At the turn of the millennium, the South African business community watched with bated breath as one of the Big Four banks made a hostile takeover bid for its larger rival. While the bid was unsuccessful, it resulted in positive outcomes for the bank that was under attack. Coming out of nowhere as it did, the aggressive action led to an "all hands on deck" response.
Executive management took a long hard look at the bank`s current state and decided it was time for dramatic change. In the space of four years, that same bank has undergone a profound transformation, and its financial results show how successful the makeover has been.
Had anyone suggested such a dramatic change prior to the takeover bid, it may not have been embraced. However, the risk of attack compelled a huge organisation to go against the grain and think and act out of the box.
Companies that take risks and succeed often take those risks only when they are under serious threat. Entrepreneurs, however, take risks as a matter of course. A true entrepreneur will take many risks knowing that if they fail, they can merely pick themselves up and start again.
The point is that in the business world, people expect entrepreneurs to take risks but they almost deem it unthinkable for a major corporate organisation to do the same. However, risk resides in everything, and the way people and companies respond to it will determine their future success or demise.
IBM and Revlon
Take the appointment of Lou Gerstner, the former CEO of IBM. As past CEO of RJR Nabisco and an executive at American Express, he knew little about technology. Yet he took IBM`s share price from about $30 in 1993 to around $180 in a space of four years.
When Peter Revson, the heir to the Revlon empire, died in the 1970s, his father Charles pulled in Michel Bergerac, the executive VP of $11 billion ITT, to head the company. An urbane, courtly Frenchman with a background in engineering, Bergerac`s forte was the world of high finance.
When companies become so big that they become seemingly untouchable, they feel they can do anything they like.
Bryan Hattingh, CEO, Cycan
Yet, he took the $360 million cosmetic company and turned it into a billion-dollar empire in the space of two to three years.
My question is this: how many large successful companies have failed and disappeared from the landscape because they never acted and refused to take any risks, and so never evolved? Think about huge corporates that were around in the 1970s, 1980s and 1990s. How many of them survived from one decade to the next, and how many of them are around today?
Animals living in the jungle are aware - at every moment of every day - of the potential risks they face and, for that reason, they live proactively and are geared to respond quickly.
In the business world, success can breed complacency. When companies become so big that they become seemingly untouchable, they feel they can do anything they like. That sense of omnipotence can be the source of some really bad decisions. Think of the brazen companies that have made huge investments in non-core activities and then lost billions.
On the other hand, there are companies so risk-averse that they become dour and conservative. Fossilised by their own inaction, these companies are unable to respond to market forces and end up dying a slow death. The fact is that avoiding risk does not reduce your potential for becoming a victim of it.
On a personal level, we are warned against taking risks from an early age. As children, we are constantly told what we are not allowed to do because of the danger it presents. People develop a fear-based, risk-averse way of thinking. Instead, we should be teaching children risk management skills so that they develop competent risk profiles and have the ability to stay ahead of the game at a later stage in their lives. As long as people cling to negative perceptions about risk, they will be restricted by self-imposed limitations.
Keep your head out of the sand
When athlete Roger Bannister broke the supposedly unbreakable record for the four-minute mile, others did the same soon afterwards. Lance Armstrong won his fifth consecutive Tour de France last year after overcoming testicular cancer. These are just two examples of how remarkable human nature is and what we can overcome if we set our minds to it. It`s all determined by how we view and manage risk. It becomes fundamental to how we approach our work, our relationships, and our lives.
Business leaders have to keep their heads out of the sand if they want to be sufficiently alert to what is going on around them, and to optimise their business performance. A forward-looking policy is essential, because no matter how staid or secure your business may be, it is never safe.
Consider these facts: in Dubai the contribution of the oil sector to GDP was 80% in 1968 and is now down to 8%. In North Rein, Westphalia, Germany, iron, steel and coal comprised 98% of GDP in 1982. Its contribution today is 0%. Such shifts where massively successful companies suddenly disappear off the map are nothing new in international experience.
Organisations need to be brutally honest and transparent about who they are and what their strengths and weaknesses are. All companies must review their strategic intent and the nature of their business well beyond the SWOT analysis to ensure they remain appropriately skilled and capable of responding to market demands.
For long-term sustainability, company leaders must continually examine and embrace their opportunity and risk profiles, and know whether the risks to their companies are increasing, diminishing or changing.
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