I’ve been thinking about this topic for some time and haven’t been able to express it fully. My concern is that many companies talk about sustainability and when they refer to this, they are talking about the environment, social aspects, and governance.
Now, if you look at these three areas, you have environmental risk, social risk and governance risk.
The area that I have been focusing on in addition to sustainability is operational risk. That’s why I have been writing this newsletter. It’s mainly about business continuity management.
However, with high levels of uncertainty, it makes sense to take a look at all risks in the external environment.
Here’s a typical list of risks: compliance risk, legal risk, strategic risk, reputational risk, operational risk, human risk, security risk and financial risk.
As I say, this is a typical list. It does not include political risk. We need to be careful not to live in a bubble with increasing political instability.
But the big one for me is customer market risk. We all know about market risk but customer market risk is the foundation of doing business. Peter Drucker said that the purpose of a business is to create and keep a customer.
The customer market, with political uncertainty, rising fuel prices, escalating food prices, concerns about social unrest, and continuous cutting off of the electricity supply, presents a worrying level of risk. The risk includes customer spending and changing buying patterns. Simply put, customers, whether they are B2C or B2B, may eventually not be able to afford what is currently being offered in terms of products and services.
This risk can be seen as product risk combined with market risk. Product risk involves no longer being relevant to buyers. Market risk also includes shrinking markets because of affordability.
How many companies say that they have a sustainable business model but what they really mean is they can make continuing profit?
We know that profitability is important because without it, you have a business that is possibly dying or no business when it closes down.
If you think this is farfetched, consider all the businesses that have closed in the past 10 years. I needn’t mention them because you probably already know of several.
Many of these businesses have closed down or are no longer as profitable as they were because of technology. Some markets are being threatened by the rapidity of new entrants who with digital technologies can enter the market with low assets.
In this environment, it pays to take a more holistic view of risks, but with a special emphasis on market and product risk.
If you are interested in taking a holistic look at the risks in your business, you know how to contact me.