A new article in Strategy+Business argues the banking crisis arose not from individual actions, but a flawed, quixotic approach to risk. Actually, businesses that engage in social networking may well help those same businesses reinvent how they manage risk management.
(Read the original article at http://www.strategy-business.com/article/00019?pg=all)
Risk management is part of every business: how to identify the best products/services; finding the best employees; and so on. But traditional risk management has not been transparent, and many of our biggest problems have come from small problems that silently grew until they were too big to ignore, too big to dismiss, too big to fail.
For example, part of the banking crisis arose because CEOs were no longer able to understand the instruments their “quants” were developing. At the same time, businesses increased their reliance on third parties for their “professional” judgment. Plausible deniability allowed individuals to detach themselves — legally and morally — from the system in which they were working.
Social media will allow businesses to better manage risk by fostering insight, accountability, and culture:
(1) Insight - just as Twelpforce allows Best Buy to deploy the right employees with the right expertise to consumers with specific issues, businesses will be able to put the right information in the hands of those making a decision, cumulatively eliminating much of the variance from poor decisionmaking.
(2) Accountability - Google employee DeWitt Clinton recently shared some interesting insights from her first few days using Google Buzz. Likewise, organizations will be able to “keep score” by finding ways to quantify heretofore unquantifiable interactions. Insight will enable firms to find ways to push personal accountability down to those who are closest to the action.
At many five star hotels, concierges are often the keepers of information. Meeting planners often don’t have access to certain information, like what local restaurants might be able to host smaller, satellite meetings. As information silos break down and answers are more easily shared, guests will be able to get timely, useful information from any employee.
(3) Culture - Organizational silos have historically led to rigid job descriptions and hence tasks tended to be compartmentalized — i.e., “That’s not my department!” Social networking encourages employees to look across the boundaries of their jobs and to understand the implications their work has for others. Unlike corporate-driven initiatives, which are based on the executive suite’s perception of the environment, social networking shifts to real-time consumer insights, providing employees with real challenges and hence a more authentic sense of urgency that comes from understanding that where there is smoke, there is fire.
Social media has shown that the poor judgment shown by juvenile employees can lead to international derision and real consequences. The banking crisis, instead of being a complete loss, provides a rich context for understanding where risk management goes wrong and how it can be improved. While banks clearly overextended themselves, the root cause was not individual bad judgment, it was formalization: the institutional bad judgment that comes from habitual reliance on regulations and structures (or, as Max Weber defined it, bureaucracy) to control activity. When employees can connect the dots between their actions and consumer activity, stakeholders win.