Global Risk Strategy

Global Risk StrategyLate last year the Global Economic Forum released its Global Risks 2012 Report, the seventh in a series. As any business manager or innovator knows, risk is part of life. Without risk there is no innovation, but we should also think about managing global risk and the report offers some interesting food for thought.

A section of the 2012 report is dedicated to the effects of the Eastern Japan earthquake and Tsunami of 2011, and its effect upon global commerce. We are all aware of the direct results of this disaster, but indirect results are more difficult to see, although the organization of a business can help to minimize impact.

Here in the US we may have looked on in horror at the devastation caused by the Tsunami, but soon after we felt a real effect here. Detroit has long been the center of the car manufacturing industry, and times have not been easy in recent years, but few saw the problems that the industry would face as a result of a natural disaster thousands of miles away. Production came to halt as many of the parts for assembly required a particular microchip, and this microchip was manufactured in Japan.

The company that produced this tiny part is called Renesas, and their factory is just North of Tokyo. The factory was damaged in the quake and production halted, but without the microchips the cars could not be assembled in Detroit, and there was no plan B for their supply.

This was not the first example however, as the 1999 Taiwan Chi-Chi earthquake disrupted mobile phone manufacturers globally by interrupting the supply of semiconductors, while the 2007 Niigata-Chuetsu-Oki earthquake shut down automobile production across Japan by cutting off the supply of engine piston rings.

The danger is that such disruptions can be quickly forgotten as companies revert to the principles of lean business models, which imply that building redundancy and excess inventory into supply chains are a waste of resources. This may not however prove to be the case in the long term.

Vulnerability to risks such as these can however be minimized through adaptive leadership, with the report showing that networked organizations fare better in a crisis. A centralized organization that relies on hierarchical decision-making does not have the flexibility needed in such emergencies, but a network of employees who have access to real-time coordinating mechanisms and the authority to make decisions can be more valuable than teams of highly-trained, specialized risk managers.

I would go further and argue that an organizational structure of this type would improve longer term innovation, and may even help to make innovation more responsive and responsible.

If we think of an organization as a starfish, able to regenerate damaged limbs but to function with one or two missing, we might have greater capacity to survive, be more resilient, innovative and responsive in an ever more challenging world.

There will always be the need for a centralized overview however, but the center could well learn something by listening to the limbs.

For an overview of the rest of the report see this article on the Bassetti Foundation website.

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  • Innovation, Social Risk and Political Responsibility
    Jonny Hankins is a researcher and writer for the Bassetti Foundation for Responsible Innovation in Milan. Trained as a sociologist at the Victoria University of Manchester UK, his interests range from innovation in the renewable energy sector, bio and medical ethics and the role of politics in innovation, to questions of ethical and moral responsibility. He lives in Boston Massachusetts where he is also a professional musician, actor and street performer.

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