CTO at HealthKey Technologies. IT executive, thought leader and contributing writer with a passion for innovative technologies.
At a recent Forbes Technology Council meeting, one colleague brought up this very good question: What should we do, as technology leaders, to be prepared for a possible recession?
This question is not technology-specific, but it underlines the fact that technology leaders should be engaged in conversations about economic, financial and general business risks. It also highlights that technology, the economy, change and risks are interrelated and entangled. So how should we react to a possible recession?
Types Of Change Facing Technology Leaders
The last few years proved that we live in an unprecedented era of three-dimensional (3D) change—exponential change, perpetual change and pervasive change being the three dimensions. We live in an era where change is coming at us in an extreme and accelerating pace induced by political, economic, social, technological, environmental and legal (PESTEL) forces.
PESTEL is a technique that is used to identify threats, weaknesses and opportunities that can be applied in a SWOT analysis. However, the PESTEL analysis doesn’t explicitly consider public health risks such as the Covid-19 pandemic. Clearly, Covid-19 is one of those Black Swan risks that are very hard, if not impossible, to predict. Nonetheless, the Covid-19 pandemic requires PESTEL be updated and to include a specific letter for public health risks such as pandemics, endemics or general health crises. Maybe adding the letter H to it to become PESTEL-H.
So, in this climate of 3D changes, it is not just about dealing with an economic downturn or a possible recession. It is about managing and navigating changes and risks in the context of these seven forces of PESTEL-H.
Furthermore, organizations and society are considerably impacted by technological innovation in areas such as AI/ML, quantum and cloud computing, IoT, synthetic biology and CRISPR-CAS9 type innovations, just to name a few. Technological innovations are bringing about a dizzying amount of change. Technology might be the greatest force of change today.
Why Technology Leaders Must Embrace Change
While change can be an unexpected and undesirable event, it is inevitable. However, planned changes are highly desirable, especially in the face of major risks.
For organizations with enterprise risk management (ERM) practices, risks are likely well managed and optimized. But what about 3D changes that can produce unanticipated and unplanned risks that can destabilize corporations? Such risks can lead to incidents that can lead to disasters and disruptions to the enterprise. A sudden change can bring about some unanticipated and hazardous risks to the best of organizations.
So, what is the relationship between risk and change, and how to manage both simultaneously?
Change and risk have a cause-and-effect symbiotic relationship. Change can induce risk, and risk causes change. Risk and change are two sides of the same coin of an ever-evolving world. Successful organizations seem to be managing 3D changes and risks well. They are proactively optimizing risks and introducing actions that bring about major changes.
Understanding this indicates that organizations need to master two distinct yet intertwined critical skills: change and risk management. Both have their well-defined and known frameworks, standards and methodologies. Below are examples of methodologies and tools that can help in addressing the dichotomy of risk and change.
One of the iconic books and methodologies on change management is John Kotter’s book Leading Change. Kotter offers an eight-step, well-tested and structured methodology to navigate change by establishing a sense of urgency, creating a guiding coalition, vision, communicating the vision, removing obstacles, generating quick wins, accelerating the change and finally anchoring the change.
To understand risk management, technology leaders should review The Essentials of Risk Management. The book covers ERM, and it is especially useful for financial institutions. As the book explains, “Risk management is about how firms actively select the type and level of risk that is appropriate for them to assume” as well as that “risk management and risk taking aren’t opposites, but two sides of the same coin.”
Another useful book on risk management is Enterprise Risk Management Tools and Templates, which offers great resources for incorporating risk into corporate governance and offers a methodology with techniques, tools and templates on how to identify, evaluate and optimize risks.
A unified corporate governance framework is imperative to successfully manage change and risk. Some organizations might have risk governance that is separate from change management. However, an overarching governance framework is instrumental to the success of any organization. The COBIT 2019 framework, for example, offers an effective enterprise governance of information and technology across the organization. COBIT reinforces the principle of “staying relevant in a changing environment” with emphasis on value delivery and risk optimization.
Three Tips For Managing Risk And Change
Back to the original question: How should a technology leader react to a possible recession? Here are some ideas:
1. Consider the possible economic downturn as a major risk that might require major change. Engage executives to create plans to optimize this risk. It is possible that such a risk will require adjustments to the business strategy.
2. In times of economic uncertainty, financial advisors would recommend rebalancing the financial portfolio and cutting spending. You might want to follow the same advice. But it will be different for different companies since an economic downturn might present great investment opportunities for certain companies who foresee a stronger competitive position when better times arrive.
3. Consider rebalancing the organization’s technology portfolio (products, projects, investments) with a focus on maximizing its value. This can be done by linking the portfolio to the business strategy that might have changed to cope with the economic risks.
In these times of 3D change, technology leaders need a 3D response to handle the risks associated with these changes. We need a solid change management methodology, a strong risk management framework and, above all, an enterprise governance framework to handle these changes and the risks that are coming at us constantly, relentlessly, exponentially and from all directions.