The age of uncertainty is upon us. In recent years, the managerial acronym VUCA (volatility, uncertainty, complexity and ambiguity) had become the trendy way to describe the general business environment.
But, in 2016, the term went beyond fashionable use to be dramatically pertinent. And 2017 is promising to be no different in providing a volatile context for investment decisions. Already, in the first week of the year, we’ve seen Ford announce that it will switch some of its manufacturing investment plans from Mexico to the US following a couple of Trumpian tweets.
It is not easy for businesses to be ahead of the game and create value in this context of changing expectations, especially as competing dynamics are coming into play within all key stakeholder groups. In the opinion former sphere, politicians are desperate to show that they “get” the voters – so constraining and regulating business is likely to be prevalent at exactly the same time as Governments court business to be an engine of growth and prosperity. The mainstream media are keen to prove their relevance as the megaphone of “real” people’s discontent while simultaneously chasing advertising revenue from all available sources. And, in the court of public opinion in homes and high streets across the land, consumers want to get on and be prosperous while, simultaneously, are being ever more intolerant of businesses who do not appear to connect with their values or their fast-changing expectations.
Yet creating value in this ambiguous environment can be done. If nothing else, uncertainty creates opportunity. The question is how to realise and capture the value in these challenging times?
We have to start by recognising where value comes from. All studies show that corporate value (80% in most cases) is predominantly down to intangible rather than tangible assets – it’s not machinery or buildings that drive value but brands, talent and IP. And the glue that holds together the value of all these intangible assets is reputation. A key strategic decision for businesses today is therefore to hone your reputation in the areas that support how and where you want value to grow.
And if these uncertain times can increase the chances of your value being hit, then it’s even more important to focus on reputation risk management as a means of building strategic resilience as well as a means of accelerating growth and value enhancement.
Three core actions on reputation risk management can improve your chances in an uncertain world.
First, ensure you have robust and proactive horizon scanning in place. To be meaningful, it has to be sensitive to the fast-changing expectations of your stakeholders. If your horizon scanning is currently delivering similar results to previous years, then it’s probably not up to the task and is capturing the wrong outputs. Use scenario planning and simulation techniques to enhance the understanding of the risks and opportunities you may face.
Secondly, ensure reputation is at the heart of decision-making within the enterprise. This will increase your chances of building reputational assets as well as avoiding adverse reputational impacts. Financial, credit or operational risk is already an integral part of most investment cases supporting decisions on M&A, launching new products or changes to the supply chain. Reputational risk should be incorporated at that decision-making stage too. That is when the profile of your reputational risk can change dramatically and where robust reputational risk management plays an active role in supporting enterprise value, shaping strategic choices for a business to create resilient long-term value.
And, finally, ensure that there is genuine collaboration across functions. Effective reputation risk management demands that teams across corporate affairs, risk and General Counsel in particular come together to provide strong holistic solutions for Board Directors and executives.
Risk by definition is a deviation from expectation – and therefore the potential to gain or lose value. This applies to reputation like anything else. In this uncertain world, focusing on reputation risk is as likely to bring upside as it is to protect your company against the downside.
Simon Burton is a Partner at Headland Consultancy and H-K Bryn is an independent risk management and governance advisor.