How does a company incorporate a sustainable and cohesive risk management system for an enterprise with nearly 100,000 employees, 70 manufacturing and technology research centers located in 170 countries around the world, and $21 billion in annual sales?
It’s a process of continually learning, acting, assessing and deploying, according to the director of risk management at the world’s largest appliance manufacturer — Benton Harbor, Michigan-based Whirlpool Corp.
Scot Schwarting said that during his tenure the company has completed three distinct phases in fine-tuning an ERM system for an organization as diverse as Whirlpool, and is in the beginning stages of the fourth phase.
“The first phase took about two years, and that was designing something that would actually work … within our culture,” Schwarting said. It was a process of “working with the business, having them help us figure out what was going to work and be sustainable.”
Schwarting, who recently was named to the Risk and Insurance Management Society (RIMS) Risk Management Honor Roll, has been with Whirlpool for about 10 years. After graduating from North Central College in Naperville, Ill., with a biology degree, he was hired as a workers’ compensation adjuster for Liberty Mutual. Around five years later, he moved into a risk management position with one of his Liberty Mutual clients, the global food supplier OSI Industries, located in Aurora, Ill.
At OSI he learned the craft of risk management from Dan Ljubenko. “He was a wonderful mentor,” Schwarting said. Under Ljubenko’s direction, Schwarting developed knowledge in areas such as loss prevention, finance, underwriting, hazard risk and employee benefits. And he found that in order to do his job well, he needed to educate himself on all aspects of the organization.
“I got a very neat, well-rounded experience working for a fast-growing company where I had a lot of interactions with quality control people, our internal audit, our finance, our accounting groups, the treasury department, the operations department.
“What I learned there is that I needed to be involved in the operations if I was going to be effective at risk management. Helping the operations solve problems with different techniques that I had learned … was part of that job,” he said.
Schwarting said he was told by his hiring manager at Whirlpool, Vice President Margaret McCloud, that his well-rounded approach to risk management and his experience with a variety of organizational units made him a good fit for the enterprise risk management initiative the company had in mind.
“What she meant by saying that was my experiences with OSI, in knowing that I had to go into the business to help the business solve its problems, was going to be reflected in how we manage risk. ….
“Today, one of the things that we talk about internally is our total cost of risk. I’ve reduced the total cost of risk within Whirlpool in the last 10 years by 52 percent and, in addition to that, reduced balance sheet results by $30 million,” he said.
Beyond Insurance Costs
Despite the soft insurance market, that cost savings has not come from just lower insurance costs. It’s a result of cost benefits analyses, retention studies and projects initiated to ascertain the right level of risk and protections for the company.
“We’ve worked over 252 projects within my department with different operational groups and people. People who produce the products, the logistics groups, the health and safety groups, the human resources groups,” Schwarting said.
After the first two years of the initial ERM development phase, “we really started to deploy the tools in the next phase once we learned what was going to help the business with this type of concept, and how you balance the risk-reward trade off. Today, tools that we started in the first phase are deployed all across the organization.’
There is now a Whirlpool University course on risk management. “It’s built into our global product organization. The deployment phase is really good. Design, deploy, and then we get to the next phase, which is what I would call the embedment phase,” he said.
At Whirlpool, Schwarting has worked with the Six Sigma concept of plan, do, study, act, and has used a data-driven approach to improve the overall effectiveness of the organization. A Six Sigma Black Belt himself, he said the process is one of non-stop education and refinement.
“I didn’t pick something up, put it into the business and make everybody try and do it. We’ve learned that each step and each year, we take a look at what’s worked, what hasn’t, and make sure that it’s understandable across all … parts of the business,” he said.
The risk management unit has partnered with internal audit, finance and compliance groups within Whirlpool to achieve shared risk management goals. The unit surveyed nearly 500 company executives across the globe in the effort “to get at what the business sees as the risk to the organization, both at a regional level and at a global level.”
In the fourth and current phase of ERM development, Schwarting and his team are looking at emerging risks, “those risks that we haven’t faced that might have been faced by either some other business or some other industry, and planning for if they happened to us, do we have the right tools? What will we need to create the business resiliency that we need, and how would we react?”
Most likely, “the next big thing to come along that will be a risk is something I don’t think anybody is going to anticipate. That’s what we’re trying to create now, is that business resiliency,” he added.
Schwarting finds the diversity of challenges presented in the course of managing risk for a large company intriguing. Every day is a new learning experience, he said.
“There has never been a single day that’s typical when you have 100,000 people in 170 countries, and manufacture and produce 44 million products around the globe. It’s just not normal,” Schwarting said.
Ultimately, in risk management, “all you have to do is look across the hall. If there’s something that needs to be done that’s going to help the business, you get to go there. You get to try and see if you can help the business either fix the problem, solve a problem or create an opportunity,” he said.
In his view, there aren’t many careers that offer the opportunity for the variety of challenges, exposures and learning experiences as risk management. The career growth is exponential, and whatever a person’s interest may be, there’s a place in risk management for them.
“My advice to anybody who’s considering [a career in risk management] is to understand that your role isn’t just to buy insurance. … It’s about learning the business and using the tools of risk management insurance to protect the business. Then go one step further and … help the business solve the problems,” Schwarting said.