Enterprise Risk Management: Strategy and Leadership in the face of Large-Scale Uncertainties
Course Number 1518
Professor Herman B. "Dutch" Leonard
Winter; Q3Q4; 3 credits
13 two-hour sessions
Scheduling note: Some Mondays 3.30-5.30 + some Wednesdays 3.30-5.30 (precise schedule will be determined to accommodate holidays and HBS open days and to provide students with time in the middle of the course to work on their papers so that these can be discussed at the end of the course).
Leaders of businesses and other organizations continuously face a wide range of opportunities and a correspondingly wide array of associated risks - opportunities to produce private and social value that generate associated hazards to their business prospects, their property, their people, their communities … and to themselves. Drawing on principles and processes developed for the management of rapidly-evolving, high intensity events, this course focuses on the management of potential downside risks arising as opportunities are pursued. In the last several years, we have witnessed a financial system meltdown; untold destruction from seismic events in China, Haiti, Chile, New Zealand, and Japan; violent and nonviolent political revolutions (some successful and some not) in a dozen or more countries; major supply chain disruptions; internal and cross-border migrations of millions of people; worldwide spread of a flu virus that initially was highly virulent; cruise ships adrift and on the rocks; multiple major product recalls; and countless other physical and reputational events - all of which posed enormous leadership challenges for companies, agencies, and other organizations involved in response or caught up directly in the events. Some loss from events like these may be inevitable - but there is often a (justified!) feeling by many after such events that the losses were larger than they should have been or needed to be. Thus, an important opportunity for value-generation lies in managing downside risks associated with upside opportunities more effectively - both before, during and after the events.
Organizations and the leaders who guide them face collections of such large-scale (and frequently incommensurable and difficult-to-analyze) risks. How do we best build strategies and organize ourselves and our enterprises to minimize and cope with the challenges and losses that might otherwise flow from events like these?
This is a strategy and leadership capstone course designed for anyone who, over the course of his or her career, will lead an organization that seeks opportunity and therefore correspondingly faces large-scale risks - like earthquakes, storms, terror incidents, and product liability or other brand reputation crises - as a supplier, as a responder, or as a potential or actual victim (and, hopefully, as a survivor).
Any student who expects to be involved at a senior level in any organization that faces potentially large and disruptive events will find this course useful. Students who intend to work with public sector or nonprofit humanitarian relief organizations or with private organizations that provide goods and services that enable other organizations to respond to emergency situations will also find the concepts, frameworks, and examples in the course directly relevant.
Course Content and Organization
This course focuses on building effective strategies and exercising leadership in the face of significant risks. Most of its examples will be drawn from physical risks, but it will also consider reputational risks.
Leaders and organizations are involved with risks in a variety of different ways. Any private sector firm can be involved as a survivor of events breaking around it. In addition, some private organizations - like equipment manufacturers, telecommunication companies, and pharmaceutical companies - act as suppliers, often under severe time constraints, providing response organizations with the tools, supplies, and services they need to do their work. Still other private sector firms are involved on a voluntary basis, acting as good neighbors in distressed communities as part of their corporate social responsibility activities. Governmental emergency response organizations and nonprofit humanitarian relief organizations are directly and professionally engaged; it is their purpose to help others in moments of need and distress.
This course examines the leadership and strategy issues faced by leaders in these various kinds of situations, circumstances, and roles. It will draw on principles and concepts of emergency management, and will examine best organizational processes and practices, including the Incident Management System (a broadly-applicable and widely-embraced structure for organizing teams to manage crisis situations). The course will go beyond looking "into the moment" of crisis, taking a much broader strategy perspective on enterprise risk management to include prevention and preparation before an event takes place and recovery after an event in addition to actions taken during an event. Among the questions this course will address are these:
- What are the best techniques and tools for building a more effective and comprehensive enterprise risk management strategy and process?
- Why don't we - and how can we - do a better job of avoiding, preparing for, and coping with the downside risks associated with our best opportunities?
- What are the best ways to organize to handle high-consequence, high-uncertainty, rapidly-evolving events?
- What are the key skills needed by leaders in such situations - and what behaviors are most important and helpful?
- What are the special strategy and leadership challenges faced by firms that act as suppliers of emergency-related commodities and services to communities and/or to response organizations?
- How can firms acting as good neighbors or as suppliers best coordinate with or be integrated into the overall response system in major emergency situations? What needs to be done in advance to create the relationships and interface infrastructure that will permit effective coordination and integration in the moment?
- What are the distinctive challenges that must be faced during the (often very lengthy) period of recovery - and how best can we organize in advance and organize during the recovery to reduce the overall social cost as small as possible?
The course will meet as a two-hour seminar, generally once per week. Meetings will typically feature examination of one or more cases together with a focus on and discussion of principles and frameworks. It meets intensively during the first six weeks of the term, and then has a break from classes while students work on their course papers. Classes reconvene in mid-April for final cases, a poster session in which students present their projects, and a course wrap-up.
In addition to participation in case-based class discussions, students will prepare a 3-5,000 word paper (or a case with an associated analysis) illustrating an important challenge and associated principle(s) of risk management, and will prepare and present a poster outlining their course project and the major lessons and conclusions they drew from it.
This course is part of a portfolio of courses relevant to Social Enterprise. For a full listing, see the Social Enterprise Initiative website.