Why Some Firms Thrive While Others Fail – Governance and Management Lessons from the Crisis.

Author: Thomas H. Stanton

The book deals with the what and how of the mortgage bond crisis of about 2008. Only roughly because none of the organizations involved were not informed in advance. The book contains a great deal of historical material from the crisis, expressed in financial terms. A financial background helps to fully appreciate the book. Nevertheless, in the last chapter, the author takes up the challenge of extending the analogy with a number of non-financial organizations.

But what should we remember from this book?

First of all there are four principles of winners during crises:

1 ° Provide discipline and a long-term perspective.

2 ° Provide robust communication- and information systems

3 ° Provide the capacity to respond effectively to ‘early warning signs’ and

4 ° Ensure a constructive dialogue between the business units and the risk managers.

But there is more than that.

What are the differences between the firms that controlled the crisis and those who failed?

  • The winners nor the losers saw that the houses would decrease in value. But the “survivors” saw that the market moved in a way that they did not understand. Therefore, they reduced exposure to it.
  • The winners did research in 2006-2007 on the causes of the unexpected developments in the market.
  • JP Morgan differed from other organizations because they built up a financial reserve to take over other organizations if they would get into trouble because of the developments in the market.
  • Other companies failed because they took excessive risks at the wrong time in a narrow range of assets.
  • Successful organizations received a lot of feedback and engaged in constructive dialogues before taking on risks.
  • In some organizations, the CEO was actively involved in the decision to reduce the risk.
  • Successful organizations had a culture, supported by top management, that promoted constant communication between business units and the risk team and higher up the hierarchy.
  • When the successful organizations came into close contact, they again emphasized effective risk management.
  • Successful organizations had information systems that provided an organization-wide view on risks and their changes in time.
  • Perhaps the biggest problem is the immense pressure to deliver short-term performance. This prevents the installation of a risk management system.
  • Effective risk management requires expenditure and discipline, in order not to take short-term gain, which other organizations do, based on risky practices. Support from the CEO and preferably also from ‘the board’ is essential.
  • Risk management is part of all management. A strong information infrastructure is required both for managing the organization and for having an organization-wide view of the risks.
  • Make sure that risk management does not become a formality!
  • It is not easy to be a risk manager if the organization decides not to take the risks into account. You must always be able to tell your truth. Even if you are fired for it.
  • Although the markets and the risks become more complex, simple questions remain critical in order to guarantee a good decision. An important question with weird markets is “what is happening that we do not understand?”.
  • Winners discuss intense implications of threats.
  • Winners had drawn up models for the risk situations, but did not trust them blindly.

Reinventing Organisations

Author: Frederic Laloux

In his book ‘Reinventing Organisations’, the author seems to kick against holy houses. ‘Why do not we need this vertical structure?’, ‘Why, we can trust the employees in the workplace?’, ‘Why, the first value is not the maximization of profit for the stakeholders?’, ‘Why a machine worker can do a quality check within the perimeters of the customer? “,” Why, budgets should be discussed in team? “,” Why, the employees can learn from each other? “,” Why, we do not need a zilion hierarchical layers of control for efficiency gains, on the contrary? “,” How does the power belong to the employees? “,” Why, the employees can be smart, think problem-solving, spontaneously work overtime to get a piece of the job done, consult each other and feel involved in the work ? “,” Why, the latest generation of young people communicate differently, and how this can be accommodated with a horizontal organizational structure? “,” How the communication is many – to – many and not more one – on – one, and how, can Facebook – like communication within an organization help? “.

These are some of the first objections that are raised in this revolutionary book. This work is divided into three parts. In a first part, the author first discusses a history of organizational structures, from red to amber, orange, to green and finally cyan (turquoise). The author shows how this was appropriate for the zeitgeist and does not always have to be inappropriate in later periods. Some organizations are simply made to be hierarchical. In the army there must be discipline. In times of crisis, there must be a crisis management structure. It is not for me to say that the latter must always be hierarchically orange or amber or red, but may evolve into green or cyan. What these colors mean, for that I refer to the book, which goes deeper into it.

In a second part, the author delves deeper into structures, practices and cultures of cyan organizations. In doing so, the author goes deeper into all layers of the organization, not just processes, machines and projects, but also people and cultures. Very important here is the search for wholeness and the team structures, extensively illustrated by the organization ‘Buurtzorg’ in the Netherlands. Such types of teamwork are more attuned to the communication habits of youth, who are our future, who communicate many – to – many on the internet, and who for the most part no longer feel at home in a vertically structured hierarchical organization.

As proof of this, and for the fact that it works, the author quotes a series of organizations and their ‘personal’ stories about how they fared, how they performed well in the last decades, and even in the depths of the global crisis periods.

In a final part, the author talks about necessary and sufficient conditions for working a cyan organization, as well as addressing the setting up of a new or transforming an existing organization into a cyan organization.

Managing crises before they happen

Ian I. Mitroff with Gus Anagnos

The book is a collection of facts about crisis management.

In his definition for Crisis management in the first chapter, the author states that risk management and emergency planning have to do with natural phenomena, while crisis management mainly relates to crises caused by people. This narrow definition of crisis management is important for the correct interpretation when reading the rest of the book. He therefore argues that crises are an inherent part of modern communities. But also that crises caused by man can be avoided. It is important to always look for signals of problems in the environment. Denial of problems is the greatest danger.

In the second chapter, the author speaks about failing success. More specifically, how can the organization be the victim of its own success. Because certain actions have been repeated over and over and over again, such as the production and sale of Tylenol, one becomes blind to the weaknesses in the process, which for J & J in 1982 appeared to be the security from begin to end of tylenol. A lesson learned for J & J is that they always have to take responsibility for their product. An organization must therefore always search for new techniques, and constantly question its processes, including the security process. In order to draw up security plans, one must always consider the following five aspects of the environment in relation to the organization: complexity, links and connections between matters, the scope and size of processes and systems, speed and visibility.

In chapter three the author discusses a model for best practice for crisis management, based on risks, mechanisms, systems, stakeholders and scenarios. It is therefore necessary to have emergency plans for economic risks, information risks, physical risks, HRM risks, reputation risks, psychopathic actions and acts of god.

Chapter four is about what to say or not to say. The author mentions the ‘Johari Window’. A first golden advice is: investigate the situation, and avoid deceiving yourself. Always accept liability for your product and your actions. And know that there are no real secrets in this world anymore. There is always someone who knows what you do not want, and an investigative journalist is always there. And taking the initiative to tell the truth above that you have to be squeezed out is always preferable because you remain ‘in control’.

Linked to this is chapter five about taking responsibility: are you the victim or are you the bad guy? One is or will quickly and easily become the bad guy, one remains or becomes difficult the victim. Psychology of the mass plays a major role in this. It is important to take responsibility, to take action and not to actively play out the classic victim role. Give yourself as a spokesman an understanding and empathetic role and never get into technicities. Avoid alienation of victims, customers and stakeholders as a face of the organization. And never assume that the logic within the organization is also that of the media and the masses.

This is why chapter six is ​​also important: the detection of weak signals to deal with crises before they happen. Never block them! Pay attention to the alarms of people on the work floor. Keep your communication lines open. Reward people when they report a problem. And make sure people know what to do in a crisis.

To be able to do crisis management, one must also be able to think out of the box. Chapter seven is about that. A remuneration policy is therefore appropriate. By stimulating this way of thinking you will find new and original solutions to problems. In addition, decisions must also be made, which everyone, from top to bottom, must support. But beware of a known issue: watch out to solve the wrong problem. And always check that what is taken for granted.

Chapter eight is about seeing ‘the big picture’. How things come together, one crisis can ignite the other, but that a single event is seldom enough to blow up the situation. So all factors that contribute must be taken into account. Base the action plans on this, and consult the large picture regularly to ensure that you do not make the situation worse.

Chapter nine is the road that was seen in 2001 as a starting point in 2002. The most important advice in this is “Start by designing and implementing signal detection systems throughout your organization”.

In Hindsight – A compendium of Business Continuity case studies

Edited by Robert A Clark

In Hindsight reflects on a series of disasters from a BCM perspective. Some organizations have scored good, others did not. Five organizations were not prepared and did not make it. A sixth has made it thanks to an extraordinary portion of luck. Some disasters had extraordinary proportions and global consequences. Others stayed local. The causes vary, from brutal bad luck like acts of God and accompanying volcanic eruptions, to things that could be prevented like the Herald of Free Enterprise, in which somebody is clearly to blame.

Other causes of human nature are lack of insight or poor management, profiteering, stupidity, terror, … All these things have in common that they are in the environment of many organizations.

The consequences can be equally diverse: environmental damage, death, safety and health problems, global economic crisis, legal prosecutions …

This diversity of topics makes the book very suitable as an eye-opener for managers and boards of directors.

The penultimate chapter also emphasizes the importance of small sparks: fraud, cyber attacks, employee dissatisfaction, the media, small and large fires, including those of the neighbors, poor planning of major projects, breaches of information security such as data theft, floods, diseases, etc.

But the final message, perhaps the most important, is in a quote from Vince Lombardi, a former American football player, who said: “It is not whether you get knocked down; it’s wheter you get up “. And that requires preparation.

Practical Enterprise Risk Management

Author: Gregory H. Duckert

The book builds logically from corporate governance, and indicates a number of shortcomings herein, mainly system implementation. Then the actual story of risk and ERM begins. In this the author curses against everything that is for a subjective assessment of chance and impact and the related conclusions. He swears by cold facts and data. In this way he comes to the idea that risk assessment is about management. Risk management is an unmissable tool in this. After an overview of types of risks, he shows us how we should perceive risks objectively. He speaks about a data-centered model where it is possible to keep track based on all data in the company, and to do bench-marks on your own company. By introducing the concept of KRI (key risk indicators) instead of KPI (key performance indicators) linked to outcome of the processes instead of the output and with a number of analysis techniques such as trends, ratios, thresholds etc it is possible to build historical data and to find triggers of things that go wrong, with root-cause analysis. Then measures can be defined and implemented.

In addition, it is possible to pour this data into useful tools, so that the data neatly presents at meetings throughout the organization, the right KRIs at the right level. In doing so, he provides a handle on how to bring risk management to the board of directors, or to the board of directors.

As a penultimate chapter, the author discusses the phenomenon of outsourcing and a select number of risks at the various stages. It is therefore not surprising that he, for example, thinks of the outsourcing of IT as a bad thing; IT is according to him a core business of the company because everything depends on it.

The author concludes the book with the ownership of ERM. It is essential to know that everyone contributes. Everyone has a role to play in one way or another.