The previous post, Crisis Planning: How to Manage Preventable Reputational Risks, reviewed one of three reputational risks we’ll cover in this series on crisis planning. This post will cover the second risk: strategic reputational risks. Check out our overview of how companies can use a new framework for crisis planning.
Let’s set the stage; what are strategic reputational risks?
Strategic reputational risks are decisions that companies make in order to maximize economic value.
These decisions could be about a process innovation or an ingredient innovation, or some type of manufacturing decision that is made for strategic gain, or for speeding up a process, creating efficiency.
A strategic risk is taken intentionally to achieve greater strategic financial performance of the enterprise and thereby grow market share.
Because it is taken intentionally, companies need to be prepared to defend it.
Here’s a classic example of a strategic threat
For example, Company X makes and packages hamburger patties on a conveyor belt and decides to reduce the frequency of preventive maintenance on the machine from once a week to every other week.
They’ve never seen an issue with the machine, and reducing the maintenance time will save money on staffing while allowing them to address more pressing issues.
The downside is that it may increase the risk of physical contaminants (e.g., metal shavings from the machine) falling into the patties.
Company X decides to take the strategic risk because of the overall cost savings and improvements to workflow.
Another example is when a company introduces a production innovation that maximizes yield or food safety but is viewed as distasteful by the public (e.g., nitrates added to cured meats to prevent botulism).
Roadblocks to managing strategic threats
The challenge that many companies face when managing strategic risks is the belief that they can manage them through ignorance—that no one will find out—which isn’t a strategy and doesn’t work.
Everything is available on the internet, and there’s so much access to information. Beyond that, whistleblowers and researchers often share facts and practices.
Companies should assume that their decisions will eventually become public, and they must be ready to defend them. If you intend to take a strategic risk, you need to intend to defend it.
Complexity is often cited as a reason why companies don’t explain processes.
With consumer demand for transparency at an all-time high, it is critical that operations and R&D work with skilled communicators on their team (or find some) who can explain a process that a blogger or critic will explain in a paragraph—and usually not to your liking.
A company needs to be able to vigorously defend and explain its decision
Inevitably, things happen.
When they do, the strongest position companies can take is to defend their strategic risk and decision—why it was a good one, why it’s right—and not give up.
Especially if a lot of time and investment went into the research, development, design and innovation, hoping that nobody finds out about it is a recipe for disastrous results.
If it was an investment worth making, it’s one that’s worth fighting for
Companies should view the strategic risk as a business decision that was smart and positive for both consumers and the company, and vigorously defend it.
If the issue or science is not easy to understand, companies can engage third-party experts such as NGOs, academics, government officials or consumer advocates—people who really advocate on behalf of the food-buying public—who can help explain the science and defend the decision.
Defending the decision doesn’t stop at the consumer.
Companies should be actively engaged with retailers to explain the decision and reassure retailers about their product’s safety and excellence.
Managing your strategic risk is centered on the notion of defense
A company’s fundamental posture for managing a strategic risk is defensive—it’s based on how to defend a process or product.
It’s important to take strategic risks deliberately; and if you meant to do it, you should be in a position to defend your decision.
It’s also important to know that if you’re going to take the risk (in manufacturing or operations), you understand that risk so that you have a well-thought-out response in place.
What’s at stake?
What’s at stake is the growth of your enterprise.
There are a lot of innovations, process improvements and ideas that make companies better, leaner and efficient, but companies need to understand that the public may react.
While companies view a move as innovative, the public may view it as a major health risk or dangerous.
Oftentimes, there is a disconnect between what the CEO thinks is important and what the consumer thinks is important. That leads to poor planning and preparation.
Companies need to anticipate the public’s reaction and concerns and have plans in place to defend why the decision was made.
Want to discover more about the new framework for crisis planning?
Stay tuned right here as the next blog post will cover external reputational threats in further detail.
Check out other critical moment insights for smart people in our blog archive.