PHASE 2 – SUCCESS
There were three components of the proposal that were well received, which we kept with minor revisions and additions. First, our basic tenets for development still existed, but we now had better clarity. Senior management clearly sought:
• A methodology to determine what is actually achievable by business units in the context of corporate performance objectives
• To improve alignment and accountability around the pursuit and execution of each business unit's goals and objectives
• To foster a risk discussion mentality among business unit management teams
• A mechanism that enables managers to knowledgably and comfortably take risks in order to achieve growth goals that exceed overall market growth
• A tool to objectively track performance
Our original mission statement remained: "The objective of ERM is to provide the company with a proven, sustainable framework to proactively understand and deal with complex business risks, both tangible and intangible, existing and emerging, across the entire organization." This statement became the guideline against which we evaluated the development and evolution of the program.
Senior management also agreed with the major principles for the design of an ERM process:
• Create value.
• Leverage the company's unique strengths.
• Work with existing organizational structure.
• View risk as opportunity.
• Encourage alignment and accountability.
While these represented great tenets to develop a program, we basically were where we had begun six months before, working with a clean slate.
While "create value" seems obvious, we did not know where this would take us as we began building a new program following our unsuccessful initial attempt. However, we had better clarity regarding senior management's view of what was needed. Understanding and meeting the needs of senior management provided the keystone for the development of our program.
From the company's perspective, "unique strengths" meant privately held and decentralized. Senior management similarly made working within an existing organizational structure equally straightforward. They wanted the ERM team to build the ERM process into the annual operating plan without adding any staff. We were to use regional Service & Finance Staff Officers to assist us.
Based on our findings of risk aversion in our initial workshops, we knew that viewing risk as an opportunity meant a cultural shift. Finally, we understood that encouraging alignment and accountability meant a process that enabled unit management teams to align and agree to the objectives they could legitimately achieve within the constraints of the risks identified in the ERM process. We found that these two things went hand in hand. By developing alignment around the risks to a unit's operating plan and the optimal risk treatments, the ERM process would enable business units (BUs) to take on more risk to enhance their opportunities and capabilities for growth.
On the Monday three weeks after our presentation to the management team, our consultant, his two assistants, and I were blankly looking at each other across a table in a meeting room in the China office outside of Beijing. We had no idea what we should do. We decided interviewing everyone on the China management team might generate some ideas.
Based on the unit's 2005 operating plan and these interviews, we developed a template that we thought captured their input. Each sheet reflected an initiative of the operating plan (e.g., grow Brand X 5 percent in 2005 and deliver operating plan profit). The template looked quite simple. It had a header for the objective with a block for a score next to it and two columns underneath – risks on the left and risk treatments on the right. (We initially used the term mitigation; however, at an ERM conference, one of the audience members pointed out that mitigation did not coincide with our stated objectives. Instead risk treatment better reflected "viewing risk as an opportunity.") We spent several days filling the templates with the risk and risk treatments, which the business unit managers had identified with their 10 key initiatives for 2005.
We provided the templates and additional background in a preread package to allow the participants to prepare in advance of the workshop.
We started the workshop by having the management team force rank the initiatives from 1 to 10 (or the total number of initiatives which they had). We compiled the results and projected them onto the screen, discussing the differences and/or alignment among the votes. We then asked them to agree or change the prioritization, thereby beginning the alignment process. (This became the initial item in all future workshops.) Understanding the differences in rankings led the participants to understand others' views of importance, and in some cases gain a better understanding of the actual operating plan objectives.
We took the initiative voted as the top priority and began the workshop. We reviewed the definition of the initiative, and the management team edited and aligned behind the final definition. We then validated and added risks and then risk treatments. When we, the facilitators, sensed we had captured the major risks and risk treatments, we moved to an anonymous vote on the probability of successfully achieving the objectives, using a scale of 1 to 9, with 1 representing 10 percent or less, 2 representing 20 percent, and 9 representing 90 percent or more. Voters would take into consideration the things they could control, their unit's capabilities and resources, potential competitor activities, and so on.
When the votes appeared on the screen, we found them generally spread across a range of 4 to 5 on the scale (e.g., 3,4,5, 6, and 7). As facilitators, we led a discussion as to why someone might vote a 3 and others a 7. We found that having the lower-voting participants lay out their reasoning led to better discussions. The higher-voting team members would attempt to address the concerns raised by the lower-voting participants. Over time the facilitators could sense alignment in the room and have the participants take a second anonymous vote. The second vote's results generally aligned around two numbers or were centered on one number with one or two outliers above and below the center vote.
The first workshop went exceedingly well. We then headed to Australia for our second workshop. This was a critical test for two reasons. First, one of the Mars regional presidents, who advised us throughout the initial ERM development process, participated. Second, our senior consultant had to go back to the United
States, so his two assistants were to help me build and facilitate the workshop – one as a co-facilitator and the other as the editor of the workshop templates and operator of the voting technology and workshop. Here again we had a successful workshop.
Our next workshop took place in Russia. We had several major learnings from this workshop. First, when you have a very strong and charismatic general manager (GM), it is important for the facilitators to ensure that the entire management team participates. To this end, we pulled the GM aside and requested that he withhold his comments to the end. We would go to him to wrap things up. It became a common practice for facilitators to ask GMs to "work with us" to ensure that all team members participated, and to allow the GMs to wrap up with comments before the final vote. It was a way for facilitators to better control the process and to make sure the known unknowns became visible.
At one point the GM stopped the session and stated, "This process helps you focus on what's important." This became a mantra of our ERM process.
As Russia had gone through several currency issues in the 10 years the unit had been in operation, the GM and CFO asked for us to build a template of how it could effectively handle a currency crisis. We did as requested, and the management team felt they identified the actions they needed to take in the event of such an occurrence.
This activity may seem minor, but it highlights two key points that ultimately contributed to the ERM program's success. First, business units have unique needs and frequently need help in maximizing the use of ERM. By ensuring that the program had some flexibility, units were more likely to leverage its benefits. Second, we learned to constantly try new things. Many of our evolutionary improvements to the process resulted from requests or suggestions from individual units.
Our final workshop in the 2004 pilot took place with a subgroup of the European management team. Known to only a few key members of this team and a few senior managers at the corporate level, Mars had begun the initial phases of a major project. The Regional Staff Officer of Service & Finance (S&F) lobbied the Regional President of Europe to have our new ERM process validate their work. Here again we tried a new activity with them in the workshop. This enabled them to identify the low, high, and most likely outcome of their key objectives, based on an analysis of the risk involved. While this activity was helpful, they advised us that the template that we had used in the other workshops proved the most beneficial to them.
Based on the success of this workshop, the Regional President of Europe asked us to perform three workshops, one in each of the countries that would be participating in the project.
During the interview process in one of the countries, it became clear to us that they had not progressed to the point needed to launch their project. We advised the European management team of this. The general managers of the two units in this country were not only greatly appreciative but also became two of the biggest advocates of ERM in each role they subsequently held within the business.
The participants in all three countries found this process better enabled them to prepare for implementation. They identified critical risks and solutions that enabled them to successfully achieve their objectives.
Ben, the new Regional S&F Staff Officer from Europe, cofacilitated each of these workshops with me. (Through this work, Ben became a major supporter of
ERM as he progressed to become the CFO of the company's largest segment.) As the program developed, several of our earliest participants in the program (facilitators and management team members) became our biggest advocates. This acted to increase the "pull" of the program through the business as opposed to corporate needing to "push" it through.