COMPLACENCY RISK

COMPLACENCY

Several years ago during a global employee town hall meeting, a very successful Fortune 500 CEO was asked about his greatest concern for the company. He responded by referring to the risk the organization could become complacent by resting upon prior successes. For an organization that was successful for over 140 years, the message was very powerful.

It highlighted the confirmation bias that exists in our personal and professional lives. For example, an investor may filter out negative information regarding his/her investment and overweight the positive information to serve as confirmation of their decision to hold their investment. In business, a company may stay with a product line despite negative trends referring to past successes and possibly ignoring market, customer, competitor, and technology disruptions. Consider many previously successful companies such as over 100 year old Kodak and Sears and more recent innovative companies such as Blockbuster and BlackBerry.

MANAGING COMPLACENCY RISK

Complacency risks are similar to all other types of risks in that they can be avoided, transferred, mitigated, or accepted. The first key step is to increase the likelihood of organizational awareness of complacency type risks. This can be accomplished by training and establishing a risk aware culture.

 

Secondly, it is important to establish the measurement and reporting key risk indicators (KRIs) and key performance indicators (KRIs) associated with the relevant complacency type risks. For example, if the company annual planning cycle confirmation bias is that because sales increased each of the past five years by 4% and operating income increased by 8%, that it is a given requirement for the upcoming year.

 

The annual planning cycle should include a SWOT (i.e., strengths, weakness, opportunities, and threats) analysis process to factor in current economic, market, competitive, technology disruption, and other weaknesses and threats that impact the historic sale and operating income growth rates. The purpose of the SWOT analysis is not to justify reducing the financial target but rather to realistically assess and strengthen the likelihood of achieving the targets due to awareness and specific actions taken to leverage strengths and opportunities and manage the weaknesses and threats.

TRADITIONAL DIVERSITY and DIVERSITY of THOUGHT

Historically the term diversity has been used to describe differences between people such as race, gender, age, disability, religious or belief, sexual orientation, etc. The United States Office of Personnel Management (OPM) Diversity and Inclusion website starts with the following opening sentence that highlights the organizational importance of diversity and inclusion:

"When we draw on the wisdom of a workforce that reflects the population we serve, we are better able to understand and meet the needs of our customers-the American people."

Complacency can be caused by our own way of thinking, not only related to traditional diversity criteria, but also simply the way our minds function or the type of work we practice. For example, sometimes Sales teams are considered to be "overly optimistic" and the Finance (i.e., Credit)  or Compliance functions are referred to as "sales prevention." 

 

In an organization, the different thinking associated with the traditional and continually changing elements of diversity are important to how an organization functions. It is beneficial for organizations to consider and embrace the diverse professional, technical, analytical, and experiential elements of the various functional areas within their entities.

 

Cross-functional and interdependent functional areas collaborate together to develop and implement the best risk-adjusted solutions for most key opportunities, problems, and decisions. For example, the Tone at the Top for an entity comes from the Board of Directors, Executive Leadership, Human Resources, Ethics and Complianceand each Functional Area Leader.  Successful acquisitions are supported by all functional areas being involved in due diligence through to development of realistic acquisition integration plans.