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Carol Morgan

Control Risk in the New Normal

What makes today different and why is it referred to as the "New Normal?"

July 18, 2011
by Carol Morgan, CPA, CIA

The convergence of multiple threats has drastically changed the business environment. You need to look no further than the fate of the many organizations that have been wiped out of existence after the depilating economic twister. As management focuses on refining business processes in response to this changing environment, risk identification and management at an enterprise level becomes critical.

Historically, recessions associated with both financial and global downturns are severe and long-lasting. Traditional foundations supporting supply vs. demand have changed. In this new environment, where growth has slowed, success now comes from anticipating the customer’s future preferences. Today, successful organizations listen to the customer and adjust the supply to meet the customer’s emerging and long-term need, while being forced to find new footholds in an electronic age.

Reader Note: Don’t miss Carol Morgan’s session at the upcoming AICPA E.D.G.E. Conference in New Orleans, LA, August 10-12.

Emerging Risk

Organizations are managing risks in an egg beater. Layer on budgetary constraints resulting from the flat economy and you may end up with cost reductions cutting deeply into supporting infrastructure. Failure to plan for risk events often leads to a culture of crisis management. Risk management is the proactive solution to this and becomes even more critical as infrastructure suffers necessary cut-backs. Conducting a close-up examination of those events that threaten to destroy the value, mission and goals of the enterprise should consider:

  • Globalization is increasing. Borders and man-made barriers are no match for the connectivity we know as the Internet. How do we know if we are reaching the right audience?
  • The speed at which we do business has accelerated because new technology connects far flung markets. We have been schooled to expect immediate answers as well as service. If we do not deliver, the customer moves on to someone who will.
  • Social media has become the conversation media of choice. The blogosphere gives anyone the ability to weigh-in within an informal setting in which there is no requirement to substantiate an opinion.
  • Everyone is scrutinizing everything moving transparency to the forefront. The old adage that actions speak louder than words could never be truer. Watchdogs, whistleblowers and WikiLeaks abound. 
  • Failure to assess and respond to competition may cause market share erosion not easily regained. It may not be necessary to be “first-to-market” with an innovated process. However, organizations need to be flexible to try new ideas and accept the risk of failure as well as that of success.

Sustainability

Strategic planning requires quick adjustments to changing environments. There is a critical need to build a more agile enterprise enabling management to make choices within the risk appetite, while building the value of the organization. The new normal has reshaped the traditional power of the brand in an electronic age. It is no wonder leadership goes to the technologically savvy. Time is now compressed. This hastens the pace of decision-making. These decision-makers are now forced to quickly digest information and sometimes are required to make instantaneous responses to events.

Now more than ever, it is vital for organizations to maintain a strong tone at the top. This starts with the Board and is emulated and enforced by the management team. Boards must focus on fiduciary responsibility and recruiting and cultivating qualified directors. However, ultimate success comes down to the people inside the organization doing and managing the work. The workforce culture in which loyalty to an employer is highly valued does not fit in this new normal. An improving economy will see an increase in the likelihood that employees will pursue jobs in other, more lucrative environments. When employees leave, there is a loss of corporate knowledge not to mention the operational gaps. It is imperative that organizations create an environment that attracts and retains the people they want and need.

Conclusion

Today, the world changes in a blink of an eye. Handwritten documents are replaced with online files. Once limited by time zones and paper trails, we are now connected by the Internet and mobile devices making information, and us, accessible 24/7. The pressures on organizations to understand and address risks have never been greater. The economic down-turn has resulted in drastic changes creating a new normal, at least for today. Globalization, social media communication and technology advancements are increasing the threats converging on the horizon.

At the end of the day the challenges may not be new but ignoring them is not an option. Businesses will need to chart a course, watching for risk dragons at the edge of the strategy map, so they do not vanish by falling off the end of the earth. Best-positioned organizations have strong governance frameworks and a capacity for prudent risk taking. Risk awareness is now integral to strategic decision-making. How organizations view and address emerging risks will be critical in this new normal.

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Carol Morgan, CPA, CIA, CFE, CISA, CCEP, is vice president — audit and risk management services, at Seattle, WA-based World Vision. She is responsible for the planning and completion of operational, compliance and financial audits conducted at all World Vision U.S. sites.