Disruptive technologies, cyber-threats, talent shortages, and constantly evolving geopolitical risks are just a few top risks that will keep boards of directors and executive management teams on their toes in 2019. To fall behind is not an option.
That was the core message to come from the findings of a recent survey conducted by global consulting firm Protiviti and North Carolina State University’s Enterprise Risk Management (ERM) Initiative, “Executive Perspectives on Top Risk,” which surveyed 825 board members and C-Suite executives globally on risks likely to affect their business in 2019.
Now in its seventh year, the survey provided perspectives on the potential impact of 30 specific risks under three general risk categories:
- Macroeconomic risks likely to affect the company’s growth opportunities;
- Strategic risks that may affect the validity of the company’s strategy for pursuing growth opportunities; and
- Operational risks that could affect key operations of the business in executing its strategy.
Respondents were asked to rate each of the 30 risks on a 10-point scale, with a score of one reflecting “no impact at all” and a score of 10 reflecting respondents’ belief that the risk will have an “extensive impact” on the business.
“One of the most surprising findings this year was the complete absence of macroeconomic risk concerns in the top 10 for 2019,” Mark Beasley, director of NC State University’s ERM Initiative, said in a recent Webinar discussing the findings. “Concerns over economic conditions have been highly ranked in all six prior years of our survey, but that perception has shifted in a substantial way looking forward to 2019.”
“One of the most surprising findings this year was the complete absence of macroeconomic risk concerns in the top 10 for 2019.”
Mark Beasley, Director, ERM Initiative, NC State University
Another notable finding: Different job functions have different views about the magnitude and severity of risks for 2019. For example, board members rated 26 of the 30 risks at the “significant impact” level, whereas CEOs rated only six of the 30 risks at that level. “Different perspectives shed different insights, which warrants a more robust conversation about what these risk exposures are,” Beasley said.
The report also found that risk concerns vary from region to region. According to the analysis, respondents in Latin America/South America and in India-based operations rated the magnitude and severity of risks for 2019 at the highest levels.
The nature of the risk across regions also varies. Respondents in five of the eight regions indicate they are mostly concerned about operational risks, while the remaining three regions are mostly concerned about macroeconomic risks. “As organizations explore doing business in different parts of the globe, it will be important for them to understand how risks may differ depending on where those operations are based,” the report states.
Top 10 risks
According to the survey, the top 10 global risks for 2019 ranked by global respondents are:
1. Existing operations unable to meet performance expectations, competing against “born digital” firms. What took the number 10 risk spot for 2018 is now the number one risk concern for 2019. “From an industry perspective, five of the industry groups selected that risk as a top five risk concern,” said Pat Scott, executive vice president, global industry and client programs, at Protiviti. Those industries are financial services; consumer products and services; manufacturing and distribution; technology, media, and telecommunications; and healthcare and life sciences.
“This risk is a composite of several different uncertainties,” said Jim DeLoach, a member of Protiviti’s Solutions Leadership Team. Such uncertainties include the company’s digital readiness; its lack of resiliency and agility in keeping pace with changing market realities; lack of out-of-the-box thinking about the business model; and the existence or threat of more nimble competitors, DeLoach said. “The root of the pressure is digital transformation.”
2. Succession challenges and talent acquisition and retention. The issue here in essence is a “war on talent,” Scott said. When considering this risk relative to what it takes to thrive in a digital age, executive management teams are starting to recognize that they’ll need to attract and retain a different kind of talent and skillset for the future—those who are capable of thinking out of the box in a rapidly changing digital marketplace, the report states.
3. Regulatory changes and heightened regulatory scrutiny. “This risk continues to represent a major source of uncertainty among the organizations in the survey,” Scott said. Sixty-nine percent of respondents rated it as a “significant impact” risk, “suggesting that respondents remain concerned about the potential for regulatory influences disrupting how they do business,” he said.
4. Managing cyber-threats. “Threats related to cyber-security continue to be a major concern,” Scott said. “It is the only one of the 30 risks identified as a significant impact risk concern for all six industry groups.”
5. Resistance to change. “As major business model disruptors emerge, respondents are growing even more focused on the organization’s potential unwillingness or inability to make necessary timely adjustments to the business model and core operations that might be needed to respond to changes in the overall business environment and industry,” the report states.
6. Rapid speed of disruptive innovations and new technologies. Sixty-eight percent of respondents rated it as a “significant impact” risk for 2019, reflecting respondents’ concerns regarding the specter and pace of disruptive innovations or new technologies outpacing an organization’s ability to keep up and remain competitive, according to the report.
“With advancements in digital technologies and rapidly changing business models, respondents are focused on whether their organizations are agile enough to respond to sudden business developments that alter customers’ expectations and change their core business model,” DeLoach said.
7. Privacy and identity management. “This concern is likely linked to the proliferation of legislation to protect the privacy of personal information,” Scott said. “There is teeth in the potential fines, penalties, and reputation loss that none of us can ignore.”
8. Inability to utilize analytics and Big Data. “In a digital era, knowledge wins,” DeLoach said. “Advanced analytics is the key to unlocking the gate to insights that can differentiate in this competitive marketplace.
“Having the right information can reduce the uncertainty over where to target innovation initiatives to improve the customer experience, increase productivity, reinvent business models, and improve information for decision making.”
9. Culture may not sufficiently encourage timely identification and escalation of risk issues. This risk speaks to executives’ concerns about the company’s culture and how effective formal and ad hoc communication processes are at escalating risk issues to the top, the report states. “Are the entity’s processes for escalating risk clear and well-defined?” said Scott. “Do people know how to escalate risk?”
10. Sustaining customer loyalty and retention. “This risk is important because companies with high turnover rates of customers incur significant cost in replacing those customers,” Scott said. “If organizations can’t adjust their operations and legacy IT infrastructures … they may not meet the expectations of their core customers.”
Heading into 2019, risk identification and risk management will continue to be a top priority, with respondents stating that they intend to devote more time and resources to these efforts. This is particularly the case for financial services firms and companies with over $10 billion in revenue. Overall, the report finds, the global risk landscape in 2019 will continue to drive boards and senior management teams to renew their focus on effective risk oversight.