GAFM Articles

GAFM Articles > > Risk Management > The Dimensions of Risk

The Dimensions of Risk

By Michael Vincent

28 December, 2006

An idea may be an excellent one but fail because its time had not come or alternatively an average idea may grow and develop simply because the time was right.  Timing is an essential ingredient in success or failure.  This equation needs to be factored into the risk management of firms.

 

During the eighties the world passed to the young and bypassed the old.  The definition of young and old in today's world is probably around forty.  On the other hand because of anti discrimination legislation we are in the process of phasing out the compulsion of retirement.

 

How we as a community manage the risk of information transfer from one generation to another will affect the wealth of the nation into the future.  Most industries are generational in that experience in built up over time and lost upon the leaving of an individual.  The aim of business must be to build the foundation of corporate memory to minimise the information loss.  However experience cannot be replaced with a rulebook or a set of guidelines.  Experience is usually gained the hard way and then lost, only to be rediscovered in the future possibly by repeating the same mistake. What is the cost to us in the continual re-invention of the wheel, how much can we add to the community by finding a method of constructive transfer of knowledge that adds value to everyone?

 

A few years ago some friends and I were discussing this issue and prepared a paper on how this process could be managed, unfortunately it failed to catch on simply I believe because its time had not come.  Perhaps under the risk management banner it will prosper.

 

We are in the information age, where knowledge is the currency, where we are looking at adding value to all products by the application of knowledge.  Accordingly the human become the prime key to true wealth creation.  This trend will only accelerate in the new millenium.

 

The accelerating rate of change, the forced globalisation of the Australian economy, the clogging of traditional promotional pathways, coupled with a flattening management structure and a more diverse cultural base, has confused the process of succession.  Nonconformist talent is destroyed or driven away, reducing the internal drive of organisations. We are seeing more demands on the workforce of today, those of us who are employed have not worked harder in our entire lifetime.  Youth is valued for its energy and ambition.  As age is not a valued commodity many drop by the wayside by redundancies and forced retirements.  The loss of experience is a hidden risk factor that has an enormous impact both socially and financially on the future of our society.

 

Our research showed that there are three stages of executive development and at least seven generic competencies for our successful senior executive of the future.

           

STAGES OF EXECUTIVE DEVELOPMENT:

 

1. Early middle management.

2. Senior management.

3. Executive management.

 

The above would be managed on the mentor process, where the identified individual is managed and developed by an individual who has retired or who has reached the optimal level of competency within an organisation.

 

 

GENERIC COMPETENCIES FOR THE FUTURE:

 

1. Goal setting and action management via a vision.

2. Leadership.

3. Human resource management.

4. Providing direction.

5. Self-management.

6. Specialised knowledge.

7. Managing for the future.

 

                       

It is the duty of both industry and society to prepare the next generation of leaders.  One way of assuring this is to rediscover the value of the middle aged plus by the formation of a properly structured and managed mentor program where the young are nurtured and developed by the old, thus creating the environment for constructive transfer of generational leadership.

 

The concept would require the establishment within and across firms the idea of mentorship.  As described earlier these mentors would be drawn from retired individuals or individuals who are aware and have accepted that they have peaked in their own careers but are alive with experience and wish to give it back before they depart finally.

 

The mentor scheme would function in at least two forms.  Firstly individuals of specific or broad based industry skills should be identified from within a group of organisations who share a common vision of mentorship and take the role up upon retirement.  Secondly by allocation across industry of functional managers who as part of their duties formally develop the succeeding generation. 

 

 

Implementation of a mentorship program would benefit an organisation by:

 

1. Provide a continual involvement with the organisation of a retired executive on a worthwhile and value adding basis.

2. Provide an opportunity and a formal vehicle for the active transfer of accumulated skills and knowledge into the ranks of the new and emerging executives.

3. Provide a formal mechanism for accessing many years of industry specific knowledge and skills.

4. Enable an organisation to fast track an emerging executive because of their access to the corporate memory via a mentor.

5. Access and develop of an experienced skills base in the tertiary sector.

 

Another implicit advantage in a mentor program is that it also increases the range of outplacement strategies that corporations can employ for their senior executives.  Mentors will be retained on an honorarium, with the opportunity to earn consulting fees as projects develop that may require their input.

 

The business community gains significantly by retaining the valuable skills of senior executives who would otherwise have been lost in the generational change process

and by the knowledge transfer into the new executive ranks.  It should be looked upon as the close of a career and the completion of the knowledge cycle, which for many years has been left open-ended by the loss of the individual knowledge.

 

Risk management and the concept of risk identification and risk financing may mean the idea as described above has come a step closer to finding its time.

About the Authors

Department of Accounting and Finance

Faculty of Business and Economics

Monash University

Member Login

Username:

Password:

Validate Member