Embracing Risk for Strategic Advantage: Business Support Organizations in an Uncertain World
Being able to act boldly when faced with uncertainty has never been more important. As trade promotion organizations prepare to meet in Accra on 17-18 May, how do we embrace risk to create benefits for business?
Whether crossing a busy highway or climbing a mountain, we take risks to obtain some kind of benefit – including the benefit of an adrenaline rush.
For most organizations, risk management means making sure bad things don’t interfere with objectives. This involves considering both likely and unlikely occurrences, and the impact these could have on objectives -- and then putting in place mitigation and management actions to reduce the likelihood of occurrence and/or the extent of the impact.
Risk identification and management are critically important, and business support organizations that do this well create an advantage for the businesses they serve. However, this safe approach doesn’t actively embrace risk-taking as a way of creating benefits. Not many organizations would look at a risk report that showed no active risks and see this as an opportunity to be more courageous and innovative!
We face risks when dealing with the unknown or the uncertain. At the same time, business support organizations have a role to help businesses overcome uncertainty and step into unknown markets. Accepting a degree of risk is therefore essential to the mandate of a business support organization. Unless these organizations help businesses take steps into the unknown, they are not doing their job properly.
When designing a strategy, an organization can embrace risk-taking by segmenting priority clients, sectors, markets and regions. Large, experienced firms working in well-established sectors in familiar markets face very low risk. They are likely to deliver results in the short term. It is very tempting for a business support organization to focus on this type of profile, when in fact a company like this has very little need for support.
Value for firms as well as spillover benefits for a country occur when support organizations prioritize emerging sectors, small inexperienced businesses and unfamiliar but high potential markets. But by doing so they increase the degree of uncertainty and increase the risk of failure. To serve their countries and their clients, these organizations therefore have to be deliberate and determined risk-takers (with good risk management practices), rather than conservative risk avoiders.
Acting boldly when faced with uncertainty has never been more important. Value chains have been disrupted, traditional markets closed off, new sectors have seen accelerated growth and others have been severely impacted. In this time of volatility, business support organizations accustomed to shaping paths for new products into new markets will serve all their business clients well. Even the most experienced exporting firms have faced a strange new world in the last two years!
Manage three risk horizons
One way to embrace risk is to manage current resource allocation across three risk horizons. And one of the most important strategic decisions is the share of resources against each horizon at any one time.
The first horizon, dealing with the known and the familiar, provides quick, high-volume results, with low or steady growth. In the world of business support organizations this means working with experienced firms, established sectors or subsectors and familiar markets. To create value in this horizon, they provide highly customized services to individual firms.
The second horizon responds to known trends and expected risks. Resources are allocated to fast-growing business, emerging sectors and promising new markets. The focus is on growth, not volume.
Risk is managed through adjacency (eg taking an experienced exporter into a new market, building out from a familiar market into a similar/neighbouring one, working with a cohort of small in-experienced firms in a well-established sector etc…) and through traditional risk identification and mitigation practices.
Value is best delivered in this horizon through standardized service offerings, sector-wide initiatives and group activities. Trade and investment agencies, with government funding and broad strategic goals, are often tasked to deliver results in this horizon, including to implement government objectives to diversify the economic base away from oil or commodity-based exports.
The third horizon allocates resources to create resilience, innovation and growth in the longer term. An organization must be prepared for the unexpected, with built-in agility supported by expertise, connectedness and credibility. Where uncertainty is high, risk is managed through a diversified portfolio, with small interventions or pilot projects across a number of companies, sectors or markets.
Organizations that do this well have good monitoring and evaluation practices, a blame-free culture and clear recognition that some activities will underperform. Activities will be directed mostly at the regulatory environment and the supporting ecosystem that allow winners to emerge. Results within the timeframe of the strategy cycle are likely to be output level or intermediate outcomes only. Management of stakeholder expectations is key.
Risk for strategic advantage, a new normal
Over the last two years, many business support organizations embraced risk-taking for strategic advantage, because they had no choice. In the upheaval of lockdowns and supply disruptions, normal ways of working were no longer relevant. Those who did best had contingency plans in place, good information-sharing protocols, access to unique information and expertise, a culture of innovation and customer-service, the ability to connect with and inform businesses, and excellent levels of trust with both the private and public sector.
Agility in the face of uncertainty and an organizational culture that supports well-managed risk-taking is essential for business support organizations . to better help firms to access new value chains, diversify their markets, and innovate with new products By taking risks well, they bring competitive advantage for firms, and contribute to prosperity, employment, and economic diversification.
Go ahead, cross the busy highway to the sunny side of the street. But look both ways first, and be prepared to dodge the traffic!
Anne Chappaz is Chief, Institutions and Ecosystems at the International Trade Centre, an agency of the United Nations and the World Trade Organization.