The riskiest business strategy of all? In this case, not doing what everyone else is
By: Chris Catliff
While most businesses today fear digital disruption, they don’t often deal with the threat effectively.
In fact, most entrepreneurs are slowing down too soon, with 71 per cent of those surveyed by the Business Development Bank of Canada reluctant to take risks to improve their business’ performance. A common — and dangerous — business move I have seen far too often is when a leader tries to eradicate all significant risk from their business. While a ship is safest in port, that is not what ships are built to do. Not taking any risks is the greatest risk of all.
Minimizing risk is crucial, but steering clear of tough change is detrimental to a business’ innovation, strategy and success. Strategic relevancy risk is one of the biggest risks of all, and it is often overlooked; even some of the most successful global brands are not immune to its consequences. Although Sears pioneered the direct-to-consumer business in 1888 with its renowned catalogue, it failed to adapt to the new direct-to-consumer world of Amazon. Similarly, flamed-out companies such as Blockbuster and Kodak failed to adapt because they suffered what I call “a bias for the status quo.” Digital disruption was fatal to them.
In regulated industries, we tend to strive for the lowest risk possible. We measure it based on the worst a threat could ever possibly be, then we look at all our controls to determine the residual risk, and then monitor it against tight regulatory standards. But risk management needs to be balanced with innovation and progress.
We are rapidly approaching a world in which only a handful of tech giants will own the platforms we all plug into. FaceBook, Apple, Samsung, Google et al will write the rules and control access to our customers and the vital data analytics that go with them. Given that digital payments by consumer devices is set to grow quickly, the financial services industry is concerned about the day our digital banking is simply not offered on smartphones as a payment choice for consumers. We may be excluded, not by our own customer’s choice, but by the choice of the tech giant, based on who they allow on their platform. Will it be the conglomerate that makes the highest bid to them? In other words, in the near future, when you use your phone to pay, you may be presented with only two options. A financial institution not one of those choices is cut off by the tech platform from its customer. Some believe that if you are not the first default offer, it may not even matter that you are the second one. Such a future may limit choice and competition
Issues like these cry out for wise and effective regulation, but regulation generally takes years to formulate and by then it can be too late. Being strategically ill-prepared for such a devastating, disruptive scenario is the height of risk-taking. One solution may be to have leaders forge alliances with other potentially displaced companies. Working with innovative technology companies can also be a strategy. It can also help to map out all the steps your customers must complete in order to do business with you, and make them far simpler and quicker.
Studying the past can help manage risk, but there is not always a precedent for everything. Even the most prolific, mature business can stall out
Thanks to the rapid pace of technological innovation, businesses that focus too closely on mitigating past risks may miss the chance to capture the opportunities within impending threats. Studying the past can help manage risk, but there is not always a precedent for everything. Even the most prolific, mature business can stall out – CEOs describe it as flying a jumbo jet that is losing forward power. All their dashboard metrics start to deteriorate and eventually the revenue stalls out and the business is doomed.
When you get into a state of simply adding three per cent to each department’s budget each year, bureaucracy sets in, you get into a comfort zone, innovation takes a back seat and strategic relevancy becomes your biggest risk. If your R&D funding has long since dried up, you are sliding downwards.
The way to deal with this malaise is through self-disruption – refocus on your desired customer and what they will really want. How will you distinctly brand it? Sometimes you may need to wipe out whole areas of stalled business and triple up on the one thing that will work. And believe it or not, that’s less risky than slowly descending into oblivion. Ask Blockbuster, Sears, Kodak and many others.