[Editor’s Note: Organizations have become myopic with GRC solutions, and they can no longer see the forest through the trees. Our new series, brought to you by the LogicManager Analyst Team, will keep you up to date with real world examples of risk management failures, and how ERM could have prevented them.]
Last week Gap, Inc. announced that in an effort to remain profitable it will soon be closing 175 stores, after already retiring 189 locations earlier in 2011. Gap’s stagnant sales in the past decade can be attributed to changing fashion trends, new purchasing channels, and general economic fluctuations. Gap’s annual reports highlight the need to respond to these changing business and consumer environments. But what concrete steps did Gap take to maintain their favorable brand recognition and mitigate key risks outlined in annual reports and strategic initiatives?
Analyzing Gap’s current market position reveals missteps and lapses in strategic initiatives. Poor strategic and financial planning left Gap floundering by the mid 2000’s. A former employee from 2006 points out myopic strategic vision, and questions why the “global corporation’s answer to slowing sales was to close down several top-performing stores for months just to remodel them.” There was a clear disconnect between what was happening in stores and what the leadership team was trying to accomplish. Gap lacked the tools to keep up with changes in consumer tastes and demands. The Washington Post points out that Gap dominated the casual clothing market in the 90’s, yet now they are barely even considered over fast acting competitors such as Zara and H&M. Poor market segmentation and product development, coupled with over extension during their success in the 1990’s and early 2000’s, were factors that led to Gap filling too many stores with too many clothes that simply stayed on shelves. This did not happen overnight, but was rather a slow and steady oversight for Gap. What are the options for organizations battling competitive markets and slipping performance?
Gap is not alone in their inability to match operational activities with the higher-level strategic decisions and goals of their organization. Many organizations face a similar challenge which can be addressed with a simple solution – stronger Enterprise Risk Management. A fundamental principle of ERM is linking risk and day-to-day activities occurring on the front lines to the performance goals and strategic initiatives of Executives and Board-level leadership. Organizations can quickly gain insight into where priorities exist, how resources should be allocated, and what may be inhibiting achievement of goals.
By leveraging an Enterprise Risk Management solution, organizations can identify, monitor, and mitigate risks. Strong risk management leads to organizational alignment and financial strength. Organizations need to take a holistic look at their risks, performance, and goals to strategically grow and adapt over time. LogicManager’s Enterprise Risk Management software bridges the gap between high level strategic planning and ground level operations, providing insight into how prepared an organization is to manage tomorrow’s surprises today.