He explains in more detail: “The emphasis was on rules and policy adherence. It dominated everything: chapter services strategies, fraternity education, volunteer training and duties, consultant training, board meetings, etc. Someone a lot smarter than I will write a book about this, and I’m sure opinions will vary on whether or not it was a good, important era, or a harmful one. Was there any net benefit? Some will say that fraternities and sororities grew stronger during this time. The values congruence crowd will continue to crow about how risk management draws us closer to the values we were founded upon (a weak argument, I’d say). Others will say fraternities and sororities lost their fun, their innocence, and their relevance. One thing for sure, lawyers and insurance agents made a lot of money. Yet, students are still dying from alcohol poisoning and hazing on a regular basis.”
  • A new Swiss Re Sigma study analyzes commercial liability insurance. “Emerging risks due to technological and social developments are a constant challenge: new insights into and changing standards around food safety, environmental pollution, employment practices and the compensation of financial loss are, for example, risks that insurers closely monitor. Roman Lechner, co-author of the sigma study, said: “Fortunately, none of these emerging risks has evolved into the next asbestos — yet.”

UPDATE:

  • MF Global was fined $10 million by the Commodity Futures Trading Commission for three risk management failures related to supervision. “The $10 million penalty imposed by the Commodity Futures Trading Commission is the latest fallout from rogue wheat-futures trades in 2008 that forced the company to take a $141.5 million charge, triggering a restructuring that led to the departure of its chief executive, Kevin Davis.”
  • In his latest View from the Press Box, Sam Friedman gives us some 20/20 hindsight on his previous predictions for 2009. “Way back on Jan. 5, I peered into my crystal ball for the likely Top-10 Property and Casualty Insurance Stories of 2009. Before I reveal what turned out to be my actual picks here on Dec. 21, let’s see how accurate my predictions were.”

Find an interesting link? Email me any stories, videos or images you come across and would like to see included. Or just follow me on Twitter @RiskMgmt and pass it along that way.

Risk Management Links of the Day: 12.15.09

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  • Despite yesterday’s passage of Wall Street Reform and Consumer Protection Act (HR 4173) in the House, regulators across the globe are still dragging their feet on financial sector reform. Paul Volcker continues to tell everyone who will listen — and even those who won’t — about the grave need to restructure the industry, but no one is doing anything tangible about it. “Two years after the start of the deepest recession since the 1930s, no U.S. or European authority has put in force a single measure that would transform the financial system, based on data compiled by Bloomberg. No rule- or law-making body is actively considering the automatic dismantling of banks that Volcker told Congress are sheltered by access to an implicit safety net.” Acclaimed economist and Nobel-winner Joseph Stiglitz says Volcker is “spot on” and Robert Creamer makes a similar “if it’s too big to fail, it’s too big to exist” plea over at The Huffington Post. Bankers, for their part, assured Obama today that they are willing to play ball during their visit to the White House. We’ll see.
  • The New Yorker‘s 12-page feature “The Most Failed State” profiles Somalia’s President Sheikh Sharif Sheikh Ahmed and details the desolate national landscape that has given rise to the pirates that dominate the country’s coastline. (Subscription required) Ahmedou Ould-Abdullah, the U.N.’s special representative to Somalia, offers this bleak analysis: “Somalia is just as bad as it has ever been, perhaps worse. I know that it is politically incorrect to say so, but there can be no humanitarian ’emergency’ that should continue for twenty years — it’s a contradiction in terms.”
  • Some are concerned that China’s rush to embrace nuclear power in lieu of dirty coal plants could lead builders to cut corners in regards to safety. “China must maintain nuclear safeguards in a national business culture where quality and safety sometimes take a back seat to cost-cutting, profits and outright corruption — as shown by scandals in the food, pharmaceutical and toy industries and by the shoddy construction of schools that collapsed in the Sichuan Province earthquake last year.”

Find an interesting link? Email me any stories, videos or images you come across and would like to see included. Or just follow me on Twitter @RiskMgmt and pass it along that way.

Risk Management Links of the Day: 12.14.09

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car-phone-advertisement

To advance our mission of bringing you all the risk management news that’s fit to print, we will be doing these “Risk Management Links of the Day” posts roughly … you guessed it … every day. Hopefully, it will be a nice blend of things that you need to know and things that are just interesting and you might not have otherwise come across in your daily internet travels.

Shifting through all the news of the day takes some time, of course, so please do send along any interesting news items or off-beat, risk-related stories you come across to me at jwade@rims.org. Enjoy.

  • In October, our own Emily Holbrook discussed the dangers of text messaging while driving in the Risk Management article “Unsafe at Any Speed.” Well, according to this “Driven to Distraction” piece, it seems that the problem of driving dangers related to phones goes back well before even the cell phone, and has in fact been a controversial topic since the 1960s, when car phone manufacturers used advertisements (like the one above) and other strategies to help encourage users to talk while they drive. “Critics of the [mobile phone] industry argue that its education efforts over the years provided a weak counterbalance to its encouragement of cellphone use by drivers and to its efforts to fight regulations banning the use of cellphones while driving.”
  • In boneheaded government regulator news: The TSA inadvertently made many of its passenger screening protocols public knowledge when it posted its 93-page operating manual online last Spring. It addition to detailed technical info about x-ray screening and bomb detection, the error revealed 12 countries whose passport holders are automatically given heightened security scrutiny and contained pictures of the credentials used by CIA officials, Congress members and the federal air marshals. “Stewart A. Baker, a former assistant secretary at the Department of Homeland Security, said that the manual will become a textbook for those seeking to penetrate aviation security and that its leaking was serious. ‘It increases the risk that terrorists will find a way through the defenses,’ Baker said. ‘The problem is there are so many different holes that while [the TSA] can fix any one of them by changing procedures and making adjustments in the process . . . they can’t change everything about the way they operate.'” Real Cracker Jack job on this one, TSA.
  • A federal court ruled that an attorney’s personal emails remain private even if sent from a work computer. Says one of the attorneys involved: “Where someone who uses their company e-mail, whether with the Justice Department or someone else, intends the communication to be confidential and takes reasonable steps to ensure the confidentiality … there is no waiver of the attorney-client privilege.”
  • Of all the fallout from the September 2008 market collapse, the Bank of America acquisition of Merrill Lynch has been the most controversial. The Atlantic featured the best (and most accessible) article I’ve seen on the topic, detailing the unusual nature of the meetings that BoA’s leadership had with the SEC and the Fed as the merger was being finalized and strongly suggesting that Hank Paulson and Ben Bernanke essentially strong-armed the bank’s CEO Ken Lewis into acquiring Merrill, despite strong reservations about the book-keeping info that was being revealed through due diligence. This piece by Corporate Counsel, however, suggests that BoA did plenty of bullying of its own in forcing the DC officials to pony up more bailout money than they wanted to in order to mollify the bank’s concerns about Merrill’s balance sheet and prevent BoA’s leadership from using it’s last-minute opt-out provision (known as a “material adverse chance” or MAC clause) to cancel the deal before it was finalized. The SEC has been investigating the details of the merger for some time. And on Friday, the watchdog announced that the investigation is being ramped up. Further developments are certainly forthcoming in the month’s ahead. In the meantime, you can also check Corporate Counsel’s exhaustive coverage of the controversy.
  • An analyst with Celent sees rough times ahead for the P/C industry. Says Mike Fitzgerald: “The negative rating outlook issued by Fitch Ratings [Wednesday] for U.S. property and casualty is warranted and, in addition to the pricing and demand concerns mentioned in the press release, there are loss and expense pressures which should dampen expectations.”

Find an interesting link? Email me any stories, videos or images you come across and would like to see included. Or just follow me on Twitter @RiskMgmt and pass it along that way.