Disrupt retail, house going over cliff

Perspectives

Disruption in the retail industry

Managing strategic risks

Trends are converging, further complicating an already competitive landscape for retailers. It won’t be enough to identify the trends or even the intersections between trends. Retailers will also need to take inventory, prioritize, and plan against those of the highest order. Doing so can enable companies to take risks—and turn them into opportunities.

Introducing the new normal

We’re living in a volatile, uncertain, complex, and ambiguous world of constant disruption—and the rate of change is accelerating. Social, technological, environmental, political, and economic trends have converged to create disruptive threats that are shaping consumer behavior and preferences, including how, when, and where they make purchases.

The rise of e-commerce, new forms of payment, and collaborative consumption has transformed the consumer-retailer relationship, creating opportunities for new business models and introducing uncertainty to traditional ones.

In hindsight, it’s easy to see the disruptive signals that toppled many leading retailers. But in reality, these signals were often faint and hard to spot. And few companies even knew to look for them. Strategic risks can attack the basis of your competitive advantage, undermining your ability to sustain exceptional performance. Without historical precedent, strategic risks are immune to traditional risk management methods.

Binoculars, anyone?

Recognizing and dealing with strategic risks requires us to look past the most pressing “here and now” challenges to anticipate encroaching disruptions that are further away and harder to spot. All companies strive to meet shareholders’ growth and profit expectations. It’s particularly challenging, however, for those competing in an ultra-competitive retail environment where margins are razor-thin.

Traditional risk management practices assess risks based on the likelihood that they will occur, requiring us to believe that what’s going to happen in the future will be a repeat of what’s happened in the past. They are not designed to sense new changes or risks.

Few risks are as difficult to control and measure as those arising from innovation, competition, or external macro forces. Strategic risk management allows you to look forward and identify potential threats that are the result of new business conditions that could radically transform your company’s competitive environment or performance. By developing an understanding of your organization’s strategic risks, you create an outside-in view of your operating environment—and in the process, expose vulnerabilities in your strategy.

binoculars

Confronting biases

While your organization may be adept at managing operational and execution risks, what about those that are external to your organization and industry? Effectively managing strategic risks requires us to imagine the future from outside our comfort zones and challenge the biases we’ve accumulated over time.

As disruptions continue to occur at a faster pace, no one can afford to be fixed into one way of thinking. Leaders who have the ability to evaluate situations from multiple perspectives can help influence future success of their company. In fact, exceptional leaders understand that these “risks,” if identified early, can be used as levers for competitive advantage.

"When all think alike, then no one is thinking."

~Walter Lippman

Discover. Scan. Confront. Prepare.

The challenge before executives today is to find new ways to adapt to quickly changing conditions, identify potential threats as early as possible, and spot opportunities that may reveal themselves through disruption. Fortunately, there are tools to help companies survive in this changing world. Smart organizations have developed a system to deal with unexpected changes that threaten their business models. This system should include the people, processes, and capabilities to:

  1. Accelerate discovery
  2. Scan ruthlessly
  3. Confront biases
  4. Prepare for surprise

Great companies recognize that it’s the events they rarely can predict that will reshape their businesses. Standing still is not an option.

unexpected change process for companies
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