Managing critical issues


April 28, 2015

A wise Board regularly evaluates potential threats to the business.

Threats can come from anywhere and at anytime. If you are able to identify the major threats you can then plan what to do if the threat turns into a reality. In the modern world, changing technology is one of the biggest threats to a business.

It killed, almost overnight, such established businesses as Polaroid, Kodak, many travel agents, cheque-book printers, telephone books, fixed line telephones, big chunks of the “High Street”, particular bookshops, coal producers and many many more.

I accept that the above examples still exist in some form or other, but all these businesses have been very badly hit. Sometimes these threats crept up slowly (say over 20 years) and some happened much faster.

Some are creeping up on big businesses today, such as Big Oil, and there is precious little they can do about it because it is too late to start a major investment (or divestment) programme. So what do you do about it? Obviously you cannot spend your entire time being pessimistic and not investing as that too will lead to problems for your business.

A possible approach and one that has been used successfully many times and in many companies is to map the impact of the threat (x-axis) against time (y-axis). Usually called a “Critical Issues” analysis, it really needs to be practised by all companies, large or small and repeated as and when circumstances change.

It should be carried out at the Board level, since it could involve big decisions and a strategic sign-off. So limit the time axis to three or four years and think hard about what threats could occur which might adversely affect your business.

If the threat is small and could occur any day soon then it goes into the bottom left-hand corner. If it is a long way off but could sink the business, then it goes into the top right-hand corner. And so on. You will then need to work out what you need to do to address each threat.

This then evolves into company strategy which can be put into place at the relevant time. I wonder how many companies in Oman, most of whom depend either directly or indirectly on the price of crude, have already carried out this analysis and factored in as one of the critical issues the halving of the oil price in nine months?

I have talked to a few and it is only now that some of them have begun to think about it and how to react. Yet the threat was always on the cards. How much better to have done the assessment when the price was going up.

People who are not used to this sort of analysis will probably find it easier if they structure their approach by grouping issues which can critically affect their business under a variety of headings. For example, technology issues (such as Internet failure for a mail-order business), economic issues (economic slump), financial issues (lack of availability of working capital), supplier issues, HR issues, lowering barriers to entry and so on.

Having listed issues which could have an impact on the business, you can then decide the probability of their occurring, the significance of the impact on the business and the time horizon. Given enough time, most threats to businesses can be addressed and blunted. Problems mainly occur if the threat has not been identified early enough and therefore cannot be addressed because the investment horizon is too short.