When Luxury Meets Reality: How LVMH’s Labor Crisis Exposes Modern Business Vulnerabilities

The luxury fashion industry has always been built on exclusivity, craftsmanship, and premium positioning. But beneath the glossy surface of €3,000 handbags and €5,000 cashmere jackets lies a reality that’s forcing executives across industries to reconsider fundamental questions about business practices, reputation management, and operational risk.

LVMH’s ongoing labor exploitation crisis in Italy offers a masterclass in how seemingly distant supply chain decisions can rapidly escalate into existential business threats. With two subsidiaries—Dior and Loro Piana—placed under court administration within 13 months, the world’s largest luxury conglomerate has seen its market value decline 22% while ceding its position as the most valuable luxury company to Hermès.

The story isn’t just about fashion. It’s about how modern business practices, regulatory evolution, and stakeholder expectations are colliding to create new categories of enterprise risk that traditional management approaches struggle to address.

The Anatomy of Modern Business Vulnerability

What makes LVMH’s crisis particularly instructive is how it reveals the hidden risks embedded in common business practices. The company’s Italian operations relied on a multi-layered outsourcing model that many industries would recognize: primary contractors who subcontract to specialized facilities, creating cost advantages through competitive bidding and operational flexibility.

On paper, this approach delivered exactly what executives wanted: handbags produced for €53 that could retail for €2,600, generating profit margins exceeding 4,800%. The outsourcing structure provided legal distance from manufacturing operations while maintaining cost efficiency that enabled luxury pricing strategies.

But this same structure created what risk management experts now call “systemic opacity”—organizational blind spots that amplified rather than mitigated operational risks. When Milan prosecutors investigated, they found workers sleeping in factories for “24-hour availability,” safety equipment removed to increase productivity, and wages as low as €2-3 per hour in facilities producing premium luxury goods.

The revelations forced uncomfortable questions: How much operational control can companies surrender while maintaining accountability for outcomes? And more fundamentally: What constitutes acceptable distance between brand values and production realities?

Reputation in the Age of Transparency

LVMH’s experience illustrates how reputational risk has evolved from episodic crisis management to continuous stakeholder relationship management. The luxury sector has historically operated on brand mystique—the less consumers knew about production realities, the more they could project aspirational values onto premium products.

That dynamic is fundamentally changing. Social media amplification, investigative journalism, and regulatory transparency requirements have created what scholars call “radical accountability”—environments where operational decisions across global supply chains can rapidly become public brand liabilities.

The financial impact has been immediate and measurable. LVMH’s first-half 2025 results showed net profit declining 22% and Fashion & Leather Goods sales falling 9%, with management specifically citing “labor scandals” as a key performance factor alongside economic headwinds.

But beyond immediate financial metrics, the crisis has damaged something more valuable: the aspirational premium that justifies luxury pricing. Consumer forums reveal deep disillusionment with the disconnect between premium pricing and production realities. When Loro Piana customers discover their €5,000 jackets were produced under exploitative conditions for €118, the entire value proposition becomes questionable.

The lesson extends well beyond luxury goods: In interconnected markets, operational practices anywhere in your value chain can rapidly become brand positioning everywhere in your market.

Risk Management’s Evolution

Traditional enterprise risk management focused on direct operational risks—supply disruptions, quality failures, regulatory compliance within your immediate operations. LVMH’s crisis demonstrates how this approach has become inadequate for modern business complexity.

The company conducted 4,066 audits on 3,690 suppliers in 2024, implementing extensive monitoring systems and compliance programs. Yet systematic labor exploitation continued across multiple subsidiaries, suggesting that conventional audit-based risk management may be structurally insufficient for complex global operations.

The problem isn’t execution—it’s conceptual. When you design business models around cost optimization through operational distance, traditional risk management becomes reactive rather than preventive. You’re essentially auditing your way around fundamental structural vulnerabilities rather than addressing root causes.

Modern risk management requires rethinking the relationship between business model design and stakeholder accountability. Companies can no longer treat supply chain partners as arm’s-length vendors whose practices don’t reflect corporate values. Every outsourcing decision is now a brand positioning decision.

The Change Imperative

LVMH’s response reveals both the scope of required change and the difficulties in implementing it. The company has committed to accelerated vertical integration across multiple brands, enhanced supplier monitoring systems, and new compliance frameworks. But these changes require fundamental operational restructuring that will pressure profit margins while regulatory penalties await companies that delay reform.

The broader challenge is that incremental improvements to existing models may be insufficient. The EU’s Corporate Sustainability Due Diligence Directive, taking effect 2027-2029, requires companies to implement mandatory human rights due diligence across supply chains, with penalties reaching 5% of global revenue for serious breaches.

This represents a fundamental shift from voluntary corporate social responsibility to legally mandated operational accountability. Companies across industries need to evaluate whether their current business models can survive in regulatory environments where supply chain practices carry direct legal and financial liability.

Strategic Implications for Modern Business

LVMH’s crisis offers three critical lessons for executives across industries:

First, competitive advantages built on operational opacity are increasingly unsustainable. Cost advantages achieved through complex outsourcing may create short-term profit margins but long-term reputational and regulatory vulnerabilities that ultimately destroy shareholder value.

Second, stakeholder expectations have fundamentally shifted. Consumers, investors, and regulators increasingly expect alignment between corporate values and operational practices across entire value chains. The days of brand positioning divorced from production realities are ending.

Third, early action on operational ethics creates competitive advantages. While LVMH faces regulatory scrutiny and market share losses, competitors who proactively address supply chain transparency and worker treatment can gain market position and regulatory credibility.

Executive Action Plan: From Crisis to Competitive Advantage

LVMH’s crisis provides a roadmap for proactive leadership. Here’s your 90-day-to-3-year action framework:

Phase 1: Immediate Assessment (0-90 Days)

Supply Chain Reality Check

  • Map complete supplier network—every layer, every subcontractor
  • Calculate operational distance: How many degrees of separation between your brand and actual workers?
  • Identify blind spots: What percentage of your supply chain can you monitor in real-time?
  • Document cost structures: Where do your biggest margins come from and why?

Regulatory Risk Assessment

  • Review incoming regulations: EU due diligence laws, state transparency requirements
  • Calculate financial exposure: Penalties as percentage of revenue, not just dollar amounts
  • Identify liability gaps: Which current practices could become illegal under new frameworks?
  • Benchmark competitor vulnerabilities: Who else is exposed and how are they responding?

Brand Position Stress Test

  • Compare public values with documented supplier practices
  • Run transparency scenarios: How would customers react to full operational disclosure?
  • Quantify reputation risk: Current brand premium versus potential reputational damage
  • Test stakeholder reactions: Survey key customers, investors, employees on operational priorities

Phase 2: Strategic Restructuring (3-12 Months)

Redesign Supplier Architecture

  • Shift from cost-only to values-aligned supplier selection
  • Replace audit-based monitoring with direct operational oversight
  • Launch supplier development programs focused on practice improvement
  • Establish supplier scorecard including labor, environmental, and governance metrics

Integrate ESG into Business Operations

  • Link supply chain accountability to executive compensation
  • Create cross-functional teams: procurement + legal + brand + risk management
  • Build early warning systems for regulatory and reputational threats
  • Establish monthly executive reviews of operational vs. brand alignment

Build Proactive Communication Systems

  • Develop transparency-first communication strategies
  • Create regular stakeholder reporting on operational improvements
  • Establish crisis protocols emphasizing accountability over deflection
  • Train leadership team on integrated stakeholder management

Phase 3: Long-Term Competitive Positioning (1-3 Years)

Business Model Evolution

  • Evaluate outsourcing sustainability under emerging regulatory frameworks
  • Consider strategic vertical integration where brand reputation requires operational control
  • Design competitive strategies using transparency as market differentiator
  • Restructure profit models to account for true cost of responsible operations

Industry Leadership Development

  • Position company as operational practice standard-setter
  • Use accountability as premium positioning tool
  • Build regulatory partnerships as solution provider rather than enforcement target
  • Create industry coalitions around best practices

Measurement and Continuous Improvement

  • Establish new KPIs: supplier practice metrics alongside traditional cost/quality measures
  • Monitor regulatory landscape changes and compliance costs across all markets
  • Track brand sentiment specifically related to operational transparency
  • Implement board-level oversight of supply chain and stakeholder risks

The New Business Reality

The luxury industry’s labor exploitation crisis isn’t really about luxury—it’s about how global business practices are adapting to new stakeholder expectations, regulatory requirements, and transparency demands. Companies across industries outsource operations, optimize costs through complex supplier relationships, and maintain brand positions that may not fully reflect operational realities.

The question isn’t whether your industry will face similar scrutiny—it’s whether you’ll be prepared when it arrives. The executives who act proactively on these action steps will create sustainable competitive advantages, while those who wait for regulatory pressure may find themselves managing crisis rather than leading change.

LVMH’s experience suggests that companies who delay addressing these vulnerabilities risk facing regulatory intervention, market share losses, and fundamental business model disruption. But organizations that implement systematic operational alignment with stakeholder values across their entire value chains can turn transparency and accountability from threats into strategic assets.

The luxury industry’s reckoning may be just the beginning. The real question is: What will your leadership response look like?

This analysis draws from extensive reporting on LVMH’s Italian labor crisis, including court documents, regulatory filings, and industry analysis from Business of Fashion, CNN, Fortune, and other sources documenting the systematic nature of luxury supply chain vulnerabilities and regulatory responses.

From Bat Bites to Brand Gold: What Ozzy Osbourne Teaches Marketers About Brand Risk and Crisis Management

Those who know me know my career #1 was in brand marketing, where I worked for the now defuct FUNimation Entertainment. That early career planted the seeds for my knowledge about how people risk impacts an organizations greatest public asset, its brand and reputation. Those who know me a little bit better also know I’m a passionate metal head. When I’m not educating CEOs, you can find me at a rock concert or festival. So, of course, the death of Ozzy The Prince of Darkness hit me hard yesterday.

One of the reasons I admire Ozzy so much is he spent his time on this earth proving that authentic brand management can transform any scandal into competitive advantage. While most brands panic at the first sign of controversy, Ozzy Osbourne built a legendary career by embracing chaos, owning mistakes, and turning crises into cultural currency. His journey from Black Sabbath’s fired frontman to beloved family patriarch offers modern marketers a masterclass in authentic crisis navigation that’s more relevant than ever in our polarized, social media-driven world.

Behind every legendary Ozzy moment was Sharon Osbourne’s strategic genius—a woman who understood that crisis could become currency if handled with authenticity, patience, and long-term vision. Their approach influenced not just music industry practices but broader celebrity brand management, proving that genuine responses consistently outperform manufactured messaging. From the infamous bat-biting incident to reality TV transformation, the Osbourne crisis management model offers actionable insights for any brand willing to prioritize authenticity over perfection.

The accidental genius of turning scandals into brand stories

March 27, 1981—CBS Records boardroom, Los Angeles. Ozzy Osbourne, heavily intoxicated on brandy, grew bored during a sales convention meeting promoting his debut solo album. In front of shocked executives, he bit the heads off two white doves and spit them onto the conference table. CBS immediately threw him out, declaring he’d “never work for them again.”

Most artists would have panicked. Sharon Osbourne saw opportunity.

“Sharon knew immediately that she had an opportunity here,” bassist Rudy Sarzo witnessed firsthand. “She contacted our publicist and she spun it. She spun the ‘myth’ that it is today. I saw it happen, right in front of my eyes: her getting on the phone and saying, ‘Hey, listen, this happened. Let’s make a story out of this.'”

The result? Album sales surged immediately. The dove incident didn’t damage Ozzy’s career—it launched his solo success and established his “Prince of Darkness” persona. Sharon had discovered something most brands still struggle to understand: authentic controversy, properly managed, creates deeper connection than safe messaging ever could.

So perhaps the interim Astronomer CEO was right, terrible how it came about – but Astronomer is now a household name IF they identify the Critical Opportunity.

Patterns = Brand Pillars

This pattern would repeat throughout Ozzy’s career, most famously with the January 20, 1982 bat-biting incident in Des Moines, Iowa. When 17-year-old fan Mark Neal threw a dead bat onto the stage, Ozzy mistook it for a rubber prop and bit its head off, requiring three weeks of nightly rabies shots. Rather than attempting damage control, Sharon again transformed potential disaster into legendary brand mythology. Today, bat imagery generates millions in merchandise revenue and remains Ozzy’s most recognizable symbol.

Modern Brand Risk Lesson: Your brand’s most memorable moments often emerge from unplanned authenticity, not carefully crafted campaigns. The key is having systems in place to recognize opportunity within crisis and respond strategically rather than defensively.

Strategic authenticity beats manufactured perfection every time

1982 was the first year I became aware of Ozzy as an artist. Why? He peed on a monument in my hometown of San Antonio, Texas. The February 19, 1982 Alamo incident perfectly demonstrates how authentic long-term reputation building outperforms immediate damage control. While wearing Sharon’s green dress during a drinking binge, Ozzy urinated on the Alamo Cenotaph—the 60-foot memorial honoring fallen defenders. He was arrested for public intoxication and banned from all San Antonio city-owned facilities for 10 years.

Sharon’s strategy was revolutionary for its patience. Instead of immediate defensive messaging, she allowed the initial scandal to develop naturally. Then, she orchestrated a systematic redemption campaign: a formal 1992 public apology to Mayor Nelson Wolff, a $10,000 donation to the Daughters of the Republic of Texas, and ultimately a 2015 return with son Jack for a History Channel documentary demonstrating genuine education about the site’s significance.

The results speak to the power of authentic redemption. By 2025, even the Alamo acknowledged “Ozzy Osbourne’s journey from regret to reconciliation.” What could have been career-ending controversy became a masterclass in genuine accountability and transformation.

This approach proved crucial again during Ozzy’s darkest moment—the September 2, 1989 incident when, during a drug and alcohol blackout, he attempted to strangle Sharon. Rather than whitewashing the event, both parties acknowledged its severity while contextualizing it within addiction narrative. Sharon dropped charges after Ozzy completed court-mandated six-month rehabilitation, demonstrating that strength comes from requiring change, not hiding problems.

Modern Brand Risk Lesson: Authentic redemption requires time, consistent action, and genuine transformation. Brands that acknowledge mistakes honestly and demonstrate real change through sustained effort build deeper trust than those that never face controversy at all.

Building community that defends your brand during crises

The “Suicide Solution” lawsuits of the mid-1980s revealed how passionate community can shield brands during unfair attacks. When multiple families sued Ozzy claiming his song caused teenage suicides through subliminal messages, he faced potential career destruction. Parents argued the lyrics contained “hidden” commands encouraging self-harm.

Sharon’s coordinated response demonstrated masterful stakeholder management. She balanced legal strategy with public empathy, never appearing callous to grieving families while consistently explaining the song’s actual anti-suicide meaning: “solution as in liquid, not a way out. The song’s about the dangers of alcoholism.” Ozzy’s shocked arrival at LAX to face 200 cameras was carefully choreographed to show genuine concern rather than defensive arrogance.

More importantly, Ozzy’s passionate fanbase rallied to defend him. They understood his authentic character and artistic intent, creating organic brand advocacy that no PR campaign could manufacture. All lawsuits were ultimately dismissed under First Amendment protection, but the crisis revealed something valuable: authentic brands that build genuine community can weather attacks that would destroy manufactured personas.

This principle proved prophetic during Ozzy’s reality TV transformation. When “The Osbournes” premiered March 5, 2002, it broke MTV ratings records with 8 million viewers by showing strategic vulnerability without sacrificing mystique. Former MTV CEO Van Toffler explained: “Ozzy had an allegedly sinister style… People were scared shitless of him… But he’s like a lovable teddy bear.”

Modern Brand Risk Lesson: Build genuine relationships before you need them. Brands with passionate communities can survive controversies that would destroy those with purely transactional customer relationships. Authenticity creates advocates; perfection creates indifference.

From damage control to brand enhancement through consistent identity

Sharon Osbourne’s crisis management philosophy revolutionized how brands can approach controversy. Her core principle: “Turn crisis into currency” by asking “What can this become?” rather than “What damage needs control?” This mindset shift enabled consistently successful outcomes across decades of potential brand disasters.

Sounds an awful lot like my Critical Opportunity method!

Her tactical methods reveal actionable strategies for those interested in mitigating and capitalizing off of brand risk:

Strategic patience over panic response: Sharon understood when to act immediately versus when to let stories develop naturally. The bat incident required immediate media choreography, while the Alamo situation benefited from long-term redemption planning.

Authentic narrative construction: Never completely manufactured responses, but found genuine angles within crises. The reality TV show worked because it revealed authentic family dynamics, not scripted scenarios.

Integration over elimination: Made crises part of ongoing brand mythology rather than trying to erase them. Today, controversial incidents are celebrated as essential Ozzy legend elements.

Controlled vulnerability: Strategic exposure of weakness builds sympathy and relatability without sacrificing core brand strength. Showing Ozzy struggling with TV remotes enhanced rather than diminished his rock credibility.

These principles enabled successful brand evolution through distinct phases: dangerous outsider (1970s-1982), controlled chaos with consequences (1982-1990), reformed bad boy with authentic struggle (1990s-2000s), lovable patriarch maintaining edge (2002-2005), and elder statesman with legendary status (2005-2025).

Modern Marketing Lesson: Consistent brand identity enables evolution without losing authenticity. Brands that maintain core values while adapting to new contexts can transform crises into opportunities for deeper audience connection.

Actionable crisis management strategies for modern marketers

Ozzy’s career offers specific frameworks modern brands can implement immediately:

Build your crisis management dream team before you need it. Sharon assembled consistent partners—same record label, agents, and crew for decades—who understood Ozzy’s brand identity deeply. Modern brands need core teams including brand managers, legal counsel, communications leads, and social media specialists with clear decision-making authority.

Develop authentic response templates, not scripted damage control. Create messaging frameworks that acknowledge problems honestly, take appropriate responsibility, and reaffirm core values through actions, not just words. The key is authentic dialogue rather than defensive corporate speak.

Apply the “75/25 Rule” during polarizing moments. Accept that 25% of audiences may never align with your brand values. Focus on the 75% who share your core principles, making bold decisions that strengthen bonds with aligned audiences rather than trying to please everyone—a lesson Nike proved with their Colin Kaepernick campaign.

Implement rapid response protocols with patience for long-term outcomes. Respond to social media crises within 4-6 hours, but plan reputation recovery in years, not weeks. Sharon’s Alamo redemption took a decade but created permanent brand goodwill.

Transform your biggest failures into brand differentiators. Instead of hiding mistakes, integrate lessons learned into brand storytelling. Authentic vulnerability creates deeper connections than manufactured perfection ever could.

Invest in community building as crisis insurance. Passionate brand advocates provide organic defense during controversies. Build genuine relationships through consistent value delivery, not just promotional messaging.

Conclusion: authenticity as competitive advantage

Ozzy Osbourne’s 50-year career proves that authentic brands can survive anything by turning crisis into connection. Sharon’s strategic management transformed potential career-ending incidents into brand-defining moments, creating cultural currency that manufactured campaigns never achieve. Their model influenced not just music industry practices but broader celebrity brand management, demonstrating that strategic authenticity consistently outperforms safe messaging.

The Prince of Darkness taught us that controversy, properly managed, doesn’t destroy brands—it reveals their true character. In our polarized digital age, where every brand faces potential crisis, the Osbourne playbook offers hope: genuine brands that own their mistakes, demonstrate real growth, and maintain consistent values can transform any scandal into competitive advantage.

Modern marketers face a choice: build brands strong enough to weather any storm through authenticity, or remain vulnerable to destruction at the first sign of controversy. Ozzy’s legacy suggests the path forward is clear—embrace your authentic identity, prepare for crises strategically, and remember that the most memorable brands are built not on perfection, but on genuine human connection forged through both triumph and adversity.

Ready to Transform Your Brand Risk Strategy?

Download our comprehensive Strategic Intelligence Report and discover advanced crisis management frameworks that leading brands use to turn controversy into competitive advantage. This exclusive 47-page analysis includes:

  • Crisis Response Playbooks from 25+ successful brand transformations
  • Social Media Storm Navigation protocols with real-time decision trees
  • Stakeholder Communication Templates that preserve authenticity under pressure
  • Brand Recovery Metrics that measure reputation rebuilding effectiveness

After you download the report, you will receive an invitation to our exclusive 5 Day Critical Opportunity Challenge where you’ll work directly with People Risk Consulting’s crisis management experts to stress-test your brand’s vulnerability and build bulletproof response systems.

Limited to 20 participants per week.

Download our Strategic Intelligence Report

Transform your next crisis from potential disaster into brand-defining opportunity.

How Silence Culture Can Put Your Company at Risk

In many cultures, silence is a sign of hierarchy or respect. Sometimes, silence provides space so others can be heard. But there’s another side of silence people don’t talk about—silence culture. Silence culture and its effects create quantifiable risk and revenue loss for organizations. However, the upside of enabling, and preparing, for the use of employee and customer voice can be significant.

What is silence culture?

Silence culture is an environment where speaking up is neither encouraged nor rewarded. Within silence culture, speaking up carries a great deal of perceived or real consequences for employees. So, questions are not asked and risks are not pointed out. You may have heard silence culture referred to as “not making waves.”

What problems are caused by silence culture?

The problems caused by lack of disclosure can be significant. Our founder, Diane Dye, created the ID Framework for Non-Disclosure Risk, which is proprietary to People Risk Consulting, to explain the four types of disclosure silence culture discourages. This teaching framework has four components.

  • Incident Disclosure
  • Instructional Needs Disclosure
  • Idea Disclosure
  • Identity Disclosure

Incident Disclosure

Definition: The likelihood an individual would disclose the occurrence of an incident.

Problem: 50% of workplace injuries go unreported. Direct costs include workers’ compensation payments, medical expenses, and costs for legal services (OSHA, 2024). Delayed reporting and care for workplace injury can result in fines in some states or worsening of the condition including damage to tools, equipment, and other property (WCF Insurance, nd). It can also result in time lost for replacing damaged equipment, spoiled work, and loss of production.

What You Might See: Physical safety risks, legal risks, cover up of costly mistakes, waterfall effect of a series of small incidents leading to larger, and more costly, failures.

Who Cares: This is often the biggest focus organizations have when it comes to the use of employee or customer voice in the workplace. Safety managers, risk managers, occupational health and safety care about this.

Instructional Needs Disclosure

Definition: The likelihood an individual would disclose their need for instruction.

Problem: Poor employee training and lack of identification of gaps in understanding can lead to low productivity, inefficiency, poor customer service, high turnover, and low-quality outputs of services and products (The Training Associates, 2022)

What You Might See: Decreased customer satisfaction, increased customer churn, employee turnover, workplace injury

Who Cares: Learning and Development functions focus on closing gaps in instructional needs, although some current performance management processes and levels of psychological safety within business units do not support individual disclosure of instructional needs until a costly mistake is made and a reactive response is necessary. Operations executives also care if people, process, and systems align.

Idea Disclosure

Definition: The likelihood an individual would disclose an idea or the disagreement with an idea.

Problem: According to a Gallup survey, disengaged employees cost U.S. companies between $450 billion to $550 billion annually in lost productivity and is an $8.8 trillion global problem. Sustained lack of innovation can lead to high employee turnover, increased recruitment costs, and a negative impact on bottom-line results. Disengaged employees are less likely to go the extra mile for customers, leading to subpar customer experiences. 

What You Might See: Lack of data on voice of the employee (VOE) or voice of the customer (VOC), stunted innovation, employee turnover, employees leaving to take their ideas to the competition, loss of competitive advantage, failure to speak up about detrimental ideas or plans that could create incidents

Who Cares: CEO, Chief Customer Officer, human resources executives, Chief Revenue Officer, risk management, change management

Identity Disclosure

Definition: The likelihood an individual would disclose or defend their identity.

Problem: Identity problems in the workplace can include identity conflicts, social identity (belonging or lack thereof), and identity crisis. It can involve a lack of clarity about personal role or organizational culture alignment including one’s values, skills, interests, or sense of self. People problems spurring from identity are costly to organizations.

What You Might See: Employee withdrawal, disengagement, behavioral concerns, employee retention problems, increased complaints and investigation

Who Cares: Human Resources leaders, DE&I executives, risk managers interested in harassment, and other human issues

If you would like to understand the ID Framework for Non-Disclosure Risk and how PRC can help you apply it to your organization, connect with us on a quick inquiry call. Workshops, leadership training, and assessment services are available.

People Risk Consulting (PRC) is a human capital risk management and change management consulting firm located in San Antonio, Texas. PRC helps leaders in service-focused industries mitigate people risk by conducting third-party people-centric risk analysis and employee needs assessments. PRC analyzes and uses this data alongside best practice to make strategic recommendations to address organizational problems related to change and employee risk. The firm works alongside leaders to develop risk plans, change plans, and strategic plans to drive the human element of continuous improvement. PRC provides technical assistance, education, training, and trusted partner resources to aid with execution. PRC is a strategic partner of TriNet, Marsh McClennan Agency, Cloud Tech Gurus, Predictive Index, and Motivosity.

Q&A with Diane Dye by Darren Prine, Chief Revenue Officer, Cloud Tech Gurus

In this interview, Darren Prine, Chief Revenue Officer of Cloud Tech Gurus discusses the relaunch of WWC into People Risk Consulting and the importance of adoption risk mitigation up front in the requirements collection process of software or solution selection.

Darren: Can I tell you something? I’m just picking up a great energy vibe from your company rebranding. I see a lot of excitement and positivity in what you’re doing at People Risk Consulting. 

Diane: I just feel good and there is, so thank you for that feedback. I started What Works Consultants (WWC) in 2016. It’s been great being this trusted advisor to the C-level, helping them with board communications. But I had this nagging feeling the business wasn’t capturing my “why” as a CEO, you know? And, you know, Simon Sinek says start with why, right?

Darren: Someone else brought up his “Find Your Why” book to me on a call yesterday, and now I’m going to have to read it.

Diane: Oh, yeah, you have to. It’s the purpose-driven energy. That’s what you are experiencing is coming from. And as I proceed in my doctoral studies, which I’ll finish this year, I have just uncovered this passion for use of voice and disclosure.

And what happens, especially linking the purpose of our two companies, is you have solution adoption risk. You have a big adoption risk any time you make technological changes. Adoption risk begins with not doing the proper research on the front-end to determine where the current solution was lacking and how that aligns with what you want to achieve.

You don’t want to get excited about adopting something new and, because you missed the end-user or the CX element, recreate the problem with a different solution. That’s frustrating.

So, it’s a different approach to requirements collection. You want to look at both the power users within the organization and the customer-facing reception and how it impacts the customer experience.

When evaluating, ask yourself…

  1. What impacts has the current solution had? Positive and negative?
  2. What pain does the current solution create that you are looking to solve for? If there is no current solution, what are the reasons for seeking a technological solution to a problem?
  3. How has the people element of change been considered?
  4. What advocates and resistors exist within the organization?
  5. How does this transfer into your ability to drive full solution adoption?

You have to ask these questions because, otherwise, people will stay pretty tight-lipped internally if you don’t ask. This lack of inquiry creates a data vacuum that can add risk to a change effort.

I mean how many times have you heard, “we’re just going to stick with the status quo because we don’t want to open that can of worms. It’ll be fine.” It results in a kind of ostrich syndrome. Then, they get surprised when ignorance is anything but bliss from a risk perspective.

Darren: This is a good time to have this discussion. I recently had some issues with Airlines. I had a flight from Costa Rica, coming home from a trip there, and last minute they canceled the flight. There was really no information. I was in a giant line of people at the airport trying to figure out what to do. I then spent six hours in the chat queue, trying to get an agent. During that six hours, I went ahead and just booked another flight with Southwest instead of American to get home. After six hours, finally, they got on the chat. And I told them what was going on and how poorly they handled it. And at least they got them to refund me on the flight. But that’s an awful customer experience. But the part of that which is really sad is that there are so many technologies and solutions available that could have kept my experience from happening. 

Diane: And I can also understand and empathize somewhat. It’s not easy when the world is changing all around you. What they are worried about is the AI chat bots creating more liability for them than solving problems. But that’s a garbage in, garbage out kind of problem. And if you are engaged in the adoption of your solution, that’s a risk that can be mitigated.

Darren: American Airlines either doesn’t care or they’re like the ostrich and are happy with the status quo. And from a professional perspective with years in the call center industry, there are things they can do immediately to fix this. They can use Realtime AI agent assist to speed up agent interactions so agents can handle more interactions. They can use AI to automate 30% or more of their voice and digital interactions. We have partners who have thousands of on-demand gig agents trained and skilled who could be utilized during times of high interaction fluctuations. Our partners can fulfill that very quickly to handle surge times and improve customer experience on the fly.

Many organizations don’t know it but – they’re an ostrich. Most of them opt to save the money now not realizing the risk they are opening themselves up to. But it’s not just a risk mitigation play, there’s plenty of reward. Most of them have like a 5x to 10x ROI or more but they’re just not doing it.

And I see it all the time with companies. They will have an AI adoption team meet with consultants like you to look at their the full picture, someone outside the organization who’s agnostic, who’s going to look at the whole landscape of the company. They look at people, processes, leadership, training, how do they create leaders, etc., and map that out so they can understand it. By the end of it, the executives understand the root causes to some of their expenses and problems, customer care calls that could be avoided if they handled something differently or had better self-service, but there’s a resistance there.

Diane: Everyone wants to be the first person to win. No one wants to be the person to publically fail. But failure is a necessary risk of change. Kaizen says experiment fast, fail fast. Rapid prototyping is a core of innovative behavior. And the philosophy behind both is you never really fail, you just learn and innovate. But there’s a fear. And when there’s fear, there’s paralyzed action until its too late and then there’s a crisis. My workbook takes this concept down to an elementary but effective level anyone can understand.

Darren: It’s like there’s a fear and a resignation at the same time. I know my systems. I know my job. It’s not perfect. And ultimately it’s not that bad so I don’t care.

Diane: It’s also about empowerment too, the confidence someone has if they speak up that their voice will be heard and heeded. Inability to create change can be a real demotivator of the most brilliant people. Like this is the way it’s always been, this is the way it always will be. I’ve accepted that.

So they just kind of suck it up and do the day-to-day of job, even though the risk of failure is so much greater with inaction. But the interpersonal risk comes in because in their mind, they say, “you open your mouth you might piss the wrong person off and lose your job.” It’s self-protective.

That’s where that’s where psychological safety comes in. As an executive, you have to set up these structures where people can speak up. Otherwise, you’ve got your company or department set up like a horse with blinders on. You don’t get suprised by external circumstances. You blindside yourself in a way. And this chaos that comes from silence and avoidance could literally bring your company down. Southwest really got hit hard. I was part of that. Actually I was traveling with them during that time. They gave me a 25,000 air miles, an apology and a refund. I was fortunate to be in driving distance from where I was going, from Reno, Nevada to Scottsdale, Arizona. So, I just hopped in the car and just drove myself in my own car. But a lot of people aren’t that fortunate.

When that whole story broke, it was like, “their systems are how old? Their training process is what?” And then it became known it was always this project or that pushed in front of updated booking and call center systems. And ultimately, it required a crisis moment to make a choice.

You can see the tsunami, you can see the water pulling back from the shore. You don’t have to wait until people are drowning to take action. That’s why I tell our clients: Are you ready to take the RED PILL, Matrix-style? Because we can assess all day long, but a company has to be willing to say yes. We will invest today to avoid drowning in the flood tomorrow.

Darren: I think what you’re saying is so important.

Diane: I am really passionate about activating the voice of the organization (VoO) and the voice of the customer (VoC) and unifying them to create meaningful organizational change.

People Risk Consulting (PRC) is a human capital risk management and change management consulting firm located in San Antonio, Texas. PRC helps leaders in service-focused industries mitigate people risk by conducting third-party people-centric risk analysis and employee needs assessments. PRC analyzes and uses this data alongside best practice to make strategic recommendations to address organizational problems related to change and employee risk. The firm walks alongside leaders to develop risk plans, change plans, and strategic plans to drive the human element of continuous improvement. PRC provides technical assistance, education, training, and trusted partner resources to aid with execution. PRC is a strategic partner of TriNet, Marsh McClennan Agency, Cloud Tech Gurus, Predictive Index, and Motivosity.

Q&A: How do you minimize human risk through change management, metrics, and monitoring when the solution is provided to you by another department?

The Question:

Hey Diane. Solutions have already been purchased for my human resources department. My company is exploring AI and predictive analytics and solutions are already rolling in with a fast expected implementation date. How can we best manage the change and make sure our employee experience is impacted as little as possible by the risk?

The Answer:

Your first step is to identify the unknowns, potential risks and problems you could be facing with the systems that have been purchased.

  1. Unknown alignment of these systems with current employee journey for human resources
  2. Unknown predictive analytic or AI capabilities
  3. Unknown risks associated with the systems

Your second step is to create a system of inquiry to understand the current situation in relation to those risks and unknowns to uncover the opportunities.

  1. Conduct what we call a backwards analysis of the systems. Rather than a traditional systems requirements collection, what you are doing here is collecting the capabilities of the systems that are already purchased. What are these systems capable of doing?
  2. Conduct a departmental needs analysis. These are needs in relation to your employee journey. Create or pull your employee journey map. Align the systems analysis with its place along the existing employee journey. How do these systems support the existing people operations of the company?
  3. Align systems capabilities with organizational goals for the human resources function. What capabilties do these systems have in alignment with organizational objectives for maturity in AI and predictive analytics?
  4. Determine system shortfalls, if any. Where are the gaps between systems capabilities and the employee journey throughout the human resources/people operations function?
  5. Determine opportunity areas offered by the systems. Where are the opportunity areas, aspects perhaps not thought of, that are possible due to the systems capabilities?

Third, you are going to begin to develop a change management strategy based on the data you have collected.

  1. Visualize how the current situation would be adjusted. How can the employee journey adjust to capitalize on opportunities while mitigating risk in any systems shortfalls?
  2. Understand if additional system modules or plug-in solutions are needed to meet organizational needs. How, if at all, can the gaps be filled in a way that will improve employee experience and minimize talent risk?
  3. Develop a change management plan with change phases. Create a phased rollout plan for the change just rolling the new systems into a status quo environment. The phased replacement will minimize change fatigue, cognitive overload of personnel, and mitigate the risk of low adoption. It will also create a level of comfort, achieving success with one stage before moving on to the next – building momentum. This also mitigates risks to employee experience and employer reputation created by poor hiring and onboarding experiences.

Now that change is underway, you will want to develop success metrics for the project and become an active observer of the results. Particularly in the case of AI integration, there are a number of risks.

  1. Unintended consequences: Theory and practice are two different animals. Once you begin to pilot, you will need to keep your eyes open for unintended consequences of change not covered by the list below.
  2. Garbage in-garbage out: Generative AI needs to pull top down and learn from established documentation such as existing policy documents or communication with employees.
  3. Unlawful discrimination: Lack of consideration of environment or personality for performance planning for example
  4. Loss of talent trust: Be mindful of automating too much and reducing empathy, transparency, sincerity, rapport, and humanity in your organization
  5. Regulations: Data collection and use and new regulations on AI will be important to understand as you roll out new features
  6. Communication: Don’t AI drop your employees. Internal communication plans should fully explain what the AI is doing and when a human can be contacted.
  7. Privacy and security: Your IS teams should be on top of this. Data sensitivity, cyberattack, hacking, and breaches are now a new way of life. Your employees should also know what behavior they need to exhibit with their data to enhance their privacy.

During this period of monitoring, watch and report. This is a multi-disciplinary effort. Depending on your company size, you may be working with HR, risk management, and information systems as well as reporting to your executive team. Here’s what to report that will help you continuously improve.

  1. What’s not working.
  2. What is working and wins.
  3. Employee sentiment.
  4. Power user sentiment.
  5. Remaining gaps.
  6. Discovered innovation.
  7. Suggestions for systems modules, plug-ins, or development.

All of these things enhance your toolbox to step into a new and exciting time in our history, as well as arm yourself to proactively mitigate the risks that go along with new frontiers. This pathway is all about leaning into the future, which is a common interest among departments. Build on your shared vision and goals to unify as a cross-functional team. And, as always, if you need help PRC is always here for you.

PRC’s role is to help guide you through all of this, to drive you and navigate you through the change and risk, however the situation flows.

You are not alone. Contact us if you need someone to walk beside you.

People Risk Consulting (PRC) is a human capital risk management and change management consulting firm located in San Antonio, Texas. PRC helps leaders in service-focused industries mitigate people risk by conducting third-party people-centric risk analysis and employee needs assessments. PRC analyzes and uses this data alongside best practice to make strategic recommendations to address organizational problems related to change and employee risk. The firm walks alongside leaders to develop risk plans, change plans, and strategic plans to drive the human element of continuous improvement. PRC provides technical assistance, education, training, and trusted partner resources to aid with execution. PRC is a strategic partner of TriNet, Marsh McClennan Agency, Cloud Tech Gurus, Predictive Index, and Motivosity.

Case Study: Fortune 500 Change Risk

A Fortune 500 restaurant franchise improved board presentations, internal communication, and strategic decision-making with people risk research and operational insights.

OBJECTIVE

A Chief Learning and Development Officer and Vice President of Human Resources needed a way to assure communication risks were addressed when rolling out large scale capital initiatives. This included understanding stakeholder-centric risks, including how to address board concerns. People risk analysis laid the groundwork for stakeholder alignment and the activation of successful people operations in times of unprecedented organizational and global change.

SOLUTIONS

PRCs research and storytelling teams combined forces to provide a unique risk-aware communication approach for each initiative, grounded in best practices and research. The strategy guided the successful organization-wide implementation of work groups, capital initiatives, and a post-pandemic recovery plan for the organization’s operations and people function.

DELIVERABLES

  • Research
  • Recommendations
  • Internal Team Organization and Strategy
  • Agendas
  • Presentations
  • Executive Scripts
  • Project Risk Maps

If you need help with the people risks related to internal change management and stakeholder impact, contact us.

People Risk Consulting (PRC) is a human capital risk management and change management consulting firm located in San Antonio, Texas. PRC helps leaders in service-focused industries mitigate people risk by conducting third-party people-centric risk analysis and employee needs assessments. PRC analyzes and uses this data alongside best practice to make strategic recommendations to address organizational problems related to change and employee risk. The firm walks alongside leaders to develop risk plans, change plans, and strategic plans to drive the human element of continuous improvement. PRC provides technical assistance, education, training, and trusted partner resources to aid with execution. PRC is a strategic partner of TriNet, Marsh McClennan Agency, Cloud Tech Gurus, Predictive Index, and Motivosity.