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Slaying the bad risk dragon

04 August 2016 Jonathan Faurie
Jonathan Faurie, FAnews Editor

Jonathan Faurie, FAnews Editor

One of the most common human conditions is complacency. We get so comfortable with our surroundings that we often find it unfathomable that a certain maxim can be challenged. When Jesse Owens won four Olympic gold medals in 1936, nobody thought this would ever be replicated; then came Carl Lewis. Everyone thought that Lewis would be the fastest man alive, and then came Usain Bolt.

It is the same with business; we are so used to the market being dominated by one or two players that we tend to ignore the presence of other companies that may take over the mantle in the future. Why are we sometimes blind to risk?

Every step we take

This blindness was a key theme at the recently held Institute of Risk Management South Africa’s (IRMSA) Risk Lab aptly dubbed #BADRISKSMUSTFALL.

Speaking at the event, Terence Singh – Director at Ruhi Consulting, argued that this blindness comes from an old mindset. “There is one central truth that every business believes in; and it is that no matter what happens today, the business will open its doors tomorrow,” said Singh.

However, more and more companies are failing. They are becoming complacent and are therefore blind to the risks which face them. Either that or they underestimate the impact of the risk.

#SOMERISKSWONTFALL

This is the eternal folly of the human condition; at times, we work ourselves into a position whereby we feel we are infallible. The true reality of the situation is unfortunately hard to come to terms with.

Let’s revisit the athlete analogy in the business sense now. Hotels have been around for hundreds of years, and they began to feel confident in their dominance because of the assets that they own (buildings); but then came along Airbnb that allows people to turn their own homes into places where holidaymakers can stay at for a fraction of the price that hotels charge.

The same can be said for taxi companies. For the sake of this article we are referring to metered taxi companies who felt that they would dominate the transport space because of the assets that they own. Along came Uber and dominated this maxim without even owning a single car that people travel in while making use of the service.

The under estimated impact

The internet is challenging a lot of the shift away from the old paradigm of thinking. In the days before the invention of the internet, it would take years before a company could build sufficient size and scale. The internet has changed this; Uber was launched in 2010, and in five years has grown into a $62.5 billion company which has a presence in 58 countries and 450 cities.

“Competitors are finding it easier to start up. In 2000, it was estimated that a company needed an estimated R5 million to establish itself as a sustainable company; this is because at the time you needed a physical presence as well as an online presence in order to be successful. This decreased to R5 000 in 2011 because of the internet and offering its services online where needing a physical presence was not a precursor to success. These days it costs virtually nothing to run an entire business through a website. No physical presence is needed,” pointed out Singh.

But it’s the user experience

This is a very common validation when people ignore risks or play down the impact that a risk will have. The owner of Blockbuster Video felt that nothing will ever replace the user experience of getting a DVD and putting it into a machine to watch a movie or a television series. Netflix and Show Max now offers a different kind of user experience, that of instant gratification.

Kodak also felt that nothing will ever replace the experience of taking a roll of film to a shop to develop pictures. Facebook and Instagram are creating a new, and more appealing, user experience of instant photo gratification.

Applicability

The FAnews has been, and always will be, for the broker. And speaking from a personal experience – a client who has dealt with numerous direct insurers before settling with an intermediated insurer – I feel that the role of the broker in the industry should never become extinct; ever.

In the same breath, we must realise that the internet is changing the way we relate with our world and will have an impact on the financial services industry. How do we address this challenge? Singh offered three vierwpoints:

-       Trend analysis is a strong starting point to identify risks that exist beyond your own span of vision. When looking at these trends, identify those that directly and indirectly affect your business;

-       The person closest to the risk is not always the right person to appreciate its full impact. Get an external opinion from a party not emotionally invested in your business, and

-       Learn from failure, don’t discard it. Appreciate what caused the failure of other businesses and make sure it doesn’t happen to your business.

Editor’s Thoughts:
We cannot be scared of change. This is often the single biggest challenge to overcome. Realise that the risk of change is ever present, and we need to manage it. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

 

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