In thriving companies, the CRO’s Role should shift from that of a “Box-Checker,” ensuring all of the small risk controls are in place, to one that includes active participation in enhancing a company’s profitability and resiliency. This paradigm shift toward bottom-line activity is parallel to the concept of “Great by Choice” as researched and published by Jim Collins. Following earlier research Collins had completed when he was a faculty member at Stanford, and as a response to events including the crash of the long-running Bull Market, the government budget surplus flipping back to deficits, and the terrorist attacks of Sept. 11, 2001, Collins and his colleagues began a nine-year study researching the question, “ Why do some companies thrive in uncertainty, even chaos, and others do not?” Collins labeled the high-performing study cases with the moniker "10X’ because they did not merely get by or just become successful. They truly thrived. Every 10X case beat its industry index by at least 10 times.” The four key characteristics of the 10X’ers, interestingly, have embedded in them a number of Risk Management practices the CRO can implement to enhance a company’s profitability, resiliency and sustainability and the CRO’s potential role in that process.
1. SMaC – Specific, Methodical, and Consistent
CRO Role: Minimize Operational Risk and Achieve Cost Effectiveness
SMaC is a set of durable practices that result in success that is consistent and replicable. A SMaC approach is precise; it is concrete; it presents uniformity that enables a company to have clear guidance regarding what to do and what not to do; it contains just a few statements - less than 10 tenants. Here is the Southwest Airlines SMaC that led them to dominate the airline industry: “Remain a short-hail carrier, under two hour segments; Stay out of food services; Retain Texas as our #1 priority.” A SMaC approach turns strategic concepts into reality with a set of stable practices. As he or she has traditionally, the CRO in thriving companies keeps an internal focus minimizing Operational Risk to ensure the company remains efficient in the long-term.
2. Productive Paranoïa
CRO Role: Mitigate Strategic Risk, avoid Uncontrollable Risk and monitor for External Opportunities as well as threats
Jim Collins describes Productive Paranoia as maintaining hyper vigilance, staying highly attuned to threats and changes in the environment, even when—especially when—all’s going well. Assume conditions will turn against you, at perhaps the worst possible moment. 10Xers address this paranoia by proactively managing risk. The CRO within the paradigm shift toward contributing to a company’s profitability does not only mitigate risk by:
1. avoiding situations that could kill the company (Collins calls this the Death Line),
2. avoiding opportunities where downside is much bigger than upside,
3. as much as possible not exposing the company to risks it has little ability to manage and which could, ultimately,
damage the company (Uncontrollable risk).
Equally important, is the ability to sense changing marketplace conditions and technology disrupters at both macro and micro level and building a flexible framework which allows quick adaptation enabling companies to thrive beyond the industry norm. This vigilance allows the CRO to identify upside external opportunities while monitoring for downside risk.
3. Empirical Creativity
CRO Role: Minimize risk (cost) and maximize profitability with the rollout of new products and services.
The 10X companies practice Empirical Creativity; they fire “bullets,” then “cannonballs.” For example, they always introduce new products or services in small, controlled steps (“bullets”). So as to refine features and profitability before expending major resources (“cannonballs”) to grow proven test products. From Collin’s research, “…in some cases, such as Southwest Airlines versus PSA and Amgen versus Genentech, the 10x companies were less innovative than the comparison….we’re not saying that innovation is unimportant…We concluded that each environment has a level of ‘threshold innovation’ that you need to meet to be a contender in the game.” Pg. 65 When rolling out individual new products and services, CRO’s of thriving companies help maximize profitability during each innovation in stages of risk relative to the company’s ability to recuperate from a misfire. The CRO must be aware of the company’s “threshold innovation.” Innovation and creativity do not necessarily lead to a thriving business without being partnered with testing, a discipline native to most CRO’s.
4. Fanatic Discipline
CRO Role: Set and achieve bite-size milestones to allow for sustained success and to minimize Operational Risk
and reduce Strategic Implementation Risk
Collins defines “The Myth of Revolution: Big change has to be wrenching, extreme, painful—one big, discontinuous, shattering break.” In fact, his research showed that 10X companies thrive by continuing on at the same methodical pace no matter what the conditions. Exceptionally successful leaders set a goal and meet that goal every year for at least 25 years without exception. Collins sites an Antarctic explorer Amundsen who, no matter what the weather conditions, persevered each day to march a consistent distance resulting in reaching the South Pole 34 days before his competitor, Smith. Collins describes Amundsen’s strategy, “Throughout the journey, Amundsen adhered to a regimen of consistent progress, never going too far in good weather, careful to stay far away from the red line of exhaustion that could leave his team exposed, yet pressing ahead in nasty weather to stay on pace. Amundsen throttled back his well-tuned team to travel between 15 and 20 miles per day, in a relentless march to 90˚south. When a member of Amundsen's team suggested they could go faster, up to 25 miles a day, Amundsen said no. They needed to rest and sleep so as to continually replenish their energy.” Energy companies reduce Strategy Implementation risk through a methodical, disciplined march toward meeting goals rather than an unrealistic expectation of immediate achievements. The 10X company’s goal is “more than a mere target, or a wish, or a hope, or a dream, or a vision. It is the law.”
Companies that do more than survive, they thrive, understand that devastating events are inevitable and they use tools to hedge against them..