The Elevated Value of Risk and Flexibility

Uncertainty and ambiguity are constant conditions in today’s market climate. Leaders face an ever-increasing and evolving set of operational variables, whether it be a disruptive start-up competitor that redefines customer expectations, a new tariff stifling your European division, or an emerging social media movement that challenges your brand’s equity. Successfully navigating this environment requires continuous, transformational change. Amid unpredictability, your ability to minimize risk and adapt to capitalize on emerging opportunities has intrinsic value in transformation efforts. In stable times, many business leaders may overlook the importance of risk and flexibility (i.e., risk elasticity), narrowing their focus on financial or operational performance metrics. Our research shows that business leaders most commonly look to operational cost (63 percent) and increased revenue (60 percent) to value transformation initiatives.1

While most organizations factor risk into their business cases today, a comprehensive, aligned understanding of the value of risk and flexibility becomes especially crucial in a pandemic that impacts customers, the workforce, and operations in profound and interconnected ways. In crisis response, the CHRO may focus on maximizing employee engagement in virtual working environments. Following a factory shutdown in Spain, the head of the supply chain may be evaluating the cost of moving to a new supplier in Japan. And with widespread product stock-outs shaking up buying patterns, the CMO may be focused on addressing the associated impact on brand perception. In the absence of a common framework for valuing and prioritizing recovery efforts, every initiative targets a single, siloed issue. In many cases, the loudest voice in the room takes priority over efforts that can accelerate enterprise-wide recovery across the lenses of customers, the workforce, and operations.

Indeed, business leaders cite "conflicting definitions of value" as the most pervasive challenge in understanding the value of their transformation efforts. Lack of alignment on value drivers can lead to poor decision-making and a lack of a clear vision, strategy, and objectives that hamper crisis recovery. As the crisis brings efficiency and liquidity constraints that force tough trade-offs, clarity and alignment become essential to keep the leadership team in lockstep on allocating limited resources for maximum impact.

In weathering a crisis, you need a clear vision, guiding principles, and objectives to inform the key initiatives that comprise an adaptive recovery strategy—all while maintaining a constant eye on strengthening risk mitigation and flexibility. North Highland’s Change EconomicsSM offers a common framework for valuing and prioritizing these initiatives to ensure greater alignment, faster adoption, and accelerated results. It holistically evaluates and prioritizes new efforts through seven fundamental sources of value:

  1. Risk and flexibility: Improved risk mitigation and management; Increased flexibility and adaptability to seen and unforeseen environmental factors
  2. Customers: Customer experience differentiation through improved customer satisfaction, loyalty, and advocacy
  3. Business: Precision in meeting stated performance targets including revenue, profitability, and efficiency
  4. Employees: Improved employee satisfaction, engagement, performance, productivity, retention, and capacity for change
  5. Stakeholders: Enhanced value to vendors, partners, and other players in your ecosystem; including community and social value
  6. Time and opportunity: Accelerated realization of your strategic business priorities
  7. Capability: Sustainable competitive differentiation through the ability for continuous change and transformation

These fundamental value drivers remain constant. Yet, as your response focus moves away from viability and towards durability and adaptability, their relative priority changes. As a result, you should incrementally adjust your emphasis on different value drivers to maximize outcomes through and beyond crisis recovery. Grounded in a comprehensive picture of value, Change Economics helps you design a strategy that can flex to your evolving needs based on factors in and outside your organization. In and beyond COVID-19, how can you optimize risk and flexibility as part of a strategy that’s grounded in a holistic view of value? Change Economics can help.

Define your vision and desired outcomes. As you consider your organization’s future vision, you need to anticipate that the velocity of change and disruption will continue to increase, driven largely by the black swan events of COVID-19. In this climate, maintaining and expanding risk mitigation and flexibility should be increasingly integral to your organization’s strategy. Consider the value of risk and flexibility in the organization that you and your leadership team aspire to create. As you define your objectives and how you want to show up for customers, employees, and other stakeholders, be sure to account for the value of risk and flexibility in bringing this future to life and ensuring you can deliver on required results.

Define value levers. As you seek to cut costs and drive efficiency, you’ll also need to determine how your value proposition must evolve long term, particularly as you consider customer, employee, and stakeholder expectations in the “next normal.” People today care deeply about an organization’s purpose and how it aligns with their ethics and ideals. Driven by the fear brought by the pandemic, customers are calling on companies to contribute to community and societal well-being—demands which require substantial agility. Examples are numerous. Articles about beer manufacturers transforming their production lines overnight to make hand sanitizer or restaurants reimagining operations to feed medical workers dominate the news cycle and are reshaping stakeholder expectations. While the pandemic will require organizations to double down on efficiency in the short term, they’ll also need to build the flexibility to address the enduring impact on stakeholder expectations in a post-pandemic world.

Identify and prioritize initiatives. Once you've identified your critical sources of value and their relative weighting in this new dynamic, you need to engage all your stakeholder groups in a discussion about how risk and flexibility will be valued relative to the other change and transformation value drivers. In these discussions, consider how your emphasis on risk and flexibility will evolve as your organization progresses from business viability and towards the stages of stability, durability, and adaptability.

Build a Change Economics valuation model and change agenda. Change and disruption will continue to be a constant, accelerating force in and beyond the COVID-19 world. With all the change brought by the pandemic, risk and flexibility will have a heavier hand in corporate strategy moving forward. As your organization advances towards the “next normal,” develop a vision for disruption, determine what it could mean for your organization, and focus on the efforts that will minimize risk or increase your elasticity to that risk. Your change agenda should equip you to address scenarios like: Are we prepared if we lose a crucial supplier or our standard distribution channels? If our brand value proposition is no longer a differentiator, how can we minimize the impact on our bottom-line?  How can we maintain workforce productivity if we need to work remote again?

Amid turbulence and uncertainty, a comprehensive view of the value of change and transformation—one that’s inclusive of the value of risk and flexibility—can align the organization with a clear set of priorities to carve its COVID-19 response and recovery path. As the pandemic brings new impacts on customers, the workforce, and operations each day, it’s never been more critical that you have a multi-faceted view of value that can evolve with your organization as it advances from immediate viability and towards sustained durability.  

1. In February 2020, we surveyed > 400 cross-functional employees from organizations with annual revenues > $1B and that are headquartered in the U.S. or U.K. Survey questions aimed to identify the drivers of transformation, the factors that yield positive and negative transformation outcomes, and approaches to prioritizing change and transformation initiatives.

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