Yet even a world-class risk management system can’t prepare a company for everything. Some risks are so remote that no individual manager or group of managers could ever imagine them. And even when firms envision a far-off risk, it may seem so improbable that they’re unwilling to invest in the capabilities and resources to cope with it. Such distant threats, which we call novel risks, can’t be managed by using a standard playbook.
Risks come in many forms and flavors. Companies can manage the ones they know about and anticipate. But novel risks—those that emerge completely out of the blue—will arise either from complex combinations of seemingly routine events or from unprecedentedly massive events. Companies need to detect them and then activate a response that differs from standard approaches to managing routine risks. That response must be rapid, improvisational, iterative, and humble, since not every action taken will work as intended.
- In this situation a company needs to make decisions that are (a) good enough, (b) taken soon enough to make a difference, (c) communicated well enough to be understood, and (d) carried out well enough to be effective until a better option emerges. A company has two options for right-of-boom responses:
- Deploy a critical-incident-management team. This standard approach to a novel risk—creating a central team to oversee the response—works well when an event has widespread impact but doesn’t need a complete, immediate solution.
- Manage the crisis at the local level. Some novel risks don’t allow for the luxury of a critical-incident team. Time is of the essence, and details about the situation are difficult to communicate to company headquarters far from where the threat has emerged. In those situations, responses must be delegated to personnel closest to the event.
Category 1: A new, better world for everyone
[genioux fact extracted from HBR]
Authors of genioux fact
The Risks You Can’t Foresee. Robert S. Kaplan, Herman B. Leonard, and Anette Mikes. Harvard Business Review. From the Magazine (November–December 2020).
ABOUT THE AUTHORS
Robert S. Kaplan is a senior fellow and the Marvin Bower Professor of Leadership Development, Emeritus, at Harvard Business School. His most recent HBR articles include: “Inclusive Growth: Profitable Strategies for Tackling Poverty and Inequality” (with George Serafeim and Eduardo Tugendhat), “How to Pay for Health Care: The Case for Bundled Payments” (with Michael E. Porter), and “How to Solve the Cost Crisis in Health Care” (with Michael E. Porter).
Herman B. Leonard is the Eliot I. Snider and Family Professor of Business Administration at Harvard Business School and the George F. Baker, Jr., Professor of Public Sector Management at Harvard’s Kennedy School of Government.
Anette Mikes is a fellow at Hertford College, Oxford University, and an associate professor at Oxford’s Saïd Business School.