Digital Transformation and Risk Management Should Go Hand in Hand
When adopting and developing digital transformation, business leaders should take their risk management strategies into account. It is crucial to consider the risk areas that might be involved in order for it to be effective. PwC’s Global Risk Survey 2022 revealed key takeaways on how businesses can consider to put a risk management process into their digital transformation effort.
Change is now faster and more disruptive
The global instability caused by geopolitical risks and COVID-19 pandemic has brought various disturbances in the labor and supply market. Furthermore, companies have refocused their priorities to cater to new regulations, especially putting an increased emphasis to tackle risk, audit and compliance issues. Those factors pressured supply chains, cyber risks and public safety issues. Therefore, companies need to implement digital transformation and risk management more than ever.
Risk assessment is important
Blindly transforming a company is generally not a good business decision. The key to strengthening a company is to assess the current and future risks of it, which includes some of these points:
– The timing to spin-off a business unit and the risks to the brand, reputation, and cash flow.
– The goals of a multi-year digital transformation project, including vendor qualifications, scheduled downtimes and futureproofing.
– The capital needed to expand or create a new business model.
Those points demonstrate that in any strategic issue, there are also risks behind them and no uniform answers. Every company has its own risk appetite, so running a digital transformation strategy can be done in different ways.
Complex Problems, Simple Solutions, Difficult Implementation
In your professional journey, you’ve most likely come across a ‘heat score’ matrix. They are color-coded scores that convert a qualitative judgment into a quantitative score and are used to make rapid decisions. These matrices are wonderful tools in the heat of battle, such as during an incident response or crisis management scenario. However, they are less effective for strategic planning.
Complex solutions are not necessarily required for complex issues – rather, simple solutions can be ideal but tough and complex to implement. For example, if we need to go from point A to point B, which is a simple solution to a complex problem, the journey itself might be challenging. Remember that decision-makers lack the time, patience, and tolerance to traverse a complex or over-engineered solution. A board or C-suite may require answers to key topics such as:
- The availability of right defenses and resources
- The availability of the solution to the right people
- The possibility of business interference
- The possibility of business growth
The question would be “what are the risks and rewards from this digital transformation journey?” Because digital transformation and risk management are inextricably linked, a fundamental framework is required to address the complicated issue.
Creating Cyber Resilience
From the topics discussed above, it can be inferred that key questions for strategic risk planning are as follows:
- What are the resources we have?
- How do we define risk posture?
- How do we create a good mindset?
- How do we execute the plan?
These processes are actually deep and complex. You will face technological obstacles, such as establishing your disaster recovery capabilities before and after change. Alternatively, you may need to evaluate the feasibility of installing 5G/edge technologies or whether artificial intelligence is suited for the company. Furthermore, financial issues should also be accounted for.
A factor that will definitely bring the plan to succession is commonality. To make smart judgments, you must believe that individuals move within the same framework.
There are numerous excellent industry frameworks available, such as NIST SP 800-30, SP 800-34, and ISO 22301, that focus on risk management and business continuity. Whatever framework you choose, a few things must occur for it to be successful:
- Taxonomy. Have the organization’s effect categories and definitions been communicated and agreed upon? Issues will occur if one business unit believes something is a risk, but another does not. Definitions are important, as is linguistic clarity. It is critical to have a single pane of glass for shared reference.
- Governance. Is there a formal program in existence, even if it isn’t functioning optimally? A structured program attempts to spread ownership and enforcement. It also demonstrates that some leadership buy-in already exists.
- Collaboration. Any attempt will fail if teams do not communicate with one another. The technology and infrastructure team, for example, may wish to undertake a complete transition to the cloud. However, the business team may discover that the corporation cannot take on a business risk (ie. if a key selling point of the service is that no service is based on the cloud). Those details could convert well-intended initiatives into potential business failures.
To summarize, digital transformation is possible without risk management, but it is dangerous. In contrast, if your risk management program is not influenced by transformation initiatives, it might be a potential gap waiting to be filled. In the end, you can’t have one without the other.