Page 19 - Risk Management Bulletin Jan- Mar 2022

RMAI BULLETIN JANUARY - MARCH 2022

The first driver is a defensive agenda which is about shift from traditional banking methods of cash and
stopping bad things from happening as opposed to a credit cards to contactless transactions. Another classic
progressive agenda which is about making things example of disruptive innovation is Netflix which
happen. (taken up on Y axis) In terms of approach disrupted the existing market of the entertainment
some organizations drive for resilience by driving for industry.
consistency opposed to having a flexible agenda, which
is having people that have variety of different ideas, Adaptation is a situation where you rise to the occasion
beliefs, outlooks, and practices which enables them to even when your strategy may have failed. It is not easy
be much more agile. (taken up on X axis) to adapt, as it has its own traps, one of them being the
success trap, where the organization sees the signals but
Now this creates four core quadrants, in the bottom ignores the warnings. It is also termed as "Hubris",
left we have preventive control which is about where organizations tend to move into a comfort zone
defensive agenda by being very consistent, this is after attaining a particular level. The other trap is the
about putting defenses in depth and stopping bad failure trap where there is a fear of failure because of
things from happening opposed to the bottom right incompetency in skill and tools. Due to these reasons
quadrant that is mindful action , this is about having the organization may fail or withdraw at a premature
people who notice the problem, raise those concerns. stage. It is also known as "active inertia". Many thriving
Those concerns are listened to and they are further businesses tend to fail in the face of changes not due
powered to act from further escalading. to inaction but due to an inability to take appropriate
action. The best is example of Kodak, which went
In the progressive agenda which is mostly about bankrupt in 2012 in spite of being the innovator of
making things happen the top left bracket is about digital camera, and market leader.
performance optimization; this is about the
organization doing what it does now but doing it better To avoid these traps of "Hubris- Inertia" an
to drive competitive advantage. Michael Porter gave organization needs to develop an adaptive culture. An
following three types strategies to gain competitive adaptive culture is made of a set of attitude and
advantage: Cost leadership, Differentiation and Market behaviors like learning from past, being resourceful,
segmentation. PepsiCo worked on cutting down its adhering to best practices, integration within the
operating costs to offer its products at a price lower organization, robustness, and rehearsing resilience.
as compared to its competitors thus using the Cost Rehearsing resilience is an everlasting process. It is
leadership strategy to gain competitive advantage. more than recovery after the crisis it is persistence in
the face of threat, changing before it became a
Opposed to the performance optimization quadrant is necessity.
the top right box which is about being the disruption
in the marketplace by being innovative and adapting Financial sector:
to the situation. The fintechs disruption has led to a
Like any other industry the financial sector has its highs
and lows. Incidents like the Barings Bank, Lehman
brothers (also known as financial crisis) not only
impacted the organization but had a contagion impact.
The financial crisis of 2008 led to the Basel Committee
on Banking Supervision (BCBS) introducing Basel
reforms.

The root causes of the crisis were excess liquidity,
insufficient good quality capital, increased leverage,
and lack of transparency. The financial institutions had
to turn to their central banks for liquidity support and
some to their government for capital injection.

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