Digital readiness dominates top risk concerns for 2019
While such topics as big data, data analytics, artificial intelligence and data security continue to be of top concern to most organizations, digital transformation has now risen to be top of mind for many corporate business leaders.
Indeed, according to a new study by North Carolina State University’s Poole College of Management's Enterprise Risk Management (ERM) Initiative and global consulting firm Protiviti, looking to the year ahead, boards and C-suite leaders are most concerned about their company's ability to transform its operations and infrastructure to successfully compete with organizations that are "born digital."
This is according to results from the 2019 Executive Perspectives on Top Risks survey. Succession challenges, followed by heightened regulatory change and scrutiny, rounded out the top three concerns. The survey polled 825 board members and executives globally across a variety of industries.
“This year's results show a significant increase in digital readiness concerns, jumping from the number 10 position in 2018 to number one in 2019,” according to the study. “This jump provides evidence that digital agility and scalability are top-of-mind for businesses. Traditional companies are struggling to compete with newer digital players that can operate more efficiently, are innovative at their core, digitize and deliver new products and services, enhance the customer experience and operate with agile business models.”
"Looking forward, digital disruption is a main driver of risk impacting uncertainty over business model viability, customer preferences, the competitive landscape, workplace dynamics, the war for talent and even regulatory demands," said Patrick Scott, an executive vice president with Protiviti. "Clearly, organizations must align their culture, people, processes and intelligence gathering to embrace this rapidly changing business environment."
"Whether covert or overt, resistance to necessary change – spawned by disruptive innovations that alter business fundamentals – can be lethal," said Jim DeLoach, a Protiviti managing director and member of the research team. "Organizations must be willing and able to quickly make necessary adjustments to their business models and core operations. Strategic error in the digital economy can result in the ultimate price, if a company continues to play a losing hand in the marketplace."
The Top 10 Risks for 2019
Survey respondents were asked to rate 30 risk issues. Following are the top 10 risks identified by respondents:
- Existing operations meeting performance expectations, competing against "born digital" firms
- Succession challenges and ability to attract and retain top talent
- Regulatory changes and regulatory scrutiny
- Cyber threats
- Resistance to change operations
- Rapid speed of disruptive innovations and new technologies
- Privacy/identity management and information security
- Inability to utilize analytics and big data
- Organization's culture may not sufficiently encourage timely identification and escalation of risk issues
- Sustaining customer loyalty and retention
Survey respondents indicated that the global business environment is somewhat riskier in 2019 compared to previous years. The survey results also suggest that corporations are likely to increase investment in strengthening risk identification and management efforts over the next twelve months relative to the prior year.
"The perceived increase in the magnitude and severity of risks in today's ever-changing landscape should prompt boards and senior executives to closely scrutinize the approaches to proactively address emerging risks," said Dr. Mark Beasley, professor of Enterprise Risk Management and director of NC State's ERM Initiative. "Boards of directors and executive management teams cannot afford to manage risks casually on a reactive basis, especially considering the rapid pace of disruptive innovation and technological developments in an ever-advancing digital world."