Risk

Methods to minimize risks in the tech industry

Tuesday 30 Apr 19

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Josef Oehmen
Associate Professor
DTU Management
+45 45 25 60 39

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Read more about risk management and strategy work in the articles at the London School of Economics “Business Review”

Read more about DTU Engineering Systems Risk Lab.

 

DTU researchers are coming up with new ideas on how the top executives of technology businesses should develop strategies in an increasingly unpredictable world.

Blockchain-based bank accounts, artificial intelligence, smart cities, autonomous cars digitization permeates society. For the top executives of a technology-based company, this brings not only opportunities, but also many new risks and unknowns. And many years of business experience is suddenly no longer their most important asset when planning the strategies of the future. In a world where any young intern may know more about current digital trends than the director, a new approach to strategy work becomes necessary.

Josef Oehmen, Associate Professor at the Engineering Systems Group at DTU Management, and his research team have observed and interviewed directors and senior executives in 40 technology-driven companies in Denmark, in sectors such as production, construction, healthcare or services. The purpose was to map out their strategy work in order to produce models and methodologies that can provide inspiration for other companies in a digital world.

“Our research showed that the companies that do best are the ones that have understood how to adjust their strategy work to the particular risk profile of their initiatives,” says Josef.

One good example is IBM. For them, digitization has meant that they no longer focus only on finished products.

“Our approach is now much more about how to support our customers in their strategy work towards leveraging new technologies. This includes helping them identify relevant technology trends, provide support to prototype and validate business cases, perform the roll out, and be a strong partner during operations. We definitely approach things differently today than we did just a few years ago,” says Claus Klint, Director Internet of Things at IBM Denmark and a recent speaker at DTU’s High Tech Summit.

And the fact that these companies dare to innovate and try new strategy methods is crucial to their success, says Josef.

“With digitization, reliable long-term planning is much harder for many businesses. Companies need to innovate quickly and cheaply, and become world-class at learning from their failures. Strategy work is now much more about understanding what you don’t know, and then experiment cheaply and learn quickly,” he emphasizes.

Simple rules can minimize the risk of bad decisions
Josef and his team also examined how top executives make strategically important decisions under uncertainty. Based on these results, they identified a number of questions that can help companies in the decision-making process.

“We have turned everything upside down. You see, it is an illusion to think that you can pick the one best solution, as long as you analyze things well enough. Technologies and markets simply move too fast for that to work. Instead, you need to make better decisions with a lot of uncertainty: Think about minimizing the worst-case-risk, and then pick one of the remaining options. In this respect, simple rules for the decision-making process is a useful tool,” says Josef.

He explains how companies need to ask themselves the right questions along the way. For example: What are our clear knock-out criteria for “too risky” options? What do we lose if we wait for a month, and / or what can we learn in the same time? What choices are “good enough” with the data we currently have?

“At the same time, it is important that companies continuously consider which simple rules work in their decision-making process and which rules need to be changed, so they continually evolve their criteria, as the rules of the game keep changing,” he explains.

Gathering models and methodologies
The analysis is only a small part of a larger body of work looking at risk management in a broader perspective. Josef and his team have gathered much of their research and practical guidance on the new website of the DTU Engineering Systems Risk Lab. Here you will find a larger selection of articles and good advice on risk analysis in a new and more holistic way.

The models and the recommendations of the researchers have already been published in several journals, and business leaders have called them an extremely important input in strategic management.

The results are also shared internationally through the Brightline Initiative - a coalition of leading global business, government, and non-profit organizations whose mission is to provide a knowledge and networking platform that provides insights and solutions to successful strategy work. The Brigthline Initiative has supported the project and CEO Ricardo Vargas, who has more than 20 years of experience in project management and strategy, says:

“The results of Josef and his team at DTU are excellent. I was not surprised when the World Economic Forum featured his work on their homepage. We are very pleased to be partnering with DTU and sponsoring such high quality research."

The longer-term goal is to better connect more DTU research and that of our partner universities within risk management, foster better cooperation and make the results available via the DTU Engineering Systems Risk Lab.