12 February 2008

Business Survival: Anticipating Breakpoints...

"The final plunge of the most powerful and dreaded firm on Wall Street in the roaring eighties came with astonishing speed. Like the abrupt fall of the Berlin Wall thousands of miles away, the collapse suddenly confirmed what everyone in the financial world could already feel in the wind: A new era had arrived."
Business Week cover story on 2.26.90

Many excellent companies have fallen from grace, not because they ignored their customers or lacked superior management skills, but because business conditions shifted beneath them. In an environment of fluctuating markets, proliferating technologies, and changing political frontiers, the management challenge is no longer to manage only growth. Now managers must cope with breakpoints, or sudden shifts in the rules of the game.

So has this deja vu moment reminded us that the Drexel Burnham Lambert implosion could be replaced with a new corporate name in the year 2008. Junk bonds were a financial instrument that were utilized for leveraged buy out financing. Then a "Breakpoint" occurred. Paul Strebel in his 1992 book entitled "Breakpoints: How Managers Exploit Radical Business Change" explains:

"Breakpoints, or sudden radical shifts in the rules of the business game, may shape the course of an industry, or of a company, but they need not be as dramatic as the junk bond story."

If you are the Chief Risk Officer (CRO) at a major institution facing sleepless nights these days then you are not alone. Just make sure that you "Tivo" the moment so that you can replay it in another decade, around the year 2015. If the last major breakpoint took 18 years then the next one should occur in about half the time. Do you have your finger on the pulse of change and potential breakpoints in your organization? Can you anticipate the next one in time to have the correct actions and plans to mitigate the impact on your enterprise?

Certainly there will always be those incidents and crises that are unknown and sudden. And how you recover during these times could save your reputation:

ZURICH (Reuters) - Credit Suisse (CSGN.VX: Quote, Profile, Research) trimmed full-year subprime writedowns to 2.0 billion Swiss francs (932 million pounds) but its stock fell as investors took fright at the bank's remaining exposure to the credit crisis.

The bank also reported a 49 percent fall in fourth-quarter profit from continuing operations to 1.33 billion francs, slightly below analysts' expectations, as losses in its huge asset management business eroded results.

Subprime writedowns in the fourth quarter were 1.26 billion francs, Credit Suisse said, though hedging earlier in the year had helped it lower its full-year charges for bad credits from an estimate of 2.2 billion francs made earlier.

The Blackberry mobile e-mail service has returned to normal after a breakdown on Monday afternoon wiped out the service across the US and Canada.

The Blackberry device, owned by Canadian firm Research in Motion, is popular among business people who rely on it to keep in touch with the office.

The service began to fail at about 1530 EST (2030 GMT) and users struggled to retrieve information for three hours.

The firm said no messages were lost and apologised for the problems.

Whether the CRO encounters the wrath of financial instruments at a breakpoint in the martetplace or hours of downtime on the corporate lifeblood of information exchange does not matter. Operational Risk is pervasive and creates discontinuity that impacts employees, customers and shareholders. The only answer is a resilient framework for anticipating and addressing "Change" or in other words, incidents.

Having a taxonomy for change in your organization is imperative to gaining insight on potential incidents whether they be [high frequency-low consequence] or [low frequency high consequence] events. So what is the potential aftermath without this taxonomy:

  • Companies have myopia in viewing the actual breakpoint in front of them
  • The company fails to capture the opportunity and exploit the breakpoint
  • A rare company actually creates a competitive breakpoint

The analysis with your organization begins with the understanding of what your adversaries are utilizing as tools, to exploit your vulnerabilities. Your future Business Survival depends on it.

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