Lessons in Risk Management from the Military

Sir Richard Shirreff

During IBC’s recent meeting with Sir Richard Shirreff, co-founder and managing partner of Strategia Worldwide, and former NATO Deputy Supreme Commander Europe, whose specialties are strategy and risk management, he provided great insight into methods of achieving optimal risk management in today’s business world. He does this by applying risk management strategies learned from his extensive military experience. The theme of Sir Richard’s discussion was Battlefield to Boardroom: What Can Business Leaders Learn from the Military Approach to Managing Risk?

As everyone is grappling with the effects of a global pandemic, Sir Richard maintains that the “old ways of looking at risk in a sort of siloed way have proved to be inadequate.” He stresses the importance of strategy and planning that is “stakeholder-centric” and includes building relationships with those impacted. Sir Richard says, “The key principle, which underpins everything, is that whatever we do alone is not as important as what we can do together.” Because of the impacts of globalization, round-the-clock media coverage, and social media, companies must now take into account the importance of ESG (Environmental Social Governance) risk in order to perform effective risk management.

How can businesses meet this challenge? The first step is to develop a “deep and comprehensive understanding of their environment,” according to Sir Richard. If there is no understanding of the economic, social, security, technical, legal, ethical, media, regulatory and other aspects, your company will be unable to acquire the necessary instruments, organizational structures, and skills to mitigate potential risks.

Next, Sir Richard stresses the importance of strategic leadership, which he defines as possession of “clarity of thought, vision and adaptability, resolution and determination, an ability to live with ambiguity and uncertainty, and a pragmatic capacity to take calculated risk for the longer term and greater benefit.” Lastly, a successful execution of strategy must include empowering subordinates with the tools necessary to execute the strategy and trusting them to be able get the job done.

Factoring risk management into every facet of the decision-making process is key to being able to mitigate risk, both in the military and in business. Sir Richard urges businesses to perform “war-gaming” the various risks they face in the field. By stress-testing and evaluating your plans, you will be able to identify both risks and potential opportunities. He urges businesses to include their most “anarchic and free-thinking employees” in this process, as they are “more likely to come up with the questions you don’t know about.” And he stressed the importance of keeping resources and people in reserve for managing crises.

One member inquired about how to deal with the “not knowing what you don’t know” aspect of risk, and Sir Richard’s response was a reminder to practice these scenarios, so that when those occasions do arise, a business’s “intellectual muscle memory” will help in responding better to the risk. 

Another member asked how to manage risk while communicating with competitors, as the pandemic has now forced their business to communicate and collaborate with competitors, and that it sometimes “feels like a tap-dance towards war,” in these instances. Sir Richard observed that “business opportunities are created by building partnerships, sometimes with potential competitors.” In these cases, building trust is essential and can “generate the capability to build on those opportunities,” though he acknowledges that it will take time to build that trust, which will depend upon one’s judgment of each individual case.

In summary, the lessons that business can take the experiences of the military in and apply to their own operations can be beneficial to businesses in today’s environment and in the long run. Sir Richard’s advice to understand the importance of ESG risk, utilize the experience of running crisis management exercises, to develop “intellectual muscle memory” derived from those exercises, to maintain reserves for crisis response, are all lessons learned by the military that business leaders can use to great advantage going forward.