Managing risk effectively has always been a touchstone of the most successful companies. But in today’s risk-filled business environment, it can be hard for executives to have confidence that their plans and strategies will play out as expected. A big reason is that strategic risks – those that either affect or are created by business strategy decisions – can strike more quickly than ever before, hastened along by rapid-fire business trends and technological innovations such as social media, mobile and big data. Companies that fall behind on the innovation curve may quickly fall prey to innovation’s evil twin – disruption. That is just one of the reasons managing strategic risk has become a high priority for many executives.
“It used to be that if certain risks were to happen, a company could have up to a news cycle to respond,” says Phil Maxwell, Director Enterprise Risk Management, The Coca-Cola Company. “The speed of risks is so much greater now, and as a result you have to be more prepared – faster to respond than you were in the past. That’s one of the biggest differences today versus even three or four years ago.”
Based on the survey, some findings reinforced what many already believe, however there were also some surprises. Here are a few of the key highlights:
- Strategic risk has become a major focus, with 81% of surveyed companies now explicitly managing strategic risk – rather than limiting their focus to traditional risk areas such as operational, financial and compliance risk. Also, many companies are taking a broad view of strategic risk that doesn’t just focus on challenges that might cause a particular strategy to fail, but on any major risks that could affect a company’s long-term positioning and performance.
- Most companies are not just making strategic risk management a higher priority; they are changing how they do it. In fact, nearly all respondents (94%) have changed their approach to strategic risk management over the past three years. The numbers were slightly higher in Asia/Pacific (96%) and slightly lower in Europe/Middle East/Africa (EMEA) (91%).
- A key improvement is that more and more companies are integrating strategic risk analysis into their overall business strategy and planning processes – and the integration seems to be working. Among the companies surveyed, 61% now believe their risk management programs are performing at least adequately in supporting the development and execution of business strategy.
- Strategic risk management is a CEO and board-level priority. Two thirds (67%) of the surveyed companies say the CEO, board or board risk committee has oversight when it comes to managing strategic risk.
- Reputation risk is now the biggest risk concern, due in large measure to the rise of social media, which enables instantaneous global communications that make it harder for companies to control how they are perceived in the marketplace.
- Other technologies are also having a major impact on the business and risk landscape. The majority of surveyed companies (53%) believe technology enablers and disrupters such as social, mobile, and big data could threaten their established business models, and 91% have changed their business strategies since those technologies began to emerge. The technologies have had their biggest impact in three sectors: TMT (97%), C&IP (96%), and Life Sciences (94%). Regionally, the biggest impact was in Asia/Pacific, where 98% of respondents report having changed their business strategies.
- In the future, human capital and the innovation pipeline are expected to be the top strategic assets that businesses will need to invest in.
In response to these issues and trends, companies are making a deliberate effort to improve their strategic risk management capabilities and performance. Traditional approaches for managing risk tend to focus on monitoring leading financial indicators as well as the evolving regulatory environment. However, because they are generally grounded in audited financial statements, the resulting risk strategies and hedges are largely driven by prior performance and past negative events – and do not necessarily serve to detect future strategic risks or predict future performance. As such, they are more focused on protecting value than creating it. Many companies in the world are using strategic risk management as a tool to make decisions with more confidence and create greater business value. Managing strategic risks that embedded in the business strategy effectively can do more than just protect value by avoiding potential downsides; it can actually help create value by taking advantage of uncertainty and volatility to maximize gains and improve competitive positioning.
Source : Deloitte