How to manage risk and instil corporate values
It is the desire of every entrepreneur to have his or her business to grow in various aspects.
This may be in the customer base, expanded geographical footprint, profitability, cash flow, human capital capabilities among other parameters.
A key factor in growing a business is ensuring you have proper support and foundation to thrive and bank on in trying times. This is about the balance between leadership, corporate governance, and risk management. Without the above pillars, your business may not withstand industry shocks and growth might stall out unexpectedly.
Leaders and decision makers ought to appreciate the concerns and best practices to improve risk management, offer leadership and corporate governance in pursuit of balanced business growth. Customer concentration risks.
Every business owner or chief executive celebrates when a ‘big’ client is netted by the marketing or sales team. The catch is perceived to be a key driver to increased revenue and improved company profile among other benefits.
The flip side of the coin, however, means a lot of resources have to be committed to keeping this client(s) happy at all times. It also means key decisions by the firm will in most cases incline towards being in line with shifting demands of the big client.
Should the big client experience challenges that would lead to reduced demand or a shift in its consumption strategy, it leaves the vendor exposed in a big way.
That might lead to losses that would bring the vendor to his knees. An example would be vendors who over-relied on supplying some of the big businesses that have gone under in our recent history here in Kenya.
Another example would be suppliers who would rely on being subcontracted by some of the big telecoms to do the last mile data connectivity when such telecoms were still new in the market.
Telecom industry later shifted to products that would allow them to play both at the wholesale and retail levels, leaving the subcontractors with idle resources and reduced business altogether.
Key to note is that any customer that forms more than ¬+10% of a company’s sales volume or whose introduction demands internal infrastructural adjustments should be treated with care.
Deliberate resources need to be set aside to design mitigating strategies to absorb any unforeseen shocks.
Board reports ought to capture an agenda to appreciate how such risks are monitored on a continuous basis.
Third party risks
This means a business partner engaged by a vendor beside the two primarily involved in a transaction but so important in making service delivery effective and customer friendly. An example is a telecom service provider facilitating payment between a buyer and a seller through a mobile application.
We may all have in the past experienced a situation where such payment platforms had extended downtime - leading to frustration both to the vendors and the buyers. Imagine sick people queuing in a hospital but for the above reason can’t an emergency service!
It is prudent to ensure any third party engagements is supported by watertight agreements and service level pacts to ensure that any loss due to negligence is quantifiable and can be compensated.
The agreements should both go through a review by a business partner and a legal expert inclined to business continuity aspects. The later should be inclined to provisions that would support possible litigations in future in the favour of the vendor.
A continuous improvement programme needs also to be envisioned on the onset of contracting so that changing business needs and strategies are communicated in a timely manner by both parties.
Sometimes, sharing strategy papers with nondisclosure agreements would be of paramount importance so that each party anticipates in determining what resources are set aside to support the future needs of either party.
You ought to create redundancy for critical services supported by a third party.
Avoid overreliance on a third party service provided by a monopoly and continuously monitor each strategic move that a third party service provider makes. Never make assumptions.
-The writer is an expert in leadership and risk management strategies
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increased revenueCustomer concentrationmitigating strategiesrisk management strategies