Most business leaders follow a principle when it comes to risk management: analyze them and try to mitigate them. But the correct approach to risk management can determine how well, or how badly, a company react when a crisis erupts. A strategy that accepts certain elements of risk – rather than just get away from it-can not only transform the challenges and crises into opportunities: it can be critical to the long-term growth and success of a company.
Business is good when it comes to the alignment between the risk management and the business objectives, indicated a 2015 study of EY, There's no reward without risk (there is no risk premium). 97% of companies that participated in the report say they have made progress in better aligning risk levels with the earning potential. However, an in-depth analysis shows that only 16% of them consider that the link between the risk and the achievement of business objectives is close enough to effectively and efficiently respond to negative factors may arise and grow quickly, including changes in the economy, technological change and cyber security.
The difference in attitude to risk management and the achievement of goals is surprising when you consider that there are numerous growth gains from the implementation of this type of practice — even after a crisis. This is illustrated by the Companies exporting company Carozzi consumables chilena.
Crisis is an opportunity: a Phoenix from the flames
Founded in 1898, the family business has faced in 2010 1 of their more unusual challenges: a fire that completely destroyed your 300,000 square meters factory in Santiago. The fire cost the company 100% of the production capacity of masses of the unit.
In a true answer to the risk, the Chairman of the Board of Carozzi, Gonzalo Bofill, concentrated on what would follow. He's not paralyzed production or panicked. On the night of the fire, said a reliable Manager:
"THIS IS NO TIME TO CRY. IT'S TIME TO CONTROL THE FIRE AND START WORKING. "
Bofill said he saw the fire as an opportunity to build the business of your dreams. He put risk management measures in place to expand your market and allow the company to compete globally — and mitigate the risk by reducing operational costs through infrastructure improvements and technology.
That night, he, along a group of collaborators, he worked hard until the 3:00 in the morning to draw the plan of action. He began the planning committees, team leaders, projects and logistics required to execute that vision and also wrote a letter to the employees of 10000 Carozzi explaining what happened and how the company would follow in front.
This move proved crucial in the risk management strategy, since Carozzi needed confidence and support of the Bank, in addition to the insurance company.
Transforming risk into growth: the plan
The vision for the reinvention was executed through multiple initiatives, explains Bofill, including taking $ $500,000 borrowed from banks. "It was really a transformation in all aspects of the operation, not just buildings, but in technology and procedures towards the form we have today — a different competitor," he says.
Part of the strategy of risk included take the company to a new competitive group that could compete with multinational business. The company implemented the Robotics and automation to increase efficiency and reduce the overall cost of production — and expand your market through the acquisition of a pet food company in 2011 to diversify the products offered and to differentiate themselves from competitors — all while a new factory was built.
Another key measure of risk management was Carozzi have achieved their operational costs reduced to regain the confidence of the insurance undertaking. As Bofill account, after the fire, the rate grew. The company was considered high risk. "We had to reduce the values that they requested that we paid," he says.
To change this perception, a group of envoys went to Europe — where Carozzi the insurer was thirsty — and explained the growth plans, changes and the creation of value. The executives "believed what we wanted to do, he says, and in three years the values went back to normal.
Although the risk management have won more priority in enterprises — especially after the collapse of subprime mortgages –, there is still progress to be made. There is a "widespread perception that risk management is detrimental to innovation and is not compatible with a high-growth environment," according to David Sommer, professor of risk management at St. Mary's University in San Antonio, Texas.
"This is far from the truth," he says.
"A GOOD RISK MANAGEMENT MAXIMIZES THE CHANCE OF SUCCESSFUL, SUSTAINABLE GROWTH. IT IS NECESSARY TO OPTIMIZE THE RISK AND FACE IT WITH YOUR EYES OPEN, WITH THE CONVICTION THAT YOU ARE BETTER POSITIONED TO RESPOND TO ADVERSE EVENTS AND EXPLORE THOSE THAT ARE POSITIVE. "
Implementing a risk strategy for growth after the crisis
Crises usually become a golden opportunity to act on the weaknesses of a company. To Chris Mittelstaedt, CEO of the Fruit Guys, a fruit delivery company, the answer to the crisis was the creation of your risk management model.
Mittelstaedt your your business apartment began in San Francisco in 1998. The company quickly took off, with many customers from the growing community of technology, and reached $ $1 million in sales in 2000. "What I have not analyzed at the time was a worst-case scenario, he says.
In 2000, the bursting of the bubble of dot-com companies has reduced your business in half. Suddenly, your young company was leveraged in excess after it took $ $85000 loan from the Bank to buy a fleet of refrigerated trucks to expand the operation. His wife had given birth to twins recently.
By experience difficult moments, he could see the risks that he hadn't considered appropriately. Among them, the fact that the company does not have the infrastructure to expand beyond the site. And also rely too heavily on the economy of the region — so when she became problematic, the deal was too.
One of the strategies he adopted after the burst of the ".com" was to avoid additional bank debt — lent money your family Mittelstaedt to keep the business turning. He also expanded the business to other regions of the country to which your business wouldn't be just the health of the local economy.
To enlarge your risk strategy, after conquering customers mainly in the private sector, Mittelstaedt diversified your portfolio to get institutional clients with different budget cycles. Until today, your company is stable and growing, with 135 employees across the country.
Risk: an opportunity to grow
"Blessed Fire," says Bofill, to analyze the past. The fire of 2010 was a rotation movement on Carozzi and in your ability to scale. "The way we put many additional forces in our culture after the fire was incredible … people want Carozzi were different. Today, we are a very profitable and solid company. "
Risk management facilitates the growth and identifies all the risks that companies face. He considers the worst case scenarios to stimulate responsible growth.
"COMPANIES THAT ARE SUCCESSFUL IN DEALING WITH ADVERSITY HAVE A HOLISTIC VIEW OF RISK MANAGEMENT AND INTEGRATED THINKING ABOUT THE SUBJECT IN ALL ITS CULTURE, SO ARE LESS SUSCEPTIBLE TO BEING TAKEN BY SURPRISE", ACCORDING TO SOMMER.
"They're not just thinking about your big plans, but thinking about all the things that can occur and adversely affect these projects."
When using risk management processes and structures to identify and mitigate a wide panorama of possible negative effects, even if they arise after is not one of the most feared scenarios, your business will be in a stronger position to respond to the crisis and grow.
Source: Endeavour Brazil