Many would argue that one of the most important considerations related to strategic execution, performance management and/or risk management is organisational culture.
Culture has many dimensions, many definitions and there are many differing views on how to develop the ‘right’ culture. However, a simple, every day definition of culture is the way things get done around here.
One of the questions that we are often asked is “Does Risk-based performance help us build ‘the right’ culture? If so, how?”
This is a subject that we no doubt will return to many times on this site. However firstly, supporting the development of the right organisational culture is one of the key benefits that the Risk-based performance methodology brings and is central to its design.
Addressing the second part of the question, the methodology supports the development of the right culture in a number of ways. However, in this post we will focus on one specific aspect of the methodology – the interaction between the Strategy map and Risk map.
The Strategy map within the Risk-based performance methodology goes beyond its traditional implementation in that it includes an indication of risk profile, control effectiveness and in some cases an indication of project portfolio performance. Each of these dimensions is considered within the context of a strategic objective.
The Risk map is presented along the lines of a traditional Risk map (Heat chart) showing impact and probability (or frequency depending on client preferences), however the map would also include strategic perspectives like the Strategy map.
We believe that both of these tools must be owned by the same management team and this ownership cannot be delegated to sub-committees. Whilst strategy maps are generally owned by a management team, often Risk Maps are owned by a sub-committee such as an operational risk committee or a risk management team. They will often prepare the Risk map and supporting information for presentation to the appropriate management team. Whilst we believe such committees/teams should play a role in preparing analysis and information around the Risk Map to inform management discussions, it must be the management team who own the map, that make changes to the map, modify both the risks on the map and the rating of those risks.
We believe that only the management team who own the risk map (and its related Strategy map) should modify it because it is this team who have a set of strategic objectives which they must achieve thus only they can correctly understand and balance the trade-off between performance and risk. Additionally only this team have the understanding and situational insight to understand what the real risks are and the threat these risks pose. This situational insight goes beyond information from technical strategic or operational risk models to include the softer information that comes from management judgement and experience. It also includes the insight developed around the management table as the team discuss the results coming through on the strategy map and supporting scorecards. It also includes insights developed during informal ‘water cooler’ moments with staff from across the organisation. Traditionally this softer information was difficult to include in performance or risk models driven by hard numbers however this information goes to the heart of creating the type of culture that leads to outstanding strategic execution.
In the classic management book, Good to Great, Jim Collins points to the quality of management discussions as one of the key ways organisations make decisions. He states:
“all the good-to-great companies had a penchant for intense dialogue. Phases like “loud debate”, “heated discussions”, and healthy conflict” peppered the articles and interview transcripts from all the companies. They didn’t use discussion as a sham process to let people “have their say” so they could “buy in” to a predetermined decision. The process was more like a heated scientific debate, with people engaged in a search for the best answers”.
This is exactly the type of management discussion that the interaction between the strategy map and the risk map is designed to promote, with the three scorecards further informing this discussion. This type of robust discussion has an important impact on culture as it sets the tone for the organisation and signals to staff across the organisation that honest, fact-based, decision-making based on experience and judgement is the way we do things around here. When staff are engaged in this type of discussion and witness this discussion taking place higher in the organisation it creates the right tone and culture for strategic execution. Performance and risk become part of the daily considerations and activities such as poor performance, fraud, rogue trading and mis-selling become more difficult to hide in this type of culture.
Click here for related posts about Risk-based performance.