Building a resilient GRC framework in a VUCA world
The world is constantly changing, and businesses must be prepared for unexpected challenges. This is especially true for Small and Medium Enterprises (SMEs), which often have limited resources and are more vulnerable to risks.
A strong Governance, Risk, and Compliance (GRC) framework helps SMEs stay competitive, make informed decisions, and avoid legal or financial troubles.
In this article we will explore each element of GRC (Governance, Risk Management, and Compliance) with SME-specific examples.
1. Governance: setting the right direction
Governance in SMEs ensures that the business has clear leadership, ethical values, and structured decision-making. Many SMEs are run by founders or family members, so governance helps maintain transparency and accountability.
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Example 1: Family-Owned Manufacturing Business
A small textile manufacturing company is run by a family, with different members handling operations, sales, and finance. Without clear governance, disagreements may arise about expansion plans, investment decisions, or leadership succession.
By establishing a board of advisors, defining roles, and setting decision-making policies, the company ensures long-term stability.
Example 2: Tech Startup
A growing software startup raises investment from external investors. Strong governance means the founders maintain clear financial reporting, ethical hiring practices, and proper shareholder communication. Without governance, investors might lose trust, affecting future funding.
How SMEs Can Strengthen Governance?
• Establish a board or advisory committee
• Define roles and decision-making structures
• Implement financial transparency and reporting
• Create a code of ethics for employees
2. Risk management: identifying and handling risks
Risk management is crucial for SMEs because they often lack financial buffers to recover from unexpected events. Identifying risks early can help prevent major losses.
Example 1: Restaurant Business
A small catering business relies on fresh ingredients daily. A sudden supply chain disruption (e.g., a key supplier shutting down) could delay orders and disappoint customers. By diversifying suppliers and keeping backup inventory, the business reduces the risk of service disruption.
Example 2: E-Commerce SME
An online fashion store uses a digital payment system. If the website is hacked, customer data could be stolen, leading to financial and reputational damage.
Implementing strong cybersecurity measures, such as encrypted transactions and multi-factor authentication, reduces the risk.
How SMEs Can Strengthen Risk Management?
• Identify major risks (financial, operational, cybersecurity, supply chain)
• Develop backup plans (e.g., alternative suppliers, business continuity plans)
• Invest in insurance for protection against unexpected losses
• Train employees to recognize and respond to risks
3. Compliance: following laws and regulations
SMEs must comply with industry regulations, labor laws, tax rules, and data protection policies. Non-compliance can result in fines, legal action, or business closure.
Example 1: Construction SME
A small construction firm must comply with safety regulations for workers. If an accident happens and the company hasn’t followed workplace safety laws, it could face heavy fines and lawsuits. By ensuring proper training, safety equipment, and compliance audits, the company avoids legal trouble.
Example 2: Online Retail Business (GDPR Compliance)
An SME selling products in Europe must comply with GDPR (General Data Protection Regulation). This means collecting, storing, and handling customer data securely.
Failure to do so could result in huge fines. By using secure payment gateways and data encryption, the business ensures compliance.
How SMEs Can Strengthen Compliance?
• Stay updated with industry and government regulations
• Train employees on legal requirements
• Use compliance checklists and conduct regular audits
• Invest in legal and tax advisory services
How SMEs can build a resilient GRC framework
SMEs can strengthen their GRC framework by:
• Embedding GRC into everyday business operations – Make governance, risk, and compliance part of daily decision-making.
• Leveraging technology – Use accounting software, cybersecurity tools, and digital risk management systems to automate compliance and risk tracking.
• Encouraging a strong company culture – Employees should be trained to follow ethical practices, identify risks, and report compliance issues.
• Being adaptable – SMEs must regularly review and update their GRC strategies to respond to changes in the business environment.
Conclusion
For SMEs, a resilient GRC framework is not just for survival—it’s a tool for growth and long-term success.
By focusing on good governance, proactive risk management, and strong compliance, small businesses can navigate uncertainty, build trust with customers and investors, and remain competitive in a VUCA world.
The writer is a Principal Consultant at Innovare GRC. He is an experienced governance, risk, and compliance (GRC) professional with expertise in enterprise risk management, internal audit, and corporate governance.
With a background in corporate governance and a passion for enhancing risk management practices, he supports organizations in strengthening their control environments and aligning risk appetite with strategic objectives. For inquiries, contact fred.pokoo-aikins@innovaregruppo.com.