Insight versus oversight

At 9:18am the manager gets an e-mail… the management information system has spotted a problem. Production is 1.75 per cent under target. A few more clicks and the manager can see one of the machines seems to be malfunctioning. A quick call to the production team and by 9:27am it is all looking good again.

This vision of management as an “observation and correction” oversight task has been at the heart of business school mantra for nearly a hundred years. But the problem is that most companies are not production lines and simply adding “touchy feely” culture work around that underlying premise simply does not work.

Most companies are a lot more like a group of people trying to achieve a common set of goals and facing dynamic conditions while trying to do so. And the managers are part of that group of people, not abstract observers.

Modern thinking about how “management” should work reflects on the fact that it is no longer possible for most people to choose the outcome they would like – they can simply choose their next action. Of course, the hope is that a particular outcome will result, but this cannot be guaranteed due to the many complex interactions going on between the different elements of modern business. Even if your business is relatively simple within the office building walls, it interacts with a hugely complex environment of markets and supply chains.

The classic cybernetic view of management as a control feedback loop can ultimately lead to constant fire-fighting and inefficient allocation of resource. Much of this stems from the impossibility of knowing the current state of the business in sufficient detail to predict how actions will play out. So if we cannot control our destiny, what is the point of risk management?

The need to facilitate ‘insight’ offers a perspective into a new dimension of risk management which has perhaps been less common as companies focus more on regulatory compliance

In fact, the answer lies in something that has been part of human life since the start – story-telling. The best way to achieve an outcome when the path towards it is dynamic and uncertain is to ensure that everyone wants to get there, and then regularly talks about how it might be done. This means that people who are more comfortable with uncertainty can take a key role in helping to facilitate discussion and create new narratives in which the new environment makes sense.

Small corrections to the path are made naturally and automatically as people go about their daily tasks with immediate feedback – managers are part of the discussion and no longer mere observers. Here is the role for “risk management” in a modern business.

A risk management function that can work with the business to help develop “insights” into emerging uncertainties plays a vital role in surfacing things that should be discussed. Providing a structured way of talking about these uncertainties and helping the business to reach consensus about the appropriate adjustments to the path enables a business to be considerably more resilient and adaptive.

It is clear that “oversight” is an important part of business infrastructure, to ensure that more stable processes with clear outcomes are carried out as intended. But this need to also facilitate “insight” offers a perspective into a new dimension of risk management which has perhaps been less common as companies focus more on regulatory compliance than the strategic benefits that a risk function can bring.

A control environment is necessary, but not sufficient for companies wanting to survive the dynamic modern business world for the long term – those investing in risk functions who can deliver insight will almost certainly reap the benefit.