In the December 2006/January 2007 issue of fDi, Ameen Jan reported that one of the “hallmark[s] of high-performing organisations is their ability to manage potentially disruptive events [in ways] that prevent them from escalating into crisis”. In high-risk environments (HREs), disruptive events happen constantly, with frequency closely related to the fluidity of the local context. A company’s ability to prevent, manage and weather crisis in HREs is dependent on a set of non-core-function skills that can often be the measure between success and failure for any venture.

Unfortunately, there is no shortage of high-risk environments. As reported in Control Risks Group’s Risk Map 2007, a survey of 198 countries released last November, 96 of 198 surveyed countries (48%) posed medium-to-extreme political risks for businesses and 78 countries (40%) were ranked as being medium, high or extreme for security risks.

The purpose of this article is to discuss five business essentials that companies should master to work effectively in high-risk environments and must master if they want to engender stability and provide credible crisis prevention leadership in HREs.

Reality check

As a rule, companies crave consistency and predictability – exactly the opposite of what HREs deliver. Thus, any company considering operating, or continuing to operate, in these markets should begin the decision-making process by analysing their understanding of the following fundamentals:

• Flexibility. Perhaps an overused term, flexibility in HREs is essential. It is generally understood that the world is diverse and that the company and brand will not communicate the same message to those living in Brussels as it will to those living in Bhutan. More importantly, multinational corporations and other cross-border companies tend to resemble large ocean liners, which take considerable amounts of time and energy to make any significant change in course. In HREs, companies must operate much more like speedboats, with the ability to react, change pace and manoeuvre at a moment’s notice.

• Risk tolerance. Everything is different when you enter a new market – be it down the street or across the globe. Adding the instability and volatility of HREs to the mix has the potential to give even the most seasoned managers ulcers. Many of these stresses can be minimised through careful planning, preparation and in-depth understanding of the issues that might be addressed by the company. More importantly, the company must state, and managers understand explicitly, that HREs are risky investments and that there is a high likelihood of failure.

• Breaking point. HREs present unique challenges ranging from a lack of basic services to corrupt public officials to employee kidnapping and murder. A company should explicitly state a clear set of ‘breaking point’ criteria that will not be crossed and, moreover, that the company will walk away from the investment if events related to these criteria emerge.

Understanding the reality of operating in an HRE is a good first step for any company. Having made the choice to continue, companies would do well to master and understand five essential skills: creating policies with meaning, conflict resolution, cross-cultural understanding, sourcing as much as possible to local businesses and partnering with non-governmental organisations.

Policy maintenance

The need for explicit, published company policies is not new. These instruments provide a foundation for the acceptable parameters within which a company will operate and, more importantly, behaviours, circumstances and conditions that the company will not tolerate. The breadth and depth of policies for companies operating in HREs should be especially scrutinised to include and/or consider human rights, the environment, corruption and transparency issues, local hiring practices, community involvement, political influence and security.

A company’s policies must make sense in, and consider consequences relevant to, the local context. For example, consider a policy to hire the ‘most qualified’ local workers. On the surface, this sounds like a good policy that will allow for equal and fair hiring practices. However, in many circumstances it may contribute to conflict because the most qualified individuals will probably come almost exclusively from an elite class of the society, having been afforded access to education and other resources. In this situation, this policy would constitute a slap in the face to others in the population, would contribute to a widening gap between rich and poor, and would increase the potential for violence and unrest.

Conflict resolution

People who are accustomed to dealing with a turbulent everyday life do not even register when they have become party to a conflict at work or at home. HREs, by their nature, involve conflict on a regular, if not daily, basis. Unfortunately, even everyday conflicts (such as worker disagreements and intra-departmental wrangling) in these environments tend to carry greater significance with those involved.

Because interpersonal and inter-group conflict is experienced everyday by every worker, conflict analysis and resolution skills should be essential tools taught and mastered by workers in HREs. This skill building should not be limited to managers or executives; they are more likely to be predisposed to creative conflict prevention and resolution possibilities. Emphasis should be placed on training line workers, entry-level employees and those that have the most interaction with the public, such as security guards. Investment in these skills will percolate from the individual to the company.

A robust conflict resolution skill set involves much more than what most people have taken away from popular works such as Ury and Fisher’s Getting to Yes. Individuals should be well versed in techniques such as mediation and problem solving, should be well grounded in creating dialogue and, possibly most importantly, should have the ability to analyse critically and diagnose the reasons why conflict is happening. The company should also implement regular role playing, scenario planning and public dialogue about issues concerning itself and the local community.

Crossing cultures

Although the necessity for cross-cultural training for expatriate and overseas workers has been well documented and discussed, many expat and overseas workers receive no guidance in this area. Worse, many companies commonly provide a one or two-day brief on cross-cultural issues that ‘check the box’ but rarely offer the support and guidance needed to deal with issues related to culture shock. In HREs, considering cultural issues goes far beyond the comical foibles of business cards and unique greetings.

Beyond the issues related to personal cultural interactions is that of company culture – an under-explored variable, especially in the context of translating corporate norms in a foreign environment. For example, marketing and sales teams that are accustomed to cutting deals with local business owners will be frustrated in predominantly tribal cultures, where tradition holds that deals are only made with the blessing of the head of the tribe – in the company’s case, the general or country manager.

Corporate culture can cause serious problems in HREs, and company reactions to a range of issues should be explored through extensive scenario planning. Two examples are:

• Top-down cultures regularly hamstring local managers by inhibiting or delaying their ability to make decisions. In HREs, where crisis events unfold in rapid and unpredictable fashion, this could mean the difference between gaining community support and creating a local adversary for life. How can top-down cultures ensure that local managers are able to make just-in-time decisions?

• Horizontal cultures provide flexibility for managers but also tend to dilute or distort company policy implementation across an organisation. This has the danger of, for example, having a human rights policy implemented differently in different locations. How can a horizontal company ensure that policies remain consistent across distant locations?

Local sourcing

Individuals (including employees) throughout the world generally hold for-profit companies in low esteem. This sentiment especially applies to larger multinational corporations and foreign corporations, and is significantly magnified in HREs. One of the highest-return (and usually lowest-cost) actions that a company can take to thwart these issues, and gain credibility, is by sourcing as much as possible to local businesses and partnering with non-governmental organisations (NGO).

Like cross-cultural training, NGO partnerships have been discussed and well documented and companies are generally aware of local sourcing options. Unfortunately, while local sourcing and NGO partnerships seem like a slam-dunk issue on paper, these opportunities are regularly bypassed on the ground for any number of reasons – including the bias of expat managers. As with conflict resolution training, taking the time to investigate (and usually build the capacity of) options in the local community is an investment that provides sizeable returns.

Talent is everything

Tom Peters, author of a series of successful business books, regularly raves that “talent is everything”. That is all the more true in HREs. However, company policies regarding local and expat talent often differ dramatically and these differences are exacerbated by HREs. Beyond pay differences, expat packages that include houses, cars, security, travel and other lifestyle benefits are noted by local community members. Although these packages are a common practice in expat communities, what scenario would unfold if an Ugandan family arrived in Houston, purchased the largest house in the city, erected walls around it and only moved throughout the city in armed, four-car convoys?

Beyond lifestyle choices, treatment of workers should be a priority for foreign companies as they represent the foundation of local knowledge and know-how. However, companies have performed extremely poorly in the most volatile situations, such as those in Iraq and Afghanistan, where the replacement of local workers who are killed on the job can take place in as little as 24 hours without any compensation for family members.

Less dramatically, in less volatile high-risk environments, companies tend to establish self-perpetuating cycles of expat dependency. Rather than defining clear, time-sensitive goals for complete ‘localisation’ of an overseas operation – which would involve the training and promotion of locals to all levels of management – companies preserve key management roles for expat workers explicitly, or worse, through default.

Failed states

High-risk environments exist in the world for a number of reasons. However, bubbling to the top of this list is the problem of failed or weak states. Characterised by corruption, violence, poverty and general civil unrest, the challenges of working in a failed state are many and complex, and warrant careful consideration. Many questions need to be answered, such as:

• How does the company maintain principles and ethics in regions of the world where those two words mean so little?

• A new company will probably embody one of the largest economies in the area – sometimes the largest. How will this affect the company’s relationships with the government, community and local talent?

• How will the company address the problems of violence: through private security or some other mechanism?

• What is the company’s definition of ‘local community’?

Opening or maintaining operations in high-risk environments presents challenges as complex as the most intricate microprocessor research and warrants the same types of study and consideration. Ultimately, the best way to operate successfully is to ensure the company engenders a culture of prevention to be a part of solutions long before problems are identified, and flexibility so that crises do not result in the demise of the venture.

Stephen Ladek is managing principal of International Solutions Group, a professional services firm that helps companies to operate effectively in high-risk environments.