A company should consider the risk of success if it wants to remain successful.
I recenlty went to one of my favorite new restaurants in Seoul. The restaurant has a unique menu- something you normally dont see in Korea. The food was very good as was the service. It became my favorite place to have Sunday Brunch. I and many others started frequenting the place. Unfortunately, during my last visit, I noticed the service had rapidly declined. In other words the restaurant was becoming a victim of its own success. The restaurant owner clearly never thought he would be so successful so quickly. He could not keep up with the demand. His staff was stretched to the limit. Oh well- maybe I should look for another place to have Sunday Brunch.
My ex- favorite restaurant’s failure to deliver proper service because of its success started me thinking about risks inherent in any business when it faces unexpected results- whether positive or negative. Looking at recent events it is impossible not to notice how many of the risks faced by companies were either unintended or unexpected. From a risk management standpoint, such a failure to appreciate potential risks because the risks were unexpected or the result of unintended consequences, is a failure of risk management itself.
Granted, it may be easier to foresee certain risks than others and take action to mitigate the risks that are more visible. But the very reason to create a risk management system and nurture a culture of risk mitigation, is to foresee all potential areas of risk and take steps to mitigate or at least acknowledge the existence of risk. Stockholders of a finance company do not want to be told the company collapsed because it failed to appreciate the risks inherent in mortgage backed securities. Investors in an energy company dont want to be told the company collapsed because it failed to reign in corruption and malfeasance on the part of upper management. What every company must ask itself is the fundamental question- “Has the company looked at all areas of risk, including the unexpected areas and taken steps to mitigate the risk.?”
Risk comes in many packages. Political. financial, legal, business, economic, natural and of course personal. Risk can be the result of political or economic events. Risk can also result from natural disasters. But it can also be the result of success. In essence, there is risk in the unexpected consequences of success. How so you may ask? Look at Sony. Sony’s success led to hubris. It led to the decision to expand in to a multitude of business ventures and product lines which resulted in Sony concentrating less on it core products which had made it successful and concentrating on product lines it was not so familiar with. The end result- it took its eye off the ball. Samsung and LG rushed in. Look at Samsung today- you can also argue that Samsung was too successful with its PDAs and forgot to look at the competition in China. Sony, Panasonic and others are victims of thier own success. But they didn’t have to be if they appreciated the fact that success can lead to unintended consequences.
The world today is flat. Every aspect of the world is interconnected. Success can be fleeting if companies fail to realize that a company’s brand is now based not only on creating a superior product but on providing superior service or creating a superior consumer experience. The risk a company faces on a day to day basis is the risk that it fails to recognize it must provide a superior product, service and customer experience on a regular basis. Once it provides a superior product or service, it must continue to do so or it runs the risk of failure or collapse. It faces unexpected failure as it relied too long on the out of date “successful” business plan. Or it experiences unexpected failure because it relied too long on the “superior” product that suddenly becomes out of date. What happened to the Sony Walkman? The risk is that a company fails to realize everything changes, and based on past success or based on unexpected success it fails to push the envelope and fails to provide a superior product or superior service all the time.
How does your company handle success? Has it stopped striving to be the best? Has success made it complacent? Does it understand that there is great risk in success if it fails to understand why it became successful? Does the risk management department consider the risk of unintended consequences? What do the reports from the field say about products and product development? What does Service say about customer satisfaction? Is your company a little paranoid about its business plan or is it overly confident based on past victories and successes? Is it always trying to streetch the envelope or is it a little comfortable?
A risk management department in any company must understandably handle commonly perceived risk on a daily basis. But it must also consider the risks inherent in unexpected or unintended consequences. Failure to do so invites great risk and potential disaster. What do the risk models and processes say about success? Talk to your risk managers. They will be the first to tell you if your products or services are becoming out of date or are having trouble in the field. Remember, one of the unexpected consequences of success is risk.