Welcome to May 2020 edition of Carnival of Quality Management Articles and Blogs.
For the year 2020, we have chosen the core subject of Revisiting Basic Quality Concepts w.r.t. the sustained success of the organization As of now we have visited
- History of Quality in January 2020
- The Sustained Success of Organization in February 2020
- Organizational Context in March 2020
- Understanding Needs and Expectations of the Interested Parties in April 2020
We take up Risk Based Approach as our core concept this month–
The most prevalent change that the advent of 21st century has witnessed is the extremely dynamic rate of change. If change was the constant of later part of 20th century, it is almost becoming beyond human comprehension rapid rate of change that is becoming the new-normal with passing of every year of the present century. This rapid change is making what w=is already ‘known’ now ‘known unknown’. The uncertainty that this rapid rate of change ushers in creates the world around extremely fluid.
For our present purpose of “Revisiting the Basic Quality Concepts’ we will briefly look at two articles published in HBR – one in 1994 and the one in 2012.
The first article, A Framework for Risk Management by Kenneth A. Froot, David S. Scharfstein, Jeremy C. Stein (November–December 1994 Issue of HBR) is based on finance specific perspective of Risk.
The risk-management paradigm rests on three basic premises:
- making good investments.
- to making good investments by generating enough cash internally to fund those investments.
- maintaining adequate cash flow
A risk-management program, therefore, should have a single overarching goal: to ensure that a company has the cash available to make value-enhancing investments.
By recognizing and accepting this goal, managers will be better equipped to address the most basic questions of risk management.
If we paraphrase the message of this article for the organization as whole, we understand that basic aim of risk management practices is to ensure that while maintaining its near and medium term operating parameters the organization should sustainably manage its competitiveness in the areas of its core competence, as relevant to its present and future context.
The second article, Managing Risks: A New Framework by Robert S. Kaplan and Anette Mikes (June 2012 Issue of HBR), places the risk in a more broader perspective .
The article presents a new categorization of risk.
Category I: Preventable risks.
Category II: Strategy risks
Category III: External risks
The article goes onto examine the individual and organizational challenges inherent in generating open, constructive discussions about managing the risks related to strategic choices. The authors argue that companies need to anchor these discussions in their strategy formulation and implementation processes.
The authors caution the organizational leadership by bluntly stating that managing risk is very different from managing strategy.
Active and cost-effective risk management requires managers to think systematically about the multiple categories of risks they face so that they can institute appropriate several and collectively interactive processes for each.
An approach based on adherence to minimum regulatory standards and avoidance of financial loss creates risk in itself. In a passive stance, companies cannot shape an optimal risk profile according to their business models nor adequately manage a fast-moving crisis.
In conclusion, the article looks at how organizations can identify and prepare for non-preventable risks that arise externally to their strategy and operations.
A thought provoking paper – Value and resilience through better risk management by Daniela Gius, Jean-Christophe Mieszala, Ernestos Panayiotou, and Thomas Poppensieker – at Risk Insight studies by McKinsey and Compony provides a specific actionable perspective –
More rigorous, debiased strategic decision making can enhance the longer-term resilience of a company’s business model, particularly in volatile markets or externally challenged industries..
Organizations need to manage their operations such that investments in product quality and safety/ environmental or societal expectations standards adopted by it can bring significant returns. And enable processes that are less prone to disruption when risks materialize.
To achieve standing among customers, employees, business partners, and the public, companies can apply ethical controls on corporate practices end to end.
Building robust, effective risk management is three-dimensional project: 1) the risk operating model, consisting of the main risk management processes; 2) a governance and accountability structure around these processes, leading from the business up to the board level; and 3) best-practice crisis preparedness, including a well-articulated response playbook if the worst case materializes..
Having accepted that uncertainty is a constant in business, robust risk management can help companies adapt and thrive. How risk management can turn a crisis into an opportunity is a re[presentative case study that demonstrates how using risk management processes and structures to identify and mitigate a wide variety of risks, even when what arises is not one of the feared scenarios, the business will be in a stronger position to respond to crisis and grow.
Risk Based Thinking and the risk management are very actively debated and documented topics in the management academics and the practice.
In a limited span of our present view, we recognize that by recommending these two additional readings –
- Is the world sleepwalking into a crisis? Global risks are intensifying but the collective will to tackle them appears to be lacking. Instead, divisions are hardening. – The Global Risk Report, 14th Edition, World Economic Forum, and,
- Sustainability Risks and Opportunities Report
To conclude, every organisation should see risk-based thinking as an opportunity and a step in the right direction of attaining the sustained success.
[N.B. – Detailed note on Risk Based Approach can be read / downloaded by clicking on the hyper link.]
We will now turn to our regular sections:
In the series the Organizational Culture, we have taken up Organizational culture’s relationship with organization’s strategic direction. The critical message is that hat whatever form the relationship between organization’s culture and organization’s strategic direction shapes, in order to attain the sustained success, the culture and strategy should seamless aligned. .
We now watch ASQ TV, wherein we look at a few relevant videos from the archive:
- Quality as Strategy – Greg Watson, ASQ past chair and ESTIEM professor, asks viewers if they believe there is, “a difference in having quality strategy or Quality as strategy?”
Jim L. Smith’s Jim’s Gems posting for May 2020 –
- Growth – It is natural to focus on our strengths and pretend our weaknesses don’t exist. To grow, however, requires that we admit where we’re weak and then work to strengthen those aspects of our life – personal and professional…Choose to embrace and engage those opportunities now while placed in front of us. Embrace these opportunities even though they may seem a little uncomfortable….And as we grow, the positive possibilities will grow even more superlative in our world.
I look forward to your views / comments / inputs to further enrich the subjects of Basics of Quality and Organizational Culture and their role in Creating and Maintaining Sustained Success.
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