Enterprise risk management in today’s world : enterprise-wide risk management and strategy, part A

Abstract

The complexity of the business context, combined with the intricacy and interconnections of risk and objectives – necessitates the organisation implement a strategic approach to business and operational resilience. Indeed, there is a growing focus on resilience exacerbated by the pandemic and ensuing geopolitical upheavals. Resilience is the capacity to recover quickly from difficulties/ruptures; the ability of a business to spring back from any disturbance. This is quite critical and many organisations rightfully merge risk management and business continuity management into what is enterprise risk management (ERM), sometimes defined as a resilience programme. Any academic studying risk management can only be surprised that at a time when the world is becoming more and more complex and volatile, most MBA programmes are still resting on old scientific principles: they remain founded on Democritus’ description of the atom or at best Bohr’s. To be specific, management principles are still anchored on classical physics that allows five-year planning exercises. If governments dropped this practice after the fall of the Soviet Union, how is it possible that so many firms are still indulging in it? Could it be that too many managers have failed to recognise that times are no longer such that a deterministic approach to the future is reasonable? Traditional physics is founded on the principle that similar causes have similar consequences and proportional causes have proportional consequences. This was fundamentally challenged with advances of modern microphysics, which can be summarised in the uncertainty principle, also called the uncertainty relations, set out by Heisenberg. To some extent, it is this research that opened the path to chaos theory, which does not yet seem to have influenced strategic thinking in most organisations, even if some visionaries appear to be inspired by it, consciously or unconsciously. [extract]