Good risk management is an essential criterion of market-leading businesses

Market-leading businesses don’t rely on luck. They carve out success for themselves, taking control of their direction and leaving nothing to chance. Likewise, it wasn’t a stroke of good fortune that got them to where they are today. Only a business that is exceptional can develop into a market leader, and the transformation never occurs overnight.

These are the key thoughts running through the ‘Exceptional Enterprise model’, developed by Ernst & Young, which describes the criteria that are needed to build a successful business.

The model highlights the six fundamental business challenges companies must address, how they change over time and the key attributes they need to possess as they grow to become market leaders. These are:

* Customer Recruitment and Management
* Managing Finance
* Managing Risk
* Operational Effectiveness
* People Recruitment and Retention
* Transactions and Alliances.

In terms of managing risk, Ernst & Young states the following (published verbatim):

Regardless of a company's stage of growth, the ability to identify and manage risk stands out as a vital element of success in the modern business world. Companies who wish to become market leaders must not fear risk, but embrace it and reap its rewards to accelerate their growth.

Because risk taking is a fact of life for an emerging enterprise, fledgling businesses must recognize and plan for the risks most critical to their short-term goals. Understanding and protecting intellectual property and protecting customer data are likely to be key risks at this stage. Exceptional Enterprises ensure that these risks are addressed, managed, and reviewed regularly.

Rapid growth enterprises have already built up a sound understanding of risk and the impact it has on their business. Knowing that change lies ahead, Exceptional Enterprises seek to identify processes to help them address the most significant financial, compliance, operational, and strategic risks. They also ensure that before taking on new ventures they fully understand the risks involved and develop approaches to mitigate these risks.

By the time a business is a next generation market leader, it needs to adopt a robust enterprise-wide risk management approach. This means dedicating significant resources to developing strong internal controls and processes to help ensure compliance with evolving regulations. Exceptional Enterprises will also invest senior executive resource to set the tone on risk management and to ensure that there is regular communication around business risk to their key stakeholders.

You can’t become a market leader unless you understand, manage, and embrace your risks. As you move forward to market leadership, ask yourself:
* How do we identify and monitor the risks that are most important to our future success?
* Do we measure our team’s performance on managing the risks as much as managing the rewards?
* How are our stakeholders affected by the key business risks and are we communicating to them effectively?

The full model is described in the document ‘Why Are Some Companies Luckier Than Others?’ – obtain a copy from here.

•Date: 6th June 2007 • Region: World •Type: Article •Topic: Operational risk
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