II ERM Implementation at Leading Organizations

ERM at Mars, Incorporated: ERM for Strategy and Operations

LARRY WARNER

President, Warner Risk Group

This case study outlines the development of Mars, Incorporated's Enterprise Risk Management (ERM) program, from its initial phases in early 2003 through the spring of 2012. The views expressed in this case study are those of the author, and may not be those of Mars, Incorporated (Mars). Additionally, as with any ERM program, Mars' program has continued to evolve since 2012.

Throughout this case study, I have used first names for a number of key individuals who contributed to the success of program. (Please note all names have been changed.) In speaking with other ERM practitioners, such early adopters of an ERM program typically help contribute to an ERM program's development, evolution, and success. In this case study they helped spread and embed the process in their business units and in other units as they took on new roles. Most of the major improvements in the evolution of this program resulted from working with these individuals to address the needs of their business units. By identifying these players' involvement in the early stages of the program and their subsequent roles, the case study reader should gain an understanding of the importance of and the need to cultivate relationships with these early adopters.

MARS' ERM HISTORY

In essence, Mars' ERM program began with the company's inception by Forrest Mars.[1] Historically, the leadership at Mars had a serious commitment to risk management. ERM represented one natural evolution from these practices.

In conjunction with the transition to nonfamily management in the early 2000s, the corporation established challenging growth, earnings, and cost targets. In order to achieve these objectives, the company undertook a number of key initiatives to ensure the achievement of these objectives. ERM became one of these.

In 2002, Roger, the CFO at the time, and I sat down and discussed how an ERM program might help better manage the business. We recognized that we lacked the experience to implement such a program on our own, and asked two of our existing service providers with ERM practices to make proposals as to how they might assist us in this project. As Roger put it, "We need someone to transfer knowledge to Larry."

One vendor pushed for a Committee of Sponsoring Organizations (COSO) structure. The other suggested we develop a program that leveraged Mars' unique strengths. As a large, privately held, decentralized company, we agreed that the latter better met our needs.

At this point, we decided that we wanted to develop ERM and not what one might call an "enterprise compliance management" (ECM) program. This represented a critical decision in Mars' ERM development.

To kick things off, we took a risk management survey of the 15 or so managers on Mars' global management team. We spent a couple of hours personally completing the survey with David, who was to become the president of Mars at the beginning of 2003. This was a critical move in the development of the program, as we gained an understanding of his views on risk management and how we might develop the ERM program.

Following the survey, we recognized the need to gain an even broader understanding of how the associates (Mars does not have employees) in the business viewed risk. We decided to conduct risk assessment workshops for a function (Service & Finance), geography (Canada), and product group (European Sugar). Working with our consultants, we selected a gap analysis methodology. In gap analysis, you evaluate the inherent risk (impact and likelihood) with limited controls (e.g., buying commodities at spot cost as opposed to with futures contracts) against management effectiveness.

We had the first workshop with the global finance team during our corporate meetings in the summer of 2003. The ERM team had a major win during this session. At the time, Mars was undertaking a substantial investment. During the session, the consensus of the group was that we, Mars, had undertaken a too aggressive time frame to be successful. By the next day, the corporation announced a change in the rollout of the project.

During the session, the CFOs of Europe and the United States both commented on how beneficial this workshop had been. This was critical for two reasons. First, it generated buy-in from additional senior management. Second, the CFO of Europe, Oscar, would soon be named the new CFO of Mars upon Roger's retirement.

We began calling discoveries like the one in the global finance team's workshop the "known unknowns," because many of the participants knew and/or were concerned about the issue before the meeting; however, it had never risen to such a level that it was formally brought forward to the group. We developed a scenario that explained such discoveries and how they could help the business. For example, two management team members have dinner after work. They discuss an issue that concerns them; however, for some reason this issue does not arise during team meetings, perhaps because they do not believe they have adequate expertise to challenge the group's thinking, or one team member was so passionate about the issue that everyone else deferred. Over the years, we found that these "known unknowns" frequently held the key to a business's success. In training workshop facilitators, we held identifying known unknowns as a major key to successful workshops.

In Canada, the general manager asked us to help his team evaluate their newly finalized strategy and provide an additional day of action planning based on our findings. While the workshop did not turn up any major known unknowns, the participants felt the process enabled them to evaluate properly the risks with their strategy and make enhancements that would increase the likelihood of success.

Our final assessment with European Sugar had a major win, as it delayed a major product launch. The workshop identified key doubts in the potential success of the new product and its distinct format. The product team was tasked to return to the next management team meeting to address the issues identified in the risk assessment.

The participants in all three workshops deemed them successful and provided senior management with positive feedback. The ERM team also had major learnings. First, the workshops revealed a common risk aversion among most associates. To enable the company to grow faster, senior management knew that units had to take on more risk. Based on the initial success of our risk assessments, senior management felt that ERM would be one tool to enhance growth.

The second major discovery revolved around the workshops themselves. To determine management effectiveness, we had asked participants to base their anonymous votes on limited controls (e.g., buying commodities at spot as opposed to with futures contracts). Universally, we received push-back, as the company had a control mind-set as one of its basic tenets. As such, the importance of control had become ingrained within all associates over many years.

Failure and Retrenchment

Based on the success of our three pilot workshops, we received the go-ahead to develop a full-scale ERM process. In early 2004, we put together a multifunctional, global team, supported by our consultant, to develop an ERM program. Over the next five months, we held monthly meetings to rough out a program. Three of the regional presidents acted as our advisers.

In June we presented our program, including a unit to pilot its implementation, to the Mars management team. At the end of the presentation, David, Mars' president, looked at us and stated that this looked like a major software transition, and we had done that once and were not going through that again. The rest of the management team agreed. David looked at me and said, "Larry, I know you can scare people when it comes to risk. I want you to take your team and develop a process that will generate a risk discussion mentality for the units. I want you to work with several of our larger units – China, Russia, Australia, and Europe." He asked us to begin in China in three weeks and build the process around our annual operating planning process.

I believe it is important to note here that ERM is an evolutionary process. I believe that having our first approach rejected ultimately led to our successful development of a more practical, less complex approach. Looking back, I doubt that our initial approach would have worked at Mars due to its complexity.

  • [1] For information on Mars' history, see mars.com/global/about-mars/history.aspx.
 
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