The links between companies’ HR and Risk functions are evolving rapidly as businesses transform themselves and embrace the digital economy. The growing influence of innovation and data is leading companies to adopt new technologies and ways of working, introduce greater automation and prioritise novel areas of talent and expertise.
We believe that these changes have some profound implications for HR and Risk.
The first is that people and risk are intrinsically linked. Both are an inherent feature of every business; and a critical source (or barrier) of sustainable change. Experience shows that every element of risk has a human aspect and that every human activity carries a degree of risk. For example, the foundation of every business scandal or failure is human behaviour. An intelligent, holistic approach to both topics understands that businesses can’t divorce risk from people.
The second implication is that risks, in themselves, are not always something to be avoided at all costs. With a few exceptions – such as fraud – most strategic and operational risks cannot be eliminated. Rather, businesses need to remind themselves to take an intelligent approach to risk that considers not only the downsides but also the corresponding upsides to every decision. Firms should aim to develop an environment that encourages people to take measured risks, such as testing new products and new ways of working, without fear of failure. Fail fast, learn, adapt and enhance risk management.
So how should businesses’ HR and Risk functions respond to this changing picture?
In our view, both functions have a vital contribution to make to the disruption and re-engineering of traditional business models. But rising to these challenges will require a more connected and confident mind-set. This is a theme addressed in KPMG’s recent Future of HR 2019 report, which identifies a divide between HR functions willing to embrace new approaches and those suffering from inertia in the face of change.
For HR teams, there is a need to better connect their activities with risk. That not only means giving more thought to the HR aspects of external risks such as political or economic volatility. It also requires HR professionals to view their everyday activities such as recruitment, retention and motivation through a risk lens.
Unsurprisingly, the reverse is true for Risk functions. Risk professionals need to give more thought to the unpredictability and irrationality of human decision-making and the cultural ‘system’ running in a business. A precise, refined or rigid approach to risk can be all too easily undermined by individual behaviour.
In short, we believe that many businesses’ HR and Risk functions should become more closely integrated. This not only mirrors the growing global importance of collaborative innovation. It also reflects an increasing awareness of the value that can flow from greater internal agility, accountability and responsiveness.
Closer connections and better cross-functional thinking will make it easier for firms to take a smarter, more strategic view of the interconnections between HR and Risk activities. It could also lead to the emergence of new specialised disciplines of People and Conduct Risk.
In the longer term, better collaboration between HR and Risk will help companies to take a smart, proportional approach to managing risk. It will also allow firms to build a risk culture or ‘personality’ that complements their strategic goals and promotes a healthy, mature attitude to risk. That will empower all of a businesses’ people to understand, manage and embrace risk, not stifle agility.