“What kind of a question is that?” you are asking yourself.
That’s because you probably don’t think of risk as a strategy. And the notion of dominant strategy is foreign to you. But here’s the thing. We all know every organization is a dynamic system of activities. How can that be explained?
It can be explained by looking at strategy as a system.
As for whether risk should be the dominant strategy of your strategy system, the answer is yes it certainly should be if you are a regulator or insurer or a procurement agency. That’s your primary focus: managing risk.
Let’s get started by explaining how the strategy system works. We think our explanation will help you understand your business better and help you make better strategy decisions.
Strategy is a Choice of Action
First, think of strategy as a choice of action and not as some vague concept about creating competitive advantage or value.
In fact, there are 8 strategies or choices of action common to all organizations, regardless of whether they are for-profit or nonprofit. Fayol and Drucker tell us this in two of the earliest books written on the newly emerging subject of business strategy. These 8 strategies are being implemented in all organizations whether or not there is a written strategic plan in place!
The 8 strategies are business definition, risk, growth, financial management, organization management, marketing/sales, R&D/technology, and service delivery. Service delivery is also known as manufacturing or production depending on the nature of the business. In many nonprofits, business definition is known as mandate while marketing/sales is known as communications.
These 8 strategies are the basis of all strategic plans and of all organization design. And, you’ve no doubt noticed that risk is one of the eight.
Strategy is a Dynamic System
Next, think of strategy as a dynamic system. We know this from work done by Drs. Mintzberg and Tregoe.
There is dominant strategy, which we call the “Alpha”.
The Alpha can be any one of the 8 strategies. The Alpha leads the strategy system and gives the organization its dominant culture.
There are 3 strategies we call the “Influencers”. These are the strategies that most guide and constrain the implementation of the Alpha and the remaining 4 strategies, which we call the “Enablers”.
Identify Your Alpha: It’s Important!
To understand your strategy system, start by identifying your Alpha or dominant strategy.
For all insurers and regulators, Alpha should always be risk. That’s what you do. That’s your culture: to protect. Your #1 priority should therefore be managing your risk strategy. And the rest of the strategies in your strategy system should be supporting that focus.
Many regulatory agencies tell us that mandate, not risk, is their “guiding” strategy. We point out to them that while mandate sets out the responsibilities of the regulatory agency, mandate never spells out exactly how to do this. That is the role of the risk strategy; to breathe life into the mandate of a regulatory agency. All the mandate is doing is directing the regulatory agency as to what it should do, which, in turn, is to put in place an appropriate approach to risk.
The mandate strategy is indeed simply a “guide” and in most regulatory strategy systems will be either an Enabler or sometimes an Influencer.
As a result, they take their focus off risk and invariably pay a heavy price when they fail to understand changing external risk.
As for procurement agencies, for us, procurement is all about risk management. Sometimes we are told that the Alpha should be service delivery. Once again, we would suggest a review of the mandate for the agency. That's where the definitive answer is usually found.
The point is that the correct identification of the Alpha sets the main focus of the organization. Consider that "vision" needs to be aligned with the Alpha. We define vision as being a description of the hoped-for outcome of successful, long-term pursuit of the Alpha. Obviously, a vision centered on risk will look quite different from one centered on service delivery.
For more on understanding how your strategy system is configured and how to manage it better, read The Alpha Strategies: Understanding Strategy, Risk, and Values in Any Organization