Disruptive Innovation and Resistance to Change are the Top Risks for 2018
Executives have had a year to digest the economic, global trade, and other jitters that affected the global risk outlook following the US election. Now it’s time to look at the top risks for 2018, and it seems that the biggest risks are changes caused by technology, and how well an organization manages these transformations.
Protiviti and the ERM Initiative of North Carolina State University published a joint survey looking at executive perspectives on the top risks of 2018. The report, and executive summary, can be downloaded through the Protiviti website. Deloitte Professor of Enterprise Risk Management at North Carolina State Mark Beasley, Executive Vice President of Global Industry and Client programs at Protiviti Pat Scott, and myself got together to review the results in a webinar. Here are some highlights to consider.
The survey looked at 728 executives and directors from companies around the world to create a cross-section of different industries. The executives and directors were asked to prioritize 30 risks using a scale of 1 – 10 with 10 being the most concerning. The risks were grouped into three different categories; strategic, macroeconomic, and operational.
The concerns over regulations and the overall global economy caused an anomalous spike in the results for 2017. Macroeconomic risks topped the list for the first time in the six years the study has been performed. These concerns subsided in 2018, which created a dip in the overall perceived magnitude and severity of risks. Dive deeper into the numbers though, and you can see a story that proves to be more consistent with what myself, my colleagues – and most likely you – have seen and heard in the marketplace.
The main risk – as ranked by board members and executives as having a “significant impact” – is how quickly disruptive innovations and the latest technologies can outpace the ability of an organization to compete and manage risks appropriately without making dramatic changes to their business model. The second-highest risk showed a cultural concern related to the overall resistance to change within an organization.
These two risks come together to present something of a conundrum. The respondents to the survey are clearly concerned with the opportunities and risks of disruptive changes. At the same time, they are also concerned about how an organization may be unwilling to make the necessary changes to their business model and core operations to respond properly to these changes.
Cyber threats were the third biggest risk and ranked among the top five risks for every size of company for three of the six industries covered in the survey. This is the way things have been for several years now. This is also consistent with the overriding concerns about the speed at which technology is evolving and how difficult it is to keep up with. When it comes to cyber risks, the concerns are caused by technology evolving at a faster pace than the security preventions organizations have.
We are truly living in a digital age. New entrants into the market are born digital. Older and more established companies must overcome the challenges of recognizing change and responding to it properly. Even when executives and board members at established incumbents have an understanding of the risks technological developments pose to their business model, it proves difficult to determine what can be done about it and then execute those plans. As a number of organizations have discovered in their time, making the wrong move can be deadly. The reports from this year give me cause to be optimistic though, because I can see that business leaders understand the risks and the opportunities that come with digital innovation. They are focused on getting the right tools, talent, resources, and processes to tackle the challenges of 2018 and beyond.