Risk management is a good incentive, but a bad motivator.

The blog series, the fourth part of the series discusses how it is possible to turn a risk into an opportunity.

Is risk an opportunity or a realizable threat that is only a matter of time before it materializes?

The continuation and expansion of the war in Ukraine is possible, but so is its end. We must adapt to both outcomes. China is drifting strongly towards dictatorship, but it can also quickly change course and develop towards a more open society. Covid 19 shut down societies, but some societies remained permanently ajar.

If the glass is always half empty, the risk is likely to materialize. If the same glass is half full, a new opportunity opens. The definition of threats and opportunities depends on the perspective of the person considering the matter, i.e. through whose eyes he or she is looking at the matter. However, companies must continue to operate regardless of changes and threats in the world around them.

In the future, continuous mapping of risks and assessment of their impacts must be part of the company’s strategy and future planning. This is a significant change from the past.

Strategy work must consider the continuity of operations and test different change situations in a very practical way. It is necessary to consider whether the company’s operations can continue even if changes in the surrounding world cause severe blows to the business. It is equally strategically important to consider the opportunities opened by risks. If the change takes place, will we be the first to adapt and be ahead of others in taking advantage of the changes?

From risk to opportunity: Case light bulb

One source of risks and opportunities for many companies is the rapidly changing regulation in the EU. Adapting to the ever-tightening of regulations requires considerable awareness on the part of companies.

A good example of this change is the ban on the placing on the market of light bulbs in the EU. The change enabled a wide new market for LED lights. Companies that were able to adapt to change and bring new lamps and luminaires to the EU market gained a significant competitive advantage. The pioneers hijacked the EU market.

At first, the change seemed like a big risk. There was a lot of criticism of the new regulation, and lobbyists tried hard to influence its content. The change had a wide-ranging impact in the EU. In the beginning, the quality of LED lights varied, and their prices were high compared to incandescent bulbs. The situation may also have been worrying from the perspective of global competition, as the new regulation only applied to the EU.

Two decades later, we know that rapidly advanced LED technologies have become a whole new area of digitalization. The change initiated by the EU spread throughout the world. LED lighting flooded cars, homes, industries, streets, and cities. Many new applications and innovations were also created.

LED technology saves a lot of energy and at the same time provides lighter and flexible lighting. On the other hand, the disposal of LED bulbs has become an environmental challenge. LED technology was supposed to make the world more environmentally friendly. However, new kinds of raw materials and new types of recycling are needed for the green values of LED lamps to develop in line with the set targets.

New regulation almost always leads to change, but changes are usually reasonably foreseeable by following the preparation process. This opens up new opportunities and provides a competitive advantage for those who know how to look for low-hanging fruit.

The right timing of change is everything.

Timeliness is crucial in taking advantage of change. If investments in the renewal of products and services are started too early and products are sold too early, they will not sell. If you are lagging behind your competitors, you can find a better and more cost-effective solution, which will benefit the market. On the other hand, while waiting, you may lose your market position altogether. Anything is possible. We must be prepared! The best model is to test your company’s ability to react to changed circumstances.

In the end, change management in a company is always about people’s decisions and people’s reactions. Decision-making cannot be outsourced or automated. Machines and software can replace a lot of human work, and experts can help with understanding, anticipating, testing, and developing, but management makes the final decisions, takes risks, and seizes opportunities.

Utilizing opportunities starts from the way management and the organization react and their ability to act in a changing situation. The entire organization can react negatively if management does not have the ability to make clear decisions, communicate them consistently, and test the organization’s capabilities. A typical way for staff to react is to apply for a new job. Often, those who are in demand in the market leave first.

If management is unable to adapt to change, waits too long, and focuses on saving the remaining business, the result is often a worse crisis. These are situations where there is no single right way to act. Almost always, the situation comes as a surprise, in which case the management’s way of reacting, making decisions, and leading the organization determines the outcome.

In change, risks can turn into huge opportunities or lead to complete failure. It all depends on the people, how the company’s decision-makers react, and how they know how to act.

Are you successful or does the risk materialize into a downward spiral for the company?

Companies have learned to look at risks best in the context of projects. They have a clear beginning and end, which makes it easier to perceive risks. It is much more difficult to look at the risks to the operations of the company. However, the changed world will not be the same again. It’s like companies are in a constant project where they must adapt faster and faster.

The risks are strategic and continuous. Yet, in many companies, risk management is just a set of formal measures for which designated risk management persons are responsible. A separate risk management piece is not integrated into the organization’s operations. Adapting to requirements, preparedness training, and preparedness are seen as expenses in which only the mandatory minimum is invested. Measures are taken slowly, cost-evading, and at the last possible moment. Compulsion is a good incentive, but a bad motivator.

Changes in global politics and trade have increased interest in integrating risk management into companies’ strategic operations. It remains to be seen whether this is a momentary whim of change management – perhaps the result of pain caused by realized risks or unforeseen new costs.

The fifth, and final part of the series examines the risks associated with the information on which decision-making is based.

The writer’s expertise includes ICT, industrial automation, cyber security, 5G, and new technologies.