In our last blog post in this series, we outlined a model for developing strategy in two different processes: developing an ideal state and grappling with a key decision. Both invariably require an evaluation of options and an assessment of the balance of consequences as between the various options. Often, there are “downsides” or risks with these options.
Perhaps now more than ever, employers need to engage with “risk” as it relates to the workplace. In making a connection between the workplace and risk, we speak broadly. For instance, there are:
- health and safety risks
- other compliance based risks, whether under the Corporations Act 2001 (Cth), the Fair Work Act 2009 (Cth), the Competition and Consumer Act 2010 (Cth), and the myriad of other laws that impact a business, and
- the risks associated with poor service, such as loss of customers, reputational risk, and market risk.
It’s people that make a business and, on one view, all risk is about people.
More broadly, the types of risk that an organisation may face fall into one of three categories:
- preventable risks (internal controllable risks)
- strategy risks (here some risk is tolerated in pursuit of business objectives), and
- external risks (arising from events outside the control of a business).[1]
According to one study, if you ask ten different people what they imply by the meaning of risk you will likely get ten different answers.[2]
Whatever label is applied, risks need to be identified and identified as an outcome. The identification of cause is a separate, albeit obviously necessary, exercise.
Risks are typically examined and understood in the following ways:
- Risk as exposure: that is, what will or may happen
- Risk as impact: that is, what is the harm that will follow, and
- Risk as a probability: that is, how likely it is that this will occur.
Many readers will be familiar with a risk matrix that plots the likelihood of an event against the degree of severity.
What can be done about “risk” is another exercise again. As General Stanley McChrystal observes in his book Risk – A User’s Guide, “to study risk is to reconsider what we know about being prepared.”
When we work with employers on their enterprise bargaining strategy, the bargaining risks are often central to any planning. Those risks can range from industrial action to an increase in sick leave, lower productivity, and certain pressure being placed on customers.
As noted above, the evaluation here calls for a degree of judgment and hence perception about the nature, degree, likelihood and impact of the various risks, together with an assessment of what can be done to mitigate them. Interestingly, employers who are most confident about their capacity to deal with bargaining risks are the ones often prone to capitulation in the bargaining when they arise. The risks were effectively ignored. A lack of planning followed, and with it something more fundamental: the lack of mental and emotional preparation that seemingly makes matters worse. As the great Stoic philosopher Seneca observed, “What is quite unlooked for is more crushing in its effect, and unexpectedness adds to the weight of a disaster”. In effect, the organisation has been taken by surprise. Flight or fight kicks in amongst the leadership. Panic and anger. What was organisational becomes personal. “Now my job is on the line” becomes just one interpretation of these events.
Hardly the best time to close out an enterprise agreement.
Conversely, there are those so concerned about the risks they are all too willing to make an agreement, putting their business at risk in the medium to long term. There is an overestimation of risk and a degree of catastrophising that masks clarity and true perspective. The opposite can also occur. An employer is so obsessed with bargaining risk that upon facing and dealing with its manifestation, they become emboldened and their bargaining position strengthened. Their attitude to perceived risk changes having better understood the reality of it.
In advising many employers over many years who are about to embark on a challenging change or enterprise bargaining project, the following has been instructive: the more they countenance risk, and the more preparation they put into leveraging what’s in their control, the better is their experience with the project and outcomes.
[1] Johansen, I.L and Rausand, M, ‘Foundations and choice of risk metrics’ (2014), Safety Science pp. 386–399.
[2] Kaplan RS and Mikes A, ‘Managing Risks: A New Framework’, Harvard Business Review, (June 2014).