Managing risk


Some time ago I hosted an event for the Oxfordshire International Business Club where we were talking about doing business – or trying to do business – in China and Asia.

It is a massive subject, with a tremendous opportunity matched by high levels of risk. Not something to consider for anyone whose resources are already stretched!

One topic that almost always comes up is how do we manage the money – how do I get paid for the goods I have sold, or how do I pay for the goods that are being shipped.

There are quite a few ways of managing those risks, using the banking system so that you are not releasing payment for the goods until you have inspected them, or if you are selling only doing so against a letter of credit – a promise to pay – where you will get the money if you meet the conditions in the LC.

Often overlooked in the planning stage is the currency risk.

Currencies move against each other all the time, and a RMB today is not worth in GBP what it was yesterday – or even last second. It could be worth more, or less.

The usual way of managing that risk is to use a derivative (before you panic about banking crises they are not all bad) to fix the exchange rate. You know that in 3 months you will have to pay 10,000 of a particular currency, so you can go to your bank and buy the 10,000 now so that you’ve secured the funds at today’s exchange rate. It is a little more complicated – you don’t actually buy the 10,000, you buy a derivative – the right to buy the 10,000 at today’s rate in 3 months time. You will pay for the derivative but you have reduced your currency exposure.

A different way of managing exchange risk is to reduce it.

I was responsible for a business that had part of its revenues in EUR. We operated in GBP so that we had an exchange risk on the Euro sales. Before my time, we’d agreed some supply arrangements with another business in the Eurozone, and eliminated the exchange risk to us by agreeing a price in GBP. Changing that agreement so that we bought in EUR rather than GDP reduced our overall risk – and we were able to reduce the price per unit from the supplier as we were taking on his currency risk.

If you are trading in more than one currency, don’t just hedge everything. Look for opportunities to balance your supply side and sales side currency exposure.

I call that Natural Hedging


Try and Try again – or maybe not?


When I was a child, my parents often exhorted me to “Try & Try again” if I failed at something.

In business, all too often I meet companies who, when something is suggested, respond with “Oh that doesn’t work – we tried it some time ago and it failed”

If you dig into that & get them to recall the details, it’s amazing what you can find.

A direct mail campaign didn’t work for us
Well, in fact you only sent one piece of mail, to a small selection of your past customers

We tried using a different system
This is one of my favourites. In general people are resistant to change and prefer to do things the familiar way. If they aren’t convinced of the need to change, your team will prefer to see the new system fail.

It was too complicated
Well, it might be, but it is more likely that the proposal wasn’t broken down into its component parts. You can eat an elephant, one mouthful at a time, but if you start with the whole elephant on the plate it can be a bit intimidating.

Most of the time, business don’t try often enough or hard enough. They are not convinced of the strategy, and go into it halfheartedly, then withdraw at the first obstacle. That’s a recipe for failure.

If you are going to try something new, research it, plan the steps, and then execute it wholeheartedly, with real commitment from the leaders of the business.

You could still fail because your strategy was incorrect, but most of the time

Initiatives fail for poor execution, not faulty strategy.


Perception and reality

Most businesses think they provide good service to their customers and they are probably right, if they are still customers.

Some time ago, I was managing a large distribution business. Every year we commissioned a “Customer Satisfaction Survey” from a third party. It was a report that we debated at some length, to see if there were opportunities to improve our services.

The problem with that report (and I am sure many similar exercises) was that the answers didn’t change very much from year to year. We were asking the people who were using our services, and the very fact that they kept coming back to buy again told us we were providing adequate service – and the report reinforced that view.

What we really needed to do was to ask the people who didn’t buy from us, or even better the customers who no longer bought from us but instead had found an alternative supplier. What made them change?

You and your customers may think you provide good services. What do the people who tried you and went elsewhere think?

Marketing & Sales people will tell you that you can much more easily reactivate a past customer than find a new one; you can do much more to improve your services by asking a dissatisfied customer what you did wrong – and in the process perhaps that dissatisfied customer will give you another chance.

What have you got to lose by asking?


Do you delegate well?

When I was first promoted to managing a team, I had been the “technical” expert, a real hands-on, sleeves rolled up type.

We had so much going on that I had to learn to delegate and let go of things. The team were not as good at some of the things I could do, but at least they could do them, so I could do other things.

Over time, as they gained experience, their skills increased and some of them were actually better than I was.

That’s when I learned to delegate responsibilities, not just tasks.

If all you ever do is delegate a task, no matter how complex, you will only free up so much of your own time. Much more importantly, the people you are leading won’t feel empowered – you’ve made it clear that it is just the task you are handing over, not the responsibility.

There’s a downside to this. If you delegate a responsibility, you also have to delegate the authority.

I was once in the invidious position of holding a senior role, with responsibility for the P&L of a business unit, but I was not empowered to change the focus or control the spend of the single biggest item in the P&L. That’s an extreme, but it really was the classic “poisoned chalice.” I had the responsibility, but not the authority.

I have found that delegating responsibility – by which I mean focusing on the outcome, not the means employed to achieve the outcome – allows me to harness the abilities and talents of those around me.

A phrase I have often used when delegating something new is to ask

“What do you need to make this happen?”

That, coupled with a review process, allows me to delegate responsibilities and the necessary authority, but I haven’t abdicated. The ultimate responsibility stays with me.


You don’t have to do it all alone


Collaborations and partnerships are a great way to move your business forward.

I’ve been to several events recently where the emphasis was on collaboration and sharing resources to achieve greater results, but I have been to others where the focus was on business development, or marketing, or international trade and in each case there’s a partnership element to success.

I have been helping a client make space to grow their business. They are so busy with the day to day firefighting that they don’t have the time (or the energy, or the resources) to look at the things that will help them advance.

One way to look at this is to review the organisation structure – even if it is just you – through an organisation chart.

Put names in all the boxes and then underneath each make a note of where you are today:
How much time are you spending on this area?
Is this your core skill?
Can you delegate it?
Can you outsource it?
Can you automate it?

Now answer the same questions again – this time as if you were looking at the business as if 3 years have passed.

That’s given you the starting point, and your destination. Now all you need are the steps to get there.