I have always, and am always, considering how the risk management profession can embrace innovation of itself and use this to be better prepared for future events such as those that struck us like the global financial crisis.
I hear everyone load and clear, innovation and risk management, doesn’t the risk management function find the issues or problems with innovation? Surely the concept of innovation of risk is clearly in “breach” of all the risk management principles ever defined.
Well, the reality is the risk management function needs to innovate itself just as much as any other part of the business the function supports.
The innovation of risk however requires certain principles be established within the risk management function and then these principles be applied across the business that is supported by the risk function.
These principles are very similar to any other innovation function and consistent to something I read on my Kindle over a year ago, “Innovator’s Guide to Growth – Putting Disruptive Innovation to Work” and relate to a few key areas:
- Understand your current capability, organisational position and embedding plans
- Identify the user(s) and the user opportunities
- Identify non-users of the risk function
- Identify users where you may / or have over delivered
- Identify the jobs that need to be performed
- Develop ideas and concepts
- Build the function from these ideas – capability and delivery
- Measure performance
[amazon_image id=”B0015DYLI8″ link=”true” target=”_blank” size=”medium” ]Innovator’s Guide to Growth: Putting Disruptive Innovation to Work (Harvard Business School Press)[/amazon_image]
This topic has been a critical topic for successful organisations over decades but I personally cannot recall it ever being a critical topic for the risk function. Some may disagree but I suspect those that do are thinking of how risk helps innovate in product development, particularly in a financial products trading environment (ie. financial instruments). However, for me that is innovation of product, not innovation of risk. Innovation of risk is solely the domain of innovating the function itself, particularly in regards to operational risk and compliance risk.
The key step in the innovation of risk is therefore in your capability. In particular, you people capability. I expect instantly for people to think of the technical skills alone, but capability extends beyond just pure technical skills. In actual fact, the technical skills are only a small component as the right people can learn any new skill. What is critical is leadership capability and innovative capability. Both of these can receive some training but it is the aptitude of the individual that will generate the better outcome. Therefore, when recruiting don’t just focus on the technical elements of your risk resources but focus on their interpersonal and thought generating skills.