18 Feb Live and Breathe Risk Management
Driving Transformation through M&A: Tip 2 of 10
This is part of a series of posts about driving transformation through Mergers and Acquisitions (M&A). Here’s my first post. This summarises the M&A challenge and the ten recommendations I have for success. If you haven’t seen it then take a look.
Yes, M&A can be a high risk game.
M&A can be a high risk game. Surveys are in abundance that talk about the dire results when deals go badly wrong. It’s common, almost clichéd now to hear someone cite the fact that half of all M&A transactions fail.
Boards and executives are all too aware of this, and it’s common for them to play it safe and avoid anything bad from happening. The response, therefore, is one of low confidence and trust where not screwing up and keeping ambitions in check, becomes the name of the game.
What this means in practice is that organisations focus on purely the transactional elements of the deal and getting the combinational basics right during integration.
Risk avoidance becomes the name of the game.
But avoiding risk is not the answer!
The ultimate irony, of course, is this risk avoidance mindset of playing it safe is risky in itself! It means taking a pass on the opportunities to move the business forward, and achieve the kind of competitive advantage only M&A can deliver. The cost could be erosion of market share, revenue, profit and even employee flight. And when any of those things happen, the risk of losing – the very thing to be afraid of, becomes a self-fulfilled prophecy. Avoiding risk is risky!
Avoiding risk is risky!
A positive approach to risk is required
Instead, there needs to be a willingness to continuously accept, embrace and manage risk with a positive attitude, recognising that risk and opportunity go hand-in-hand. This doesn’t mean taking big ‘bet the business’ risks either. Rather it is an enlightened way of consciously identifying and analysing what could go wrong so that calculated and well-informed measures can be made.
Risk and opportunity go hand-in-hand.
Use risk management for competitive advantage
What I’m saying is that risk management should be considered as something that is positive and opportunistic rather than negative and threatening. In a philosophical sense, it means taking a living and breathing approach to risk with a fearless readiness to anticipate and redress the problems that could occur. The goal is not to avoid risk, or even to minimise it, but to use it to create a competitive advantage. Risk management is a value-creating exercise!
Risk management is a value creating exercise!
Live and breathe risk management
Let’s see how this more enlivened value-creating approach plays out when driving a major initiative.
- Behaviours. Risks are addressed proactively – not reactively, within the context of discussing opportunities to create value. The goal is to be risk-aware so that the best risk-return trade-off can always be achieved.
- Information flow. Risks always need to go through the governance process to give them full transparency with acknowledgment across the business that informed decisions have been consciously made.
- Conversations. Risk management is more about talking than it is about reporting. The idea is to discuss risks frequently, objectively and openly.
- Acceptance. There’s needs to be a recognition that measured, calculated, and irrevocable risks will be taken on certain occasions so opportunities can be realised.
- Metrics. While important, don’t over do it. The focus needs to more on that probabilities and impacts are discussed and understood rather than precise metrics.
- Stakeholders. Always encourage open discussion and assessment. It forces stakeholders to confront the uncertain nature of risk, removes the defenses, and stops it becoming a game of political football – we are all in it together.
- Meetings. Don’t treat risks as an afterthought, sitting as they often do as the last item on the agenda. Instead, intersperse the risk conversation throughout meetings so that one way or another they all get discussed.
- Leadership. Top management, and in particular the person who makes the deal real: the integration manager, must embody this affirmative, living, breathing approach to risk.
While I admit a major aspect of risk management is about avoiding the downside, it’s nonetheless critical for senior executives not to be fearful and risk averse. When driving a major change through M&A, organisations must avoid risk avoidance; this is the riskiest thing they can do. Instead, they should consider risk management as a value-creating exercise where risks are identified and managed within the context of opportunities. Living and breathing risk management is a way of actively attacking the risks. If you don’t do this then the risks will actively attack you!
If you don’t actively attack the risks, the risks will actively attack you!
Hopefully, you found this particular tip has given you some thought. I always find risk management an intriguing area. It’s funny really, so often the really important risks never find their way into the risk log! My email is below; happy to discuss this and other posts in further detail.
Thank you for reading!
Senior consultant, BTD Consulting