‘Tis the Season to Share Your Value
One of the essential responsibilities for senior management is identifying and managing risks. The degree to which risk management is featured on the management agenda has a profound effect on the overall culture and can drive behaviours through implicit understandings rather than explicit instructions. As an example, one of the defining features of Elon Musk’s management style is his willingness to take significant risks in order to further his vision. No doubt all employees of Elon Musk understand that risk taking is expected.
Most organizations however have a far greater aversion to risk than is assumed at Tesla or SpaceX. The assessment of risk and the development of mitigating strategies can create an significant impediment to growth and development if it is not carefully managed. In our field of endeavour, industrial relations, risks are associated with how various stakeholders will behave in different circumstances. Since each group of stakeholders may have different needs and different expectations of the organization, it is important to assess the total risks together and develop a single comprehensive strategy for mitigating against those collective risks.
Moreover, one should avoid the common mistakes made by organizations when assessing risks. The most prominent error made is the assumption that the risks are common and equal between similar organizations. They are not and the differences are not merely subtle. They can be substantial and result in a choice amongst wide variety of strategies. Different stakeholders (e.g. employee groupings, community players, environmental, regulatory, government requirements etc.) mean different demands. Industrial relations is not about shopping for a preferred one-size fits all solution. It is about a deliberate approach to fashioning corporate culture in ways that mitigate against risks precisely because they encourage and promote the ”right” everyday, every moment decisions and behaviours that support your strategy.
When we mention industrial relations, most people assume we mean the narrower field of labour relations. As such they further make assumptions that the chief risks are associated with the threat of work disruptions and/or the escalation of costs associated with direct labour inputs. We think that for many organizations the real risks are related to how various elements influence the evolution of the organizational culture and therefore act on the performance of the organization.
First step in developing an industrial relations strategy is for the organization to develop a vision that helps to clearly define the value it creates for society. The value created is not simply measured in terms of profit and loss or other financial metrics. It is a function of how the organization contributes to the whole of society. Value could be seen in specific activities aimed at meeting the needs of various specific interest groups in the broader community of stakeholders.
Shared value is a concept described by Professor Michael E. Porter of Harvard Business School and Mark Kramer in their 2011 seminal Harvard Business Review article, Creating Shared Value They define shared value as “policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates. Shared value creation focuses on identifying and expanding the connections between societal and economic progress.”
Considering that the creation of shared value ought to be a superordinate goal, then it follows that all risk assessment should be looked upon as determining what external and internal factors potentially interfere with the realization of shared value creation. For many organizations these real risks are often overlooked because we focus on the obvious risks and ignore others that may be more difficult to define and mitigate against.
For example, many unionized organizations come to a quick conclusion that in a bargaining year there is a significant risk of a strike that could have a dramatic impact on organizational performance. However, in general terms the risk of a work disruption is very low and could be insignificant for any particular organization in a given year. For others the risk may be significant and imminent. The point is that each organization faces a different set of facts and should look more deeply and broadly when undertaking a risk assessment.
For example, a more important risk may be associated with the organizations culture and how it promotes diversity, equity and inclusion and this should be considered in a wider context with respect to how the organization promotes different interest groups in the community. In Canada, many organizations find themselves in circumstances where they might be a dominant economic player in a community and the imprint they create goes far beyond simply creating jobs. How the organization spends its money amongst contractors, vendors and other suppliers can influence the degree to which sustainable outcomes are achieved in the community and the degree to which the community can develop into a self-sustaining entity.
Providing value to the community may, and likely will, be an objective that will compete with the interests of organized labour. Organized labour (unions) might want to claim a degree of exclusivity over work performed on behalf of the organization or may push for the right to “consultation” with respect to some expenditures. These competing interests (unions vs community interests) can evolve into significant risks for the organization because they undermine its ability to create shared value. If we focus only on financial performance we can miss the importance of protecting the organization from claims by some stakeholders (at the expense of other stakeholders) that put the organization’s ability to create shared value at risk.
This discussion about industrial relations risks should not be regarded as an esoteric subject. Organizational risk comes in many forms and the more sophisticated an organization’s understanding of the full extent of risks that it faces, the more likely its management team will be equipped to develop comprehensive and cohesive strategies to combat those risks. The key is to develop an understanding of the complexity of the environment and then allow for the time and attention to create simple solutions that will work.
The advent of diversity, equity and inclusion initiatives and the promotion in communities for sustainable practices are opportunities rather than threats. The real threats are the barriers we create in industrial relationships to the development of shared value solutions! Unfortunately, one of the greatest risks of NOT exploring this subject is that the overall performance of an organization, including and especially its financial performance, are ultimately optimized under a shared value approach. In other words, the risk is that too many organizations focus on harvesting the short-term gains and miss the longer-term opportunities.
Risk avoidance, a common approach associated with risk aversion, always leads to subpar performance. As Wayne Gretzky’s dad told him, “You miss 100% of the shots you don’t take”.
In 2024 we hope to continue our efforts to help organizations find ways to challenge the status quo. This year, take more shots and give the gift of creating shared value.