Turning organizational stress into resilience
Successful companies know how to gauge when stress is leading to risky decisions — and how to mitigate and manage that risk.
When you’re stressed, you cut corners. It starts with substituting coffee for sleep. Before long, you may find yourself missing workouts, eating donuts and consuming too much alcohol.
If left unmitigated, stress can cause weight gain, burnout and breakups — and in extreme cases, heart attacks and death.
At a minimum, stress leads to poor choices, and this applies in corporate decision-making also.
Automation, rapid growth, reorganization, volatility and changes in ownership are common causes of organizational stress, and sometimes lead to unseemly behavior and unexpected outcomes even in stalwart companies.
"Companies can even be stressed by success," said ERM Senior Consultant Scott Nadler, author of the new report Managing Risks Under Stress. According to Nadler, stress leads companies to make higher-risk decisions with limited risk information and insight; reduce their capacity to monitor and manage those risks; and let their culture drift toward risk tolerance and even risk-blindness.
"The companies that succeed are the ones that adapt, not abandon, their risk governance," said Nadler, who spoke alongside four other experts on the keynote panel that I moderated at SPF Americas 2015 in Chicago, produced by sustainable software leader Enablon.
Governance, risk and compliance (GRC) or environmental, health and safety (EHS) management platforms are being implemented by companies to manage overwhelming volumes of data and increasing regulations.
As Pat Taylor-Woodyard, senior vice president and global director, industrial sales and service at CH2M HILL, explained, clients with actionable data can use EHS systems to "determine patterns of performance, predict outcomes, and plan solutions to mitigate risk and achieve operational agility."
From the analyst’s perspective, lack of knowledge prevents companies from becoming resilient. "Organizations that understand risk better than their competitors are better able to take advantage of new markets, new technologies and new opportunities," said Chris McClean, vice president and research director at Forrester.
Companies that invest in knowledge and infrastructure capabilities also benefit through better performance, beginning with increased efficiency in regulatory compliance, a point made by panelists at SPF Houston 2015.
"Compliance is a gateway to resilience," said Enhesa’s Head of Global Services Rachel Degenhardt. In the EHS arena, the failure to acknowledge and adapt to changing risks and new risks can be much more costly than implementing an EHS management system.
"The cost of noncompliance, of enforcement-related litigation, and of failing to recognize known risks can be quite literally deadly," she said.
Operational resilience becomes 'brand resilience'
If resilience is the new sustainability, it still has the same problem: defining value. As with sustainability, context matters, and in few instances is the value of resilience more murky than in terms of reputation.
According to Marianne Voss, a stakeholder-relations executive at Sedex, an estimated 80 percent of global trade passes through supply chains.
"If you can’t map out your supply chain and understand your sources, the risks become higher," Voss said at the SPF Americas confrence.
Lawsuits against companies that do not properly manage slavery risks are increasing, as is media coverage on the slavery issue. There’s a growing expectation that businesses need to move from reactive management across enterprise sustainability performance management programs to include human rights.
“The challenge is two-fold,” Voss said.
First is to measure and manage metrics of sustainability risk and performance to the company, and second to track their impact on the communities in which they operate. Automated EHS platforms can perform these functions for suppliers, also.
Employees who don’t work in marketing may not realize how much of the company’s value is tied up in its reputation, but quantifying irresponsibility becomes easier when companies take a hit to their brand after disaster strikes. McClean used the example of Lumber Liquidators, pointing out that "on the balance sheet that company looked great, but its stock price tanked after the news reports that its products might be toxic."
Risk becomes image and image becomes revenue or hits the bottom-line stock price. The result can be that the viability of the company is literally at risk.
"Risk becomes image and image becomes revenue or hits the bottom-line stock price. The result can be that the viability of the company is literally at risk," added Taylor-Woodyard.
Like risk management efforts, corporate responsibility initiatives tend to happen in response to big industry failures or regulatory pressures. As such, recent advancements in corporate social responsibility have been related to product safety and infrastructure sustainability — a pattern that suggests that companies can stumble into resilience by accident or to avoid accidents. But what does it take to be proactive about resilience?
Resilience as a product of technology, people and process
For companies aiming for resilience and beyond, EHS or GRC systems facilitate knowledge exchange and collaboration, guide resource allocation and show results of all these efforts. In this manner, the platform itself is not a panacea, but an enabler of excellence when combined with the right people and processes.
"The danger is buying technology without a really solid strategy," said McClean. "But once the correct solution is in place, technology gets the whole organization operating toward common goals."
Selecting a tool is not the end of the process; it’s only the beginning. All systems have strengths and weaknesses, and addressing those head on as a company prevents systematic gaps in information and holes in EHS programs. But it must be done by example, from decision-makers to every team, said Degenhardt. "Ultimately, universal adoption leads to better data and improved morale."
Rewards and benefits are not always immediate; results and data are only useful with time. "It’s that strategic thinking and commitment to three to five years of use that is important to realize upon adoption of a tool," said Degenhardt.
Cultural barriers that cause corporate fragility
- 'Risk-Resources trap' — Allowing budgetary constraints to drive risk management can lead to unconscious risk tolerance. ERM found that reduction of resources exponentially can increase a company’s amount of unmanaged risk.
- Cultural complacency — People get used to their perceptions of where and how much risk there is. The recent past often has stronger influence on decision makers than what might occur in the future or what occurred in the historical past beyond current staff’s tenure. Hard data is often required to make risk believable enough to break "tribal knowledge" barriers.
- Miscalculating risk — Companies that operate with a checklist mentality may focus on "high frequency, low risk" items vs. less frequent, higher risk items. To help clients identify big-ticket risk items, CH2M recommends ranking risks and categorizing them to address those that have the biggest impact on business viability.
- Training and user buy in — A wealth of tools that can be implemented at all levels to manage risk, track compliance and assist with corporate oversight and decision-making. However, if the tools aren’t used with comfort or frequency, then you don’t get buy-in from end users. Training is essential for driving adoption of technology.
- Communication — Communication and listening to stakeholders' needs is key. Once a tool is selected, it requires communication about why a tool was developed, what problem the tool will solve, what negative impacts could occur without the tool, how the tool can create resilience within the organization and why each employee’s role is valuable and necessary.
Leadership from the inside out
Enablon co-founder and CEO, North America, Phil Tesler opened the conference by asking companies to factor in the increase of "black swan" events, including Fukushima and Deepwater Horizon, in their risk management activities. Considering these along with the value drivers of Enablon’s system, it’s difficult to find a good reason not to do this. Which brings us back to the start: Organizational stress impairs decision-making in organizations.
"EHS systems can mitigate 'cultural drift' and enable excellence," said Nadler. However, getting leadership to invest in risk management can be difficult when day-to-day operational investment priorities take precedence.
Today’s world of instant communication and hyper-fast social media is making the world more transparent whether we like it or not.
"The do-more-for-less syndrome for some industries has shifted to do lots more with lots less," said Taylor-Woodyard. But change is constant, and resources and funding are always limited. Today’s world of instant communication and hyper-fast social media is making the world more transparent whether we like it or not.
"You need to think ahead, to be strategic and set up systems that are readily adjustable to changing conditions," said Taylor-Woodyard, who offered her own definition for resilience: "the ability to match the speed of play with the reaction time of your systems."
By examining organizational resilience as a product of technology, people and process, the panelists catapulted the concept into the realm of systems thinking. But how do companies go beyond resilience when so many still struggle with compliance? The answer lies somewhere between technology and process — that is, with people.
"Turning constraints into opportunities" may sound cliché to some, but the strategy is working for Enablon and its users. Enablon’s growth is a testament to the value of harnessing an opportunity hiding in plain sight — in this case, leveraging the innovation potential within compliance.
Success seems to come down to choosing to invest in the power of automation, and then collaborating to fully realize the potential. Enablon’s vision is becoming sharper each year and its peer network is getting stronger, which increases opportunities for collaboration. As managers learn more, they are overcoming the obstacles with every module they adopt, each process they cultivate and each user they train.
"Managers can definitely take a 'wait and see' approach using institutional knowledge," said Taylor-Woodyard, "or you can get in the swim lane to drive positive transformation in your own organization using an EHS system as your guide."