Ten practices used by consistently innovative companies - http://www.chaordicsolutions.co.uk/blog/from-our-business-transformation-consultants/ten-practices-used-by-consistently-innovative-companies/

http://www.chaordicsolutions.co.uk/blog/from-our-business-transformation-consultants/ten-practices-used-by-consistently-innovative-companies/

Ten practices used by consistently innovative companies: good starting point for improving creativity.

 

Extract from LDRLB Blog – David Burkus:

Innovation means more than just new products or services. It means improving the process of creating those products, or selling them, or experiencing them, or even improving the ways we manage the people who do all of the above. Perhaps my favorite definition of innovation is Scott Berkun’s: “Innovation is significant positive change.”

That change can apply to products and processes, or it can apply to people.

Recently, the Institute for Corporate Productivity published a study surveying some of the top companies and people in the fields of management and innovation. They examined some of the best people management practices at organizations known for innovation and found several ways that those companies develop and manage their human capital. In summarizing their findings, here are 10 human capital practices that drive innovation:

Use Technology to Collaborate and Share Knowledge. Collaboration drives creativity and innovation, and social media and conferencing technologies can help bring people together (or virtually together) more often for that collaboration.

Promote Innovation as an Organizational Value. The most innovative companies didn’t just luck into hiring creative people; they placed creative and even average people into creative cultures.

Include Innovation as a Leadership Development Competency. Part of building an innovative culture is having leaders who value creativity, and are creative themselves.

Tie Compensation to Innovation. The jury is still deliberating the influence of incentives on creativity, but their use in organizations sends a signal that innovation is valued. That signal is an important part of culture building.

Develop an “Idea-finding” Program. As we’ve discussed elsewhere, it’s not enough to have great ideas. Innovative companies build a system that taps into the collective knowledge of everyone and lets everyone promote good ideas.

Fund Outside Projects. It might sound counterintuitive to allow funding to develop projects that are technically outside your organization, but as market boundaries continue to blur, strategic innovation partnerships become even more important.

Train for Creativity. Creativity isn’t innate. Creative thinking skills can be developed and the most innovative companies fund training programs to develop them.

Create a Review Process for Innovative Ideas. Even the best ideas don’t come fully formed. There is a process to refining, developing and identifying the ideas with the most market potential. Creating a review process allows this to happen and signals that innovative ideas are valued.

Recruit for Creative Talent. Especially at the undergraduate and graduate levels. The war for talent is slowing shifting its focus from quantitative minds to creative ones.

Reward Innovation with Engaging Work. Research demonstrates that companies that are able to identify their most creative employees can enhance their creative ability by providing them autonomy to work on projects that are naturally interesting to them.

These ten practices might not be a prescription for how to shift a stuck culture to a creative one, but they are a good start. Consistently innovative companies are engaged in some or all of these practices. Perhaps it’s time to take a look at your own firm and see how many you’re engaged in.

Author: David Burkus is Assistant Professor of Management at Oral Roberts University. He is the founder and editor of LDRLB. He is the author of the forthcoming book Myths of Creativity to be published in Fall 2013.

More ... http://ldrlb.co/2013/04/10-practices-that-drive-innovation/

Risk management must understand global risk factor exposure - http://www.chaordicsolutions.co.uk/blog/from-our-risk-management-consultants/risk-management-must-understand-global-risk-factor-exposure/

http://www.chaordicsolutions.co.uk/blog/from-our-risk-management-consultants/risk-management-must-understand-global-risk-factor-exposure/

Risk management must understand global risk factor exposure: use of new proactive risk indicators for monitoring.

 

Extract from FERMA Blog – Mikhail A. Rogov:

The modern risk management is currently going through an ideological crisis showing the following symptoms:

- failure to understand the nature of the majority of risks, eclecticism of methods and concepts, in both technologies and standards of risk management;

- disregard of the interaction between operational risk, credit risk and market risk, lack of continuity in management processes, lack of common rating scales for the assessment of various risks;

- inadequate tools for operational risk assessment;

- the virtual absence of portfolio approach to operational risk management;

- difficulties with forecasting stress and crisis scenarios generation, difficulties with explaining the nature of chaotic market processes;

- the problem of the recently increased relevance of some previously uncommon factors, of which the following ones are thought by the author to be most important : cyber-terrorism and industrial terrorism, influence of social networks, High Frequency Trading (HFT), threat of antibiotic resistance.

Future risk management

The author believes that the next decades will see the development of the following branches of risk management: human error, transfer of operational risks including hedging and portfolio diversification, prediction markets, new concepts of key risk indicator (KRI), risk management of small and medium enterprises (SMEs) and households, crowdsourcing, including platforms like Ushahidi, Wiki, new generations of publicly available risk indices, emergence of new asset classes.

Global risk factor theory

The basis for the development of the global risk factor theory Herschel (1804), Jevons (1870), Chizhevsky (1920),the advent of modern heliobiology and its findings, findings of the sciences of human factors, human errors, findings of the sciences of risk management and financial mathematics, accumulation of statistical data (statistics of disasters, volatility, defaults, other events and indices).
The following postulates can be confirmed or refuted by explaining the causal relationships and by statistical analysis:

Risks are interrelated: there are relationships between financial risks of all types (market, credit, operational ones)

Risk interactions have an important role because of the existence of close economic, organizational and technological ties between risk owners: the occurrence of risks (operational, credit, market ones) for some persons implies the emergence of other risks for their counterparties and the subsequent chain reaction of credit and market risks propagating through exchange within the economy. In recent decades, these relations have been developing more intensively than ever before because of market globalization and technological progress. This causal relationship can be illustrated by a typical example of the domino effect in business environment: discontent of the local population (a political risk, part of operational risks) in Nigeria led to the explosion of a pipeline operated by Royal Dutch Shell on December 21, 2005. As a result, the output was cut by 180,000 barrels per day (operational risk of business interruption); the company declared ―force majeure,‖ which meant its failure to perform contract obligations (credit risks for the counterparties), and the oil price went up by 48 cents per barrel (commodity market risk). The mechanism of risk factor influence on the emergence of credit and market risks can be illustrated using the well-known Merton approach, the basis of the Expected Default Frequency (EDF) methodology: distance to default of a firm (i.e. credit risks of its counterparties) is determined by risks associated with the firm’s operations and expressed by the volatility of the market value of the firm’s assets exposed to various types of risk: operational, market, credit ones. The assets volatility determines the volatility of the market capitalization (market risks of investors). Statistical analysis of relationships
Correlation and cointegration of market and credit risks are well known and can be explained by changes of risk premium; however, relationships of these risks with various operational risks cannot be adequately explained without identifying a common factor.

Let us define the global risk factor as a global-scale correlator of risk factor volatilities.

Risks are anthropic: human error is the global risk factor

Human error is not the only risk factor, but it has acquired a global nature. The principal cause of the global influence of the human factor is that it often and strongly affects the sensitivity of assets performance to the majority of other risk factors, no matter what their own nature. In the past decades, the influence of the human factor has been growing due to the increasing operator’s role in business processes and globalization. This is reflected by the increasing correlation of different types of risks.
Investigations of the occurrences of technological operational risk in almost all sectors and regions show that most of such events in the last half-century were initially caused by human error rather than technical failure. And moreover, when caused by technical failure, risk events were mostly the result of accumulated hidden defects due to accumulated maintenance errors caused by organizational errors and again the human factor. This can be confirmed by many examples, some of which are given below. The human factor is the main trigger behind the vast majority of transport accidents and disasters. Human errors are responsible for 90 percent of all motor vehicle accidents. National statistics of individual countries do not differ much from the world average figures. The human factor accounts for 70 to 80 percent of accidents in air and water transport, and for about 50 percent of accidents in railway transport. The human factor is also the dominant cause of industrial accidents and injuries. For instance, about 85 percent of lifting crane accidents are associated with violations of labor or technical discipline. There are about 200 best-known techniques for human factors analysis and assessment. For example, the Human Factors Analysis and Classification System (HFACS) is based on ― the Swiss Cheese model (J. Reason, 2000). The model illustrates errors passing through ―holes‖ (weaknesses) in business processes. According to this theory, there are unsafe acts (errors), preconditions for unsafe acts, including the operator’s psychic factors, unsafe supervision and organizational influences.

Risks are heliogeotropic: human errors and failures (the human factor) depend substantially on preconditions such as the effects of heliogeophysical factors (geomagnetic disturbances, etc.)

Geomagnetic activity depends on solar activity. According to the Svalgaard–Mansurov effect, the variations of the Earth’s magnetic field are influenced by the sector structure of the interplanetary magnetic field (IMF). These two major factors can disturb the heart rate and cause human errors, which in their turn, trigger chain reactions resulting in the occurrence of all types of financial risks (market, credit, operational ones) all over the world, depending on the assets sensitivity to the risk factors. Besides, human intuition and emotions enhance in the periods of geomagnetic disturbances, and this enhancement influences market expectations. As concerns operational risks caused by risk factors non-correlating with heliogeophysical conditions, their impact depends on the asset sensitivity to these risk factors, while the asset sensitivity itself is heliogeotropic due to the human factor influence. For a considerable part of risks, the dynamics of risk events can be explained by that of human errors under changing space weather that has a planetary effect. This risk source was termed ―the global risk factor. Astrophysicists have shown the chaotic nature of solar and geomagnetic activity, and this can explain (based on the global risk factor theory) the nature of the observed widely discussed chaotic processes in the markets.

Global risk factor indices

There are a lot of indices of solar and geomagnetic activity, and the objective was to choose the best indicator for adequate description of the global risk factor or to develop a new one. In the author’s opinion, the best global risk factor index should meet the following requirements: most fully explain the behavior of market, credit and operational risks, allow for possible regularities discovered in heliobiology (the Mansurov effect), be based on uniquely determinable or measurable values (heliogeophysical data), allow real-time updating. The indices of solar activity are not suitable for describing the global risk factor. This is the very reason of the skepticism of modern science towards the ideas of prominent scholars of the past, particularly (Jevons, 1878) and (Chizhevsky, 1936). The failure to find correlations with solar activity (the Wolf number, also known as the sunspot number) has led to the substitution of this idea in modern science with the general idea of accounting for random factors in economics. Economists rebranded the term ―sunspots‖ by completely stripping it of the implication of Sun-Earth relationships and using it to denote an external non-fundamental variable that influences human behavior. The RogovIndex© family of indices was developed for adequate description of the global risk factor; these indices satisfy the above requirements and are based on the widely accepted index of geomagnetic field variation averaged over several stations (storm-time variation Dst). The conclusion that the effect of heliogeophysical factors on risk is best described by storm-time variation than by any other of the great variety of indices is consistent by the findings of heliobiological research. The author is planning to create a market of space weather index derivatives.

Industry and geographical specifics of global risk factor exposure

The industry specifics of preconditions for error proliferation includes, among other things, the scope of error impact on business processes (with a higher labor productivity, an error of one operator would affect more performance indicators and, generally, more business processes), the scope of business process regulation (including operator qualification requirements and other industry-specific barriers), relative attractiveness of the industry pay rate against the average pay in the region’s economy, the conflict intensity in the industry (the number of strikes). Industry specifics result in different global risk factor exposures that should be taken into account by risk managers. For instance, diversified portfolios may be created using the correlation matrix or cointegrating vector approaches that take account of the global risk factor exposures of various assets and consider credit risks in accordance with the industry specifics. A detector of those risks that cannot be explained by the global risk factor behavior allows planning most topical areas of risk audit for identification of operational risks. The geographical specifics of global risk factor exposure is related to the distance of the region, where the main business process or asset (if appropriate) is located, from the Magnetic Poles constantly drifting relative to fixed geographic coordinates.

Conclusion

The proposed global risk factor theory (Rogov 2002-2013) describes the frequently observed interaction of different types of risks (market, credit, operational) at different assets and in different business processes. The theory opens prospects for risk benchmarking, analysis, detection of anomalies and hidden risks, classification of risks, particularly based on hierarchical clustering of time series. This allows creating new proactive risk indicators for monitoring, as well as applying the market mechanisms of operational risk optimization through diversification and hedging with the use of index derivatives.

Author: Mikhail A. Rogov – http://www.ferma.eu/author/mikhail-rogov/

More … http://www.ferma.eu/2013/04/future-of-risk-management-and-the-global-risk-factor-theory-possible-perspectives/

IRM GRC SIG event on 25 April has OCEG focus - http://www.chaordicsolutions.co.uk/blog/irm-grc-special-interest-group/irm-grc-sig-event-on-25-april-has-oceg-focus/

http://www.chaordicsolutions.co.uk/blog/irm-grc-special-interest-group/irm-grc-sig-event-on-25-april-has-oceg-focus/

I am pleased to announce that you can now book your place for the next IRM GRC SIG event on 25 April at http://irmgrcsigapril13.eventbrite.co.uk

The main focus of this session is to hear “real-life” stories from users/businesses that have previously implemented or are currently implementing an OCEG “Principled Performance” and/or Capability Model based approach to Governance, Risk Management and Compliance.…. and the agenda is currently looking like this:

1. Welcome, Housekeeping and Session Guidelines

2. General Update/News

3. Case Study: GRC at Shell

4. Introduction: OCEG, Principled Performance and GRC Capability Model

5. Case Study: OCEG at Heineken International BV

6. Break

7. Case Study: OCEG at Raytheon

8. Review and Conclusions

9. AOB

10. Next Session

11. Close

IMPORTANT: as this session is being kindly hosted in the new Canary Wharf offices of Shell, it is essential for security reasons that if you intend to attend the event in person that you book your place by no later than 17:00 UK time on Tuesday, 22 April: http://irmgrcsigapril13.eventbrite.co.uk

I sincerely hope you can participate in the session, either in person or virtually. In the meantime, if you have any queries or questions about this event or any other aspect of our SIG activities then do not hesitate to contact me.

Best Wishes, Robert
Chair, IRM GRC SIG

Email: robert_toogood@chaordicsolutions.co.uk

Growth limited by creative way strengths used - http://www.chaordicsolutions.co.uk/blog/from-our-strategy-implementation-consultants/growth-limited-by-creative-way-strengths-used/

http://www.chaordicsolutions.co.uk/blog/from-our-strategy-implementation-consultants/growth-limited-by-creative-way-strengths-used/

Growth limited by creative way strengths used: understanding what you are great at in more flexible, holistic way.

 

Extract from LDRLB – Max McKeown:

Google grows when it does what it’s good at. And its official strategy makes that clear. It seeks to ‘organize the world‘s information and make it universally accessible and useful’ and it’s great at doing exactly that. It has successfully revolutionised search. Not just search for text but search for video, images, audio, books, and news. But when Google strays into what it does not understand it stalls. Its money wasted if they don’t become better. Its money wisely invested only if Google becomes the best in those new markets.

Toyota decided to compete with Mercedes. But instead of copying the way how Mercedes made luxury cars, they used their own unique production system. They knew what they were good at and used these capabilities as a strategy to compete. Ideally you find something customers value but competitors don’t understand. Something beautifully non-obvious (to them) and wonderfully obvious (to you).

Strategy is not just about actions and opportunities. It is about figuring out how opportunities relate to your strengths and weaknesses. If you can’t do something that is necessary to the success of your plan, then your plan will not succeed unless you can fill the gap. Alternatively you can stay with plans that depend on strengths that you already have. This is particularly powerful when your strengths are relative to others in the same competitive space. It is even more powerful if you create strategy from an overlap between strengths and opportunity or can stretch from where you are to where you want to be.

How can you build from where you are to where you want to be? Some people give up because they don’t have what their plan needs. This kind of strategic stretch can be very attractivebut is only likely to be successful if the gap is understood. More specifically, it is more likely to be understood, if the strategic stretch can be made more or less naturally from one position of strength to an extended position of strength. Some gap filling can come from learning. Other weaknesses can be addressed by recruiting people with the experience and skills you think you need.  The key to success is a flexible, clear understanding of the strengths of your organization – what you do best – and how they relate to the strategic opportunities that are available to you.

Don’t worry if this all seems difficult, the difficulty is what makes the effort worthwhile. It is the creativity with which you use those fundamental strengths that will enable or limit your growth. Understanding what you are best at is not meant to stop you learning. The search for what you are best at is not about mindless repetition. The aim is to understand what you are great at in a more flexible, holistic way.

Author: Max McKeown is an English writer, consultant, guru and researcher specialising in innovation, strategy, leadership, and culture. He is the author of six books, including The Strategy Book and Adaptability.

More … http://ldrlb.co/2013/04/how-to-transform-a-strategic-gap-into-a-strategic-stretch/

Using corporate centre profitability to assess effectiveness - http://www.chaordicsolutions.co.uk/blog/from-our-business-transformation-consultants/using-corporate-center-profitability-to-assess-effectiveness/

http://www.chaordicsolutions.co.uk/blog/from-our-business-transformation-consultants/using-corporate-center-profitability-to-assess-effectiveness/

Using corporate centre profitability to assess effectiveness: whether adding value in excess of its costs.

 

Extract from strategy+business – Ken Favaro:

Senior executives seeking to gauge the effectiveness of their company’s corporate strategy might look at any number of factors: the company’s shareholder returns, its growth rate, its market share, or its price-to-earnings multiple. Yet none of these markers would tell the whole story. In fact, they might lead executives to precisely the wrong conclusions.

The one true measure of a corporate strategy is the profitability of its head office. Yes, that’s right, we’re talking about “corporate,” that “dead weight” of administrative functionaries most business unit leaders love to loathe as nothing more than an oppressive cost center that taxes the “real” parts of the business with onerous compliance requirements, excessive monitoring, redundant reporting, countless initiatives, endless meetings, and intrusive staff. Of course, in strict accounting terms, corporate headquarters is a cost center because it has no revenues. But it can and should be profitable. In fact, a profitable corporate center is both literally and figuratively at the center of corporate profit itself.

Continued … http://www.strategy-business.com/article/00173?

Author: Ken Favaro is a senior partner with Booz & Company based in New York and global head of the firm’s enterprise strategy practice.

©2013 Booz & Company Inc. All rights reserved. “booz&co.” is a service mark of Booz & Company.

More … http://www.strategy-business.com/article/00173?

Possible ways to measure "tone at top" - http://www.chaordicsolutions.co.uk/blog/from-our-compliance-consultants/possible-ways-to-measure-tone-at-top/

http://www.chaordicsolutions.co.uk/blog/from-our-compliance-consultants/possible-ways-to-measure-tone-at-top/

Possible ways to measure “tone at top”: worthwhile exercise to improve effectiveness of compliance activities.

 

Extract from Corruption, Crime and Compliance – Michael Volkov:

Compliance professionals have a lot of demands on their time. By definition, they are spread thin across a number of competing demands.  As a result, companies do not spend much time on “tone-at-the-top.”

In reality, compliance officers are relieved when they get the support of the CEO, and the ability to cite the CEO’s commitment to compliance.  Often the CEO’s support translates into resources and a compliance priority in the organization.

The importance of tone-at-the-top is significant.  A 2009 research report conducted by the National Business Ethics Survey found that in strong ethical cultures, the pressure to commit misconduct was reduced from 16 percent to 4 percent; rates of misconduct were reduced from 77 percent to 40 percent; failure to report misconduct was reduced from 44 to 27 percent.

The question then is how do you measure the internal perception of your company’s tone at the top?

There are a number of possible measurements:

Internal auditor survey.  Internal auditors are starting to measure the perception of tone at the top.  Companies that measure their own tone at the top, and report the results tend to have higher perceptions of ethical conduct at the higher levels of corporate management.

Anonymous reporting.  Companies should examine the percentage of complaints which are made by anonymous employees.  The higher the percentage of anonymous complaints could reflect a lower perception of the importance of compliance.

Benchmarking.  Companies can examine the rates of misconduct against companies of comparable size.  If the benchmarking data shows the company is under or over the benchmarking rate, this may reflect a positive or negative perception of the tone at the top.

Employee surveys.  Many companies conduct annual surveys of employees, which reveal employee perceptions of senior management and their commitment to compliance.

Review of senior management communications. Reading communications by senior management to employees on compliance issues can provide insight into compliance commitment and attitudes.

Interviews and focus groups.  Compliance officers have used employee interviews and focus groups to unearth perceptions of senior management’s compliance commitment.

Employee exit interviews.  Compliance officers and human resource officers can coordinate exit interviews with departing employees to inquire on perception of tone at the top.

Management’s commitment to compliance is a critical factor in a company’s internal controls and corporate governance.  It is important to measure the perception of a company’s commitment to compliance.  It permeates every aspect of a corporate compliance program.

While the measurement of tone at the top is subject to “soft” measurements, it is still a worthwhile exercise which can uncover important information which can be used by compliance professionals to improve the company’s compliance program.

Author: Michael Volkov

© 2011 – 2013 · Corruption, Crime & Compliance, All Rights Reserved.

More … http://corruptioncrimecompliance.com/2013/04/measuring-tone-at-the-top/

Taking GRC beyond the conventional enterprise - http://www.chaordicsolutions.co.uk/blog/from-our-grc-consultants/taking-grc-beyond-the-conventional-enterprise/

http://www.chaordicsolutions.co.uk/blog/from-our-grc-consultants/taking-grc-beyond-the-conventional-enterprise/

Taking GRC beyond the conventional enterprise: entire regulatory system in desperate need for disruptive innovation.

 

Extract from Business Finance Magazine – Eric Krell:

Is anybody happy with our current approach to business regulation and regulatory compliance?

My anecdotal research suggests not. On a recent vacation, I met many folks working in a wide range of professions. When I responded to their “what do you do?” question by explaining that I write about business ethics, risk management, governance and compliance, half of them groaned something along the lines of “Does business have any ethics?” or “Why bother?” The other 50 percent of my questioners seemed to work in private industry, and they also groaned – about the sorry state of business regulations – when they heard what I write about.

Both views over-simplify, and both views are correct (or, at the very least, understandable).

As a semi-retired management consultant recently confided to me: “Our whole system of business regulation is basically a big pile of [garbage].” His argument is that our current regulatory “system” (“pile of rules” is more accurate) represents the accumulation of many, many small victories: some by corporate interests and their lobbyists, and some by those who seek to rein in indecent corporate behavior.

Despite the rules, the misbehavior continues, spurring new rules — and adding burdensome compliance costs and work. These costs are borne by all companies, including those who have demonstrated honorable behavior for decades. Worse, many people outside the business realm group these honorable companies with the irresponsible enterprises. My vacation reading helps explain why.

One of the juiciest Spring Break reads in the April issue of Vanity Fair is Willam Cohan’s feature on a battle of hedge fund managers over the fate of Herbalife and its own corporate character. The article is populated with several villains (truly, none of the main characters come across as remotely likeable or even altogether human) and not one hero.

For GRC enthusiasts, this article contains prime examples of practices used to exploit the gray areas surrounding rules. One technique involves “talking your book,” the practice of broadcasting a hedge fund’s positions (long or short on a particular company) after the positions have been purchased in an effort to move the market (the stock prices of the company) in a way that is favorable to the position. “Talking your book, as it’s known on Wall Street, is not exactly kosher, but it’s done all the time,” notes Cohan.

Changing risk models to shrink losses, exceeding risk limits and hiding trading losses from risk managers are not exactly kosher practices, but they took place frequently enough within JP Morgan Chase to enable the $6 billion-plus London Whale loss to occur. (The U.S. Senate’s recent tome on the loss is getting all the news right now, but JP Morgan’s own reports — two of them — on the incident are equally enlightening.)

This is a familiar string of events:
– Bad corporate behavior (more specifically, bad behavior by employees within a company);
– Major losses (including some that require taxpayer help);
– CSI-esque investigative reports into how the bad behavior occurred (usually concluding that there was a *gasp* “risk management failure”);
– Congressional scolding; and
– New regulations (including some that cost companies exhibiting excellent behavior millions).

The retired management consultant I spoke with argues that this system – the entire regulatory system (including lobbying) — screams out for disruptive innovation.

For example, what if companies in certain highly regulated industries invited regulators, customers and other key stakeholders into the product development process earlier to get a green light or red light on a new idea well before investing years and tens of millions of dollars in its development? In other words, what if GRC extended beyond the four walls of the enterprise (via collaborations beyond traditional lobbying efforts)?

There would no doubt be numerous and significant obstacles to contend with. But solving those problems seems much more enticing and more cost-efficient than continuing to cope with a growing pile of rules that continues to make all stakeholders wrinkle their noses.

More … http://businessfinancemag.com/article/grc-desperate-disruptive-innovation-0319