Global risk in the transformation age. Companies are reconsidering their risk thinking and approaches, but they’re also transforming to align with changing market imperatives—and in the process, exposing themselves to multi-directional risks.
The report builds on results from our annual survey of over 800 global executives and examines how companies are rethinking their risk strategies, and organization and analytical techniques to cope with today’s complex and uncertain environment, where risks can come swiftly, unexpectedly and with far-reaching implications. The findings shows that widespread business transformation is further complicating the risk landscape by exposing companies to new strategic, technical, talent and reputational risks. To augment our statistical findings with management insights and best practices, we conducted in-depth interviews with senior executives at a number of financial and industrial companies.
Our study identified five key issues that global companies will want to address:
- Building risk resiliency into the organization. In today’s unpredictable and ambiguous business environment, companies need structures that are resilient to risks when and where they occur. According to our survey, risk managers will be increasing their use of horizon scanning, early-warning systems, stress testing, flexible risk appetite statements, and contingency planning.
- Adjusting performance incentives. Creating a more balanced scorecard that includes risk-related performance incentives helps reduce the likelihood that performance-based compensation will encourage executives to take actions that increase risk, particularly in this period of business transformation.
- Building digital risk into the risk management agenda. Businesses today face a minefield of cyber risks—from system failure and security breaches to intellectual property abuse and reputational damage from social media. Building all aspects of digital risk into the corporate risk agenda is crucial, as is drawing on the latest tools, such as intellectual property and brand audits.
- Minimizing business transformation risk. Companies undergoing a business transformation—which include two out of three companies in our survey—need to study similar efforts at other organizations to understand what can go wrong, build the right team to deliver on strategic imperatives, and make sure they have strategies in place to cope with potential risks.
- Taking full advantage of next-generation risk analytics. Companies are increasingly integrating data from multiple sources both within and outside their organization to make faster, better risk decisions. Executives are now incorporating business transformation risks, such as those relating to talent and technology, into their risk systems and adding linkages that show the cascading effects of risk in today’s more complex marketplace.