Keeping Up with the Risks and Opportunities of Innovation
Technological innovation has become the driving force of the modern interconnected business world. As well as providing the chance for creating growth and offering solutions to societal issues, technology also brings increased risk. Consider the Global Risks Report of 2018, released by the World Economic Forum, which listed the negative consequences of technology as a major risk in terms of both impact and likelihood. When it comes to specific negative impacts of technology, cyber-attacks ranked among the top four worries.
Companies can manage the potential risks of innovation and take advantage of opportunities created by it by understanding how these disruptive technologies are used within their organization and overall industry. We are constantly bombarded with stories in the news about failures and how important it is to have procedures in place ready when deploying and managing the latest technologies.
Even so, we saw in this year’s Excellence in Risk Management survey that around half of all respondents were unable to say their organization had put together a clear and effective process for managing the risks of technology. Only 14% of respondents said that they were confident they had a system ready in place. There is obviously a lot of work that needs to be done here.
75% of the respondents to the survey said one of the goals for their organization was becoming more digital. We dug a little deeper to find out what they meant, and found that the responses could be split into two groups; those relating to operations and efficiency, and those relating to growth.
There were definitely more responses leaning towards operational improvements like faster delivery speeds and automating key business processes. There’s no doubt these improvements are completely viable. For example, a number of industries – particularly the insurance industry – are built on tons of paper, PDFs, and scanned images; what data analysts call “unstructured data”. An efficient machine learning algorithm requires this data to be structured, which is possible through natural language processing and more advanced technologies that are slowly becoming the norm.
At the same time, business should monitor how digitization is going to change the ways they interact with their customers, as this will change the risks that they manage.
Modern companies have to ask several questions; they need to ask what new markets they want to open and how their business is being positioned to grow. The most important link is the change to risk profiles, which are changing at faster paces than ever before. Risk executives have to lean in to those changes. They must drive internal conversations to help understand the implications of adopting a new business model. They must also deploy analytic decision-making frameworks that ensure the risk finance approach has been optimized against the constantly evolving risk profile.
We are seeing companies continue pushing towards digitization and attempting to manage and accomplish more with the extra data available to them. Marsh and RIMS Excellence in Risk Management survey, which is now in its 15th year, has found the sheer amount of data available for risk management to provide both opportunity and consternation. For the 2017 Excellence Survey, an inability to monitor the size of a risk was the most common barrier to an organization understanding the risks of disruptive technology. At the same time, improving how data and analytics are used proved to be the main focus area for developing effective risk management capabilities.
It’s hardly surprising that the respondents for this year said they were looking for technologies that could help them make sense of data. They want to use this data to see what risks are coming in the future, put together an effective response in the event of a crisis, and refine risk finances.
As disruption has become the new norm, risk professionals are going to be in higher demand to contribute to the strategic decisions their organizations make. Failing to develop the necessary insights and connections can put the risk function into the background as an organization moves forward. The good news is that the desire to make a change and the talent that can make it happen are readily available.