“You cannot skip a meal due to another man’s problems”, this popular Shona saying literally translated into English does not apply to business. Businesses do not operate in a vacuum thus the problems affecting other stakeholders can have a negative impact on your business. In our last article, we highlighted that risk identification is a holistic exercise which must be done across the whole value chain. A firm should identify risks posed by suppliers, customers, competitors, substitute producers, possible new entrants, the firm itself and the environment at large. This article focuses on practical examples where businesses have been affected by risks striking other stakeholders outside the firm.
Risk affecting neighbour can be your problem
What can disrupt your business operations? What can cause you to vacate your business premises? The most obvious answers are perhaps a ‘fire’, or ‘court order to vacate the premises’. Do you have a Disaster Recovery Site (DRC) where your business can temporarily operate from should unforeseen risks strike? An example is a suspected petrol leakage which occurred in Harare in 2016. This is a practical case where one risk striking another entity can have a ripple effect on other businesses. The end result was that all businesses operating within the vicinity were forced to vacate business premises and look for alternative premises to operate from (well, some even stopped operations during the period). Now, we all imagine obvious risks such as ‘fire’ as the only ones that can disrupt operations. Who would have imagined that suspected petrol leakage can disrupt business operations in the Central Business District? The point is, in Risk Management, not all risks are visible from a naked eye and ‘another man’s problem can be your problem’. Businesses thus need to adopt a holistic approach in risk identification.
Disruptive innovation by competitors
Disruptive innovation by competitors is a risk to your business. What competitor moves can affect your business or push you out of business? A disruptive innovation is an innovation that creates a new market and value network and eventually disrupts existing business operations. A case in example is the emergence of Uber. Uber is an on-demand transportation service which has brought a revolution in the taxi industry across the world. The business model of Uber has made it possible for people to simply tap their smartphone and have a cab arrive at their location in the minimum possible time. You may not be in the Transport Industry, but Uber Type disruptive innovation in your industry can have devastating negative impact to your business. Classic examples of disruptive innovation as a risk to business is the transformation in the communication industry from Telegraphy to Telephones, Postal Mails to E-Mails and Fixed Telephone Lines to Mobile Communication technology. We can count a significant number of business casualties as a result of such revolutionary changes. Did they anticipate it? Continuous Research and Development (R&D) thus becomes critical in identification of emerging risks that can affect business operations.
Supply chain disruptions is a threat to your business
Almost every business rely on third parties for the supply of goods, materials and/or services. How do you ensure smooth and uninterrupted flow of goods and services from third parties? What happens to third party businesses may be beyond your control. Unforeseen events can disturb the normal flow of goods and materials in the supply chain. These supply chain interruptions which do not necessarily happen within the firm can result in production disruptions and/or service disruptions. A case example is the impact of power cuts to business operations of Toyota in 2011. The power supply disruption caused by earthquake forced Toyota to cut production and the company had to operate at 50% of its normal production capacity which resulted in 15% reduction in profits [SupplyManagemet.com]. Risk Management goes beyond the firm and organisations should understand that the sources of risks are diverse. This calls for a deliberate risk identification exercise conducted by internal resources or hired experts.
Risk Mitigation strategies should be developed on the basis of a holistic risk identification exercise which identifies all possible significant risks across the value chain. “One man’s problem can be your problem”
Has your business been affected by operations of third parties? Share with us on simonsays@cbz.co.zw
Our next article will focus on Risk Analysing.
