Systemic Risk – Challenging Assumptions

Risk managers should contribute to long range planning and analysis. They can cause planners and modellers to recast their assumptions. In a recent workshop, participants and I were discussing risk assessment of the firm’s strategic plan, and considered wider systemic risk and emerging risk, that could undermine the organization.

On the issue of strategic risk, I first draw the reader’s attention to my 6-part series in which I discussed high quality risk assessment and future scenarios; strategic identity; stakeholders; and environmental scan. The essential point in that series is that risk assessment should be part of a complete research and planning process, including methods to deal with “black swan” risks and high uncertainty.

In this post, I want to elaborate on the idea of risk managers questioning assumptions that typically go unchallenged.

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Create Your Own Risk Management Examples

Experimenting with the Risk Management Process

In previous 3 posts, I described the agenda I use for the “Enterprise Risk Management-Developing and Implementing” workshop, to get participants to work through their own risk management challenges. I also reported on requests expressed in online course feedback. Many want case studies.

In the earliest days of implementing ERM in BC Provincial Government, I remember saying to the Deputy Minister of Finance that, notwithstanding our own innovative risk financing programs, we couldn’t find sufficient examples of the new enterprise-wide approach. He responded by saying that we would have to create our own examples.
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Enterprise Risk Management Manifesto

Enterprise Risk Management - risk matrixEnterprise Risk Management is now finding its place in creating strategic value.

Traditionally confined to either loss control in the realm of commercial insurance, or financial controls and audit, enterprise risk management has now taken an evolutionary step to encompass the entire spectrum of strategic and operational risk.

Risk has gained, in recent years, a high profile in the public mind, as waves of corporate malfeasance, natural disaster, security threats and economic meltdown have rocked the foundations of organizations in all sectors, and created profound distrust among stakeholders. ERM implementation is now proving its value as conventional risk management duties expand to embrace strategic planning and innovation.
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Innovation and Risk Management

2011-09-12 / Management Innovation / 0 Comments

innovation-and-risk-managementInnovation has currency in risk management discourse. I presented “How Risk Managers Can Lead Innovation” at the Infonex Public Sector Risk Management Conference (February 2 – 3, 2010) in Ottawa. Sasha Shymanska, the conference organizer, originally suggested to me a topic to link risk management with innovation, but then was hesitant as the idea did not at first have internal support. But I knew she was on the right track, and encouraged her to keep it on the agenda.

The title of this year’s RIMS ERM Conference (Nov 1-3, 2011, San Diego) is “Where Risk Meets Innovation”.

Many risk managers will be puzzled by the possibility of a link between the two. It is curious that the economic crisis has raised the profile of both the traditionally conservative profession of risk management and its polar opposite, high-risk invention. Yet a risk manager’s identification of risk becomes, with the right attitude and support, a structured and thorough search for opportunity for innovation.

We can see that invention and novel practices, even for mere survival, have a renewed relevance in general business discourse, especially in view of the economic downturn. One good source, for example, is the BusinessWeek site on innovation. In the public sector, the CCAF-FCVI convened a symposium Risk, Innovation and Control back in the fall of 2008.

General ideas of encouraging innovation and responsible risk-taking are familiar. Risk managers will need to know exactly how to build such a culture. If they are to take a hands-on role, they will also need tools and methods to actually begin exploratory projects. I believe the risk professional is perfectly situated to take the role of facilitator, who leads the discussion of risk and opportunity amongst subject matter and program experts. Innovation needs champions, and the risk manager can help not only greenhouse new ideas, but assist in their evaluation within a graduated framework of intended benefits. Finally, the risk professional can assist with implementation according to proven principles.

[Revised. Originally published 16 Mar 2010]

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Cross cultural management: Poland – Pt2

2011-03-31 / Management Innovation / 0 Comments

Frédéric Chopin - Grzegorz TurnauIn Part1 of this briefing for managers posted to Poland, we covered language, culture and travel advice. The underlying theme is indicated in the images shown left: the traditional and the new. (Gzegorz Turnau is a wonderful musician. Memorizing song lyrics is a great way to practice foreign language skills.) The traditional and the new are streams that run through Polish culture and the Polish workplace.

GENERAL ADVICE FOR MANAGING ABROAD
How, generally, do people manifest cultural traits in foreign work settings? There are levels – or layers – of culture in the individual psyche, and these are called up by the situation. Awareness of this mechanism can help managers in a foreign setting to assess the type of pressure bearing upon employees as they engage with a training program or other corporate initiative.

For example, group members working in a new situation will naturally gravitate to culture-specific ways of communicating, but this will attenuate as group members see how others’ expertise is contributing to the project. In situations where new technology must be dealt with, “people tend to respond in accordance with cultural prescriptions under conditions of uncertainty and ambiguity” (Leung et al. 2005).

In a previous post, we reviewed the elements of cultural intelligence, which can serve as a sort of self-test when you are operating in a foreign environment.

POLISH-SPECIFIC ADVICE FOR MANAGING
In a study of certain values across 4 nations (Woldu et al. 2006) the authors conclude that “Poland has a unique culture which fits neither the East nor the West”; however, they confirm their prediction: “There will be no significant cultural differences among value orientations of individuals working for similar professional organizations in the four national contexts.” In other words, there is considerable convergence seen in corporate cultures; yet this is “visible among managers and less in the cultural attitudes of non-managers”, for example, employees working in local service-based organizations.

Gender differences in the workplace are fairly marked in certain respects. While men and women desire many of the same things, the number one priority for Polish women is that the job encourages the development of skills and knowledge, while for men, it is the ability to earn high income. Striking discrepancies are seen in the categories of independent work (priority #6 for men, but way down the list #15 for women) and ability to work for supervisors you admire and respect (#13 for women but #24 for men). In summary, despite congruence in several of the top-chosen characteristics, results show  discrepancy between males’ desire for top pay and independence vs. desire for a secure place of respectful cooperation among female employees (Frankel et al. 2006).

References:

Frankel, R; Tomkiewicz, J.; Adeyemi-Bello, T. and Sagan, M. 2006. Gender differences in job orientation: the case of Poland, Cross Cultural Management: An International Journal,13:3.

Leung. K.; Bhagat, R.; Buchan, N.; Erez, M. Gibson, C. 2005. Culture and international business: recent advances and their implications for future research, Journal of International Business Studies, 36:4 357-378.

Woldu, H.; Budhwar, P.; and Parkes, C. 2006. A cross-national comparison of cultural value orientations of Indian, Polish, Russian and American employees, International Journal of Human Resource Management, 17:6

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Cross cultural management: Poland – Pt1

2011-03-30 / Management Innovation / 0 Comments

polish flagHere’s an introductory briefing for managers who are posted to Poland. It is based on my personal experience visiting Poland, and research cited.

BASIC FACTS
An excellent site for country facts, including historical, political (well, maybe not political) economic and social data is the CIA World Factbook. The entry for Poland indicates that despite “one of the most robust [economies] in Central Europe… Poland still faces the lingering challenges of high unemployment, underdeveloped and dilapidated infrastructure”. Yes, they are still rebuilding after the devastation of WWII. But Poland has some stunningly beautiful architecture (especially the colours chosen to paint the old town areas in, for example, Gdansk).

TRAVEL
Another source for a synopsis of country facts is the Foreign Affairs and International Trade Canada (DFAIT) Travel Advisory. But in the DFAIT advisory for Poland,  there is one deficiency: it does not give an adequate warning about the highways. In a September 2010 article entitled “Polish highways: Europe’s deathtrap”, Jan Cienski reports: “Poland has the highest number of road deaths of all 27 European Union countries — 4,572 people were killed on the roads in 2009.” I drove some 600km from Katowice in the south all the way up to the Baltic, and back. I’ll never do it again. Road conditions are part of the problem, but mad passing behaviour puts you in a deadly game of chicken about every 15 minutes. Therefore, if you are managing people in Poland, I would issue directives to the effect that expats should stay off the highways and take the train for inter-city travel, and on no account should a group of essential personnel travel in one vehicle on Polish highways. Driving in town is OK, but you have to know how to drive manual shift.

CULTURE and LANGUAGE
The younger generation speaks English (well) but you will need the essentials of Polish to get along in any number of situations. Hands down, the best source (for English speakers) is Dr. Alexander Schenker’s Beginning Polish. Others don’t come close, because they assume, rather than explain, the phonetic system, the orthography, grammar, and syntax. You start speaking right away (mp3 drills online). The only criticism is that the vocabulary is a bit repetitive – but you can pick that up anywhere. Still on culture, particularly if you are male, it might be a good idea to learn how to drink vodka – properly. This means drinking quite a bit while maintaining your composure. (Don’t even think about drinking and driving – Polish strictly enforced laws are zero tolerance.) The coffee is ordered ‘white’ or ‘black’ and is universally excellent.

Polish culture is quite conservative, which means that you need to be aware that progressive social issues like sexual orientation and gender roles are not viewed as they are in Canada. (Of course, experience with individuals will always belie these sorts of generalizations.) The religious devotion is deep; people do pilgrimages. Family orientation is very important, and we’ll see that showing up in some studies I’ll present in the next post.

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International business: cultural intelligence

2011-03-23 / Management Innovation / 0 Comments

cultural intelligenceWhat is cross cultural management? That previous post gave the situation (posed by Leung et al. [2005] who seem to argue for a technocratic convergence) of an HR manager needing to roll out a training program across multinational locations. An individual will be influenced by national culture, the working group dynamics, and the technological environment – and these influences are fluid. For example, team members working in a new situation will resort to culture-specific ways of communicating, until they see how others are contributing to the common task. New technology introduces uncertainty, again causing a default to cultural prescriptions. Consider now the idea of cultural intelligence – another concept relevant to global HR managers’ work.

In Thomas, David C. et al. 2008. Cultural intelligence : domain and assessment, International Journal of Cross Cultural Management, 8:2 123–143 a useful construct is carefully built that sets out a definition of cultural intelligence. It is a system of attributes.

The authors aim to establish discriminant validity for the idea of cultural intelligence – CQ as some call it – and differentiate it from, for example, “intercultural competency” or “global mindset”. They rely upon a view of intelligence that involves learning and adaptation, but distinguish cultural intelligence from “social intelligence” or the popular notion of “emotional intelligence”. Cultural intelligence, in the authors’ view, must include:

  • personal adaptation – feeling comfortable and well adjusted to a foreign setting;
  • practical efficacy and capacity for task completion in a foreign setting;
  • successful interpretation of and sending of signals (gestures, words, actions); and
  • meta-cognition, which is an ability to be self-monitor, process feedback and do continuous change.

I don’t think the article establishes cultural intelligence really as new thing unto itself, as opposed to an amalgam of pre-existing things. When Thomas et al. explain that cultural intelligence will correlate highly with adaptation, efficacy, etc – well, that seems circular, because adaptation, efficacy, etc. are the very definition of CQ they propose. In the authors’ conception, it is the combination of the particular traits mentioned, integrated through self-reflection and self-regulation.

It seems cross cultural management is a field that struggles to establish clear constructs and definitions, especially of “culture” itself.

Apart from the logic question, the idea of cultural intelligence as Thomas et al. construe it paints a rich picture. Using it, an HR manager would have a rather fine-grained instrument by which to assess employees’ ability to work in foreign settings

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Cross-Cultural Management

2011-03-03 / Management Innovation / 0 Comments

An article treating cross-cultural management: Leung. K.; Bhagat, R.; Buchan, N.; Erez, M. Gibson, C. 2005. Culture and international business: recent advances and their implications for future research, Journal of International Business Studies, 36:4 357-378.

It is a scholarly review of analysis of multiculturalism in the general context of management.

One core problem is to analyze the question of cultural convergence or divergence, and its implications for IB. Are there political implications? Do the authors take a position? Are they describing, or prescribing? I’ll leave those questions for a future post. Right now, it’s worthwhile to summarize their main ideas.

The authors present a two-part model of cultural change. The first is the multi-level idea, where global culture contains, in nested succession, national, organizational, and group cultures, all of which are in some way manifested in the individual.

The second is the multi-layer concept, consisting of superficial behaviours, a deeper level of values, and an essential core of basic assumptions “which is invisible and taken for granted” (p.362).

A set of static cultural traits were identified, as the authors explain, in seminal work by Hofstede. In later work “most of the cultural dimensions identified [such as Conservatism, Intellectual Autonomy, Affective Autonomy, Hierarchy, Egalitarian Commitment] are related conceptually and correlated empirically with Hofstede’s dimensions” (p.366).

Another stream of cultural analysis departs from the static view and uses cognitive psychological theory. Cultural differences operate through “frames”, “schemas”, and “scripts” – which are (roughly) ways of perceiving and responding to the environment. The cognitive view takes into account the dynamic aspect of cultural attitudes.

An example of a management situation shows how these analytical tools can work. Suppose, the authors suggest, that an HR manager needed to roll out a training program, but accomplish this across multinational locations: “A key challenge is to determine whether the program should be implemented in the same manner in each subsidiary or modified according to the local culture at each site.” (p. 368). Culture, of course, “matters”, but the question is, when, and how much?

To answer, Leung et al. describe the influence upon the individual of: 1. national culture; 2. group culture; and 3. technological environment. For example, group members working in a new situation will naturally gravitate to culture-specific ways of communicating, but this will attenuate as group members see how others’ expertise is contributing to the project. In situations where new technology must be dealt with, “people tend to respond in accordance with cultural prescriptions under conditions of uncertainty and ambiguity” (p.369).

To summarize, then, there are levels – or layers – of culture in the individual psyche, and these are called up by the situation. Awareness of this mechanism can help HR managers to assess the degree and type of pressure bearing upon employees as they engage with a training program or other corporate initiative.

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