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Enterprise Risk Management, Strategic Management and Knowledge Management Understanding the linkages

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Title: Enterprise Risk Management, Strategic Management and Knowledge Management Understanding the linkages


1
Enterprise Risk Management, Strategic Management
and Knowledge ManagementUnderstanding the
linkagesPresentationby A.V. VedpuriswarNovemb
er 2006
2
Introduction
  • What is Enterprise risk management?
  • What is Strategic management?
  • What is Knowledge management?

3
Enterprise Risk management
  • Identifying risk
  • Measuring risk
  • Monitoring risk
  • Decreasing risk
  • Increasing risk

4
Strategic Management
  • Who are our customers?
  • What are they looking for?
  • How do we give it to them?

5
Knowledge Management
  • What is our business?
  • What do we need to know?
  • What do we know?
  • How do we bridge the gap?
  • Do we know what we know?
  • How do we convert human capital into
    organizational capital?
  • How do we expand our social capital?

6
The common thread
  • Being clear about who we are
  • Being clear about what business we are in
  • Being clear about who the competitors are
  • Being clear about what the competitors are doing
  • Being clear about our strengths and weaknesses
  • Being clear about the direction to take and the
    way to implement

7
Understanding the business environment
  • Deregulation and changes in public policy have
    increased competition.
  • The formulation, funding and operation of
    commercial enterprises has become easier in
    recent years.
  • Competition can come from unexpected sources.
  • Trade liberalization and information technology
    (IT) have facilitated the globalization of
    operations.
  • IT innovations have helped reduce interaction
    costs and enabled companies to create more value
    at lower costs.

8
  • The traditional structural sources of competitive
    advantage, geographic barriers, regulatory
    barriers and economies of scale have eroded.
  • Intra and Inter organizational knowledge sharing
    and knowledge creation are at a premium today.
  • Companies can no longer depend on their own
    capabilities. They have to build networks
    involving other companies.
  • At the same time, unless they have
    extra-ordinary capabilities in some areas, they
    will find it difficult to work with and mobilize
    the resources of other world class partner
    companies.
  • Being clear about what we want to do has also
    become critical
  • This is increasingly an era of specialisation
  • One must be specialised and learn to work with
    other specialised entities

9
Understanding KM
  • Learning
  • Knowledge creation
  • Classroom
  • Structured
  • Explicit
  • Instructor facilitated
  • Experiential
  • Unstructured
  • Tacit
  • Mentor/coach facilitated
  • Sharing knowledge across the organization
  • Human interaction (explicit knowledge)
  • Technology (tacit knowledge)

10
Knowledge Strategy
  • Knowledge strategy effectively means identifying
    and developing the knowledge required for serving
    customers, more effectively than competitors.
  • Identifying which knowledge based resources and
    capabilities are valuable, unique, and inimitable
    as well as how those resources and capabilities
    support the firm's competitive position form the
    core of a knowledge strategy.
  • The way the firm intends to compete with respect
    to technologies, products, services, markets and
    processes determines the kind of knowledge
    required to compete and excel in an industry.
  • On the other band, the level of knowledge
    available within the firm limits the ways in
    which it can actually compete.

11
Making trade offs
  • Putting in place a well thought out knowledge
    strategy involves making major trade offs along
    three dimensions.
  • The first addresses the degree to which an
    organization needs to increase its knowledge in a
    particular area (exploration) as opposed to
    exploiting its existing knowledge resources
    (exploration).
  • The second dimension addresses whether the
    primary sources of knowledge are internal or
    external.
  • The third dimension is concerned whether the KM
    initiatives are IT centric or people centric.

12
Exploration vs exploitation
  • When an organization has less knowledge than that
    needed to execute its strategy, when competitors
    know more, when the industry is changing rapidly,
    and when competitors are rapidly innovating,
    creating new knowledge becomes the priority.
  • On the other hand, when existing knowledge
    resources and capabilities are more than adequate
    to defend the current competitive position, the
    organization can further exploit existing
    knowledge within or across business units and
    sometimes enter new businesses or customer
    segments

13
External vs Internal knowledge
  • Internal knowledge is found within individuals,
    embedded in behaviors, procedures, systems
    recorded in various documents or stored in
    databases and online repositories.
  • External knowledge can be accessed through
    publications, universities, government agencies,
    professional associations, consultants, vendors,
    knowledge brokers and strategic alliances.

14
IT vs Human contacts
  • Some companies focus on codification, i.e.,
    codifying and storing knowledge in databases.
  • In other companies, the focus is on
    personalization, ie building contacts among
    experts, the role of technology being limited to
    facilitating such connections.
  • The choice between codification and
    personalization, must clearly be driven by the
    companys business strategy

15
Drilling down It is all about learning
  • In todays fast paced environment, learning is
    important
  • Learning about competitors(Market and Business
    Intelligence)
  • Learning about customers(CRM)
  • Learning about creating new value(Innovation)
  • Learning about delivering value more efficiently
    (Process efficiencies, Use of IT)
  • Learning about risk

16
Ancient wisdom of Peter Drucker
  • Businesses face four types of risk
  • The risk that is built into the very nature of
    the business and which cannot be avoided.
  • The risk one can afford to take
  • The risk one cannot afford to take
  • The risk one cannot afford not to take
  • Developing a deep understanding of these risks
    lies at the core of corporate strategy.
  • ( Ref Managing for Results)

17
Learning about risk
  • Companies which can learn about their risk better
    and faster will win the game
  • Trick lies in identifying the risks where the
    company has an advantage
  • The jargon for this is Core competence
  • Existing level of knowledge determines how
    effectively the learning can take place

18
Learnable risks
  • These are non random risks
  • Different risk takers are in different positions
    to learn about what drives them
  • Some risk takers can reduce their uncertainty
    more than the others.
  • So companies must choose their strategy, and the
    associated risks accordingly and develop
    knowledge around these risks

19
Experience
  • Classroom learning is less important as a source
    of competitive advantage.
  • Experiential learning contributes to deep smarts.
  • Past and future experience decide what kinds of
    risk the company can take.
  • Risk intelligence is about making choices that
    our natural run of experience can really
    penetrate.
  • What kind of deep tacit knowledge do we possess?
    That others do not have and will find it
    difficult to replicate

20
Key questions
  • How frequently do our experiences relate to risk?
  • How relevant are these experiences to what might
    influence the risk?
  • How surprising are these experiences?
  • How diverse are these experiences ?
  • How methodically do we track what we learn?

21
Frequency
  • How often are we learning?
  • Is this more than that of rivals?
  • Do we encourage learning?
  • How intensive is our learning ?

22
Relevance
  • How well do our experiences typically
    discriminate among factors influencing the risk?
  • Do our experiences provide more insights about
    the risk?

23
Surprise
  • The surprise element complements relevance.
  • Surprising or relevant experiences tell us more
    about the world.
  • Controlled experimentation under the guidance of
    a coach can help.
  • Look at the tails of the normal distribution.
  • Recall the major disasters in the past 10 years.

24
Diversity
  • Variety is important.
  • The more diverse the experiences the better the
    learning.
  • Diversity helps to broaden the mindset.
  • When we have diverse experiences, we can approach
    risks from different perspectives.

25
Record keeping
  • Do people take notes in meetings?
  • Do we keep electronic records of important
    results?
  • Do we keep records in such a way that people can
    access and understand them easily?
  • Does this happen across geographies?
  • Is there knowledge hoarding?

26
Conclusion
  • Strategy is all about deciding how to compete
  • About deciding what kinds of risk to take and
    what not to take
  • KM is about building knowledge around these risks
  • Making sure that knowledge is widely disseminated
    and available to the larger organisation
  • The connections between KM, Enterprise Risk
    Management and Strategy are strong

27
References
  • Risk Intelligence- Learning to manage what we
    dont know, by David Apgar, HBS Press, 2006
  • The Only Sustainable Edge Why Business strategy
    depends on productive friction and dynamic
    specialization, by John Hagel III John Seely
    Brown, HBS Press, 2005
  • Deep Smarts how to Cultivate and Transfer
    Enduring Human Wisdom by Dorothy Leonard Walter
    Swap, HBS Press, 2005.
  • Zack Michael H., Developing a Knowledge
    Strategy, California Management Review Spring
    1999.
  • Hansen M.T, Nohria N and Tierney T, Whats your
    strategy for managing knowledge? HBR,
    March-April, 1999.
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