From Risk-Averse to Risk-Entrepreneurial

Cutter Consortium profiles one company that has been able to successfully manage risk

Cutter Consortium profiles one company that has been able to successfully manage risk

Arlington, MA — January 26, 2005 — "The recipe for corporate success today is very simple. Step 1: Change your organization's culture into an innovative, risk-taking one. Step 2, unfortunately, is unknown, since virtually no one ever knows how to get past Step 1," commented Dr. Robert Charette, fellow and director of Cutter Consortium's Enterprise Risk Management & Governance practice.

Charette goes on, stating, "Everyone agrees that possessing an inventive, proactive risk management culture is fundamental to corporate success, as well as to long-term survival in today's business environment. The problem is how to create such a culture, especially given that, historically, over 75 percent of all organizational change initiatives fail."

The latest Enterprise Risk Management & Governance report from Cutter Consortium shows how one company has done it. "It's a rarity," said Charette, "but Rockwell Collins has been able to successfully transform itself from a risk-averse to a risk-entrepreneurial company — one that is able to manage risks and therefore take on opportunities few others can."

Cutter Consortium's report, "Profiting From Risk: A Transformation of One Company's Risk Culture," describes the 15-year journey the communications and aviation electronics company Rockwell Collins took to create a world-class risk-taking organization.

Forbes magazine named Rockwell Collins the best managed aerospace and defense company in 2004. Rockwell Collins' success is based in part on its creation of a proactive risk management culture coupled with a strong engineering and technical innovation culture. The company's management views its ability to aggressively and seamlessly manage strategic, financial, operational and technical risk as one of its core strategic advantages.

The report, written by Charette and Rockwell Collins managers Dr. Pat O'Brien and Art Gemmer, describes what it took to change Collins' culture, and provides insights and lessons to others that are trying to transform their organizations into one that is more innovative and risk-taking. The authors, who were involved from the beginning with the company's transformation, give a unique behind-the-scenes view of far-sighted planning, serendipity, mistakes and wrong turns, and ultimately of success.

Some lessons in the report include:

* Recognize that Risk is Strategic: Explicitly incorporate enterprise risks to achieve best fit for your business model, with regard to market opportunity, competitive threats and weaknesses, as well as its financial plans.

* It's All About Making Better Decisions: There is no value in risk analysis itself — value is derived from decisive execution of logical action plans based in part on that analysis.

* Don't Confuse Motion With Progress: Culture change must be organized around a few core processes that provide revenue, growth and increased capability to serve real customers.

* Instill Principle-Based, Process-Focused, Behavior-Driven Risk Management: Risk management is not yet another corporate process, but a different way of thinking and acting. Unless an organization thinks about what behaviors it wants its employees to take in the face of risk, a proactive risk management culture is never going to take hold.

* Plan, Do, Check. But Most Important, Act: You cannot succeed without acting. Many plan for cultural change but few actually give it a real hope for success."