Keeping Pace with Innovation Risks and Opportunities
Technological innovations are a driving force in today’s interconnected business world. Along with the potential to both create corporate growth and contribute solutions to societal issues, technology brings with it increased risks. Consider that The Global Risks Report 2018 from the World Economic Forum listed adverse technological consequences as one of the top four risks in terms of both likelihood and impact, with cyberattacks also among the top four for impact (see Figure 1).
Figure 1. Risks With the Greatest Change in Concern, 2016-2017
To manage the potential risks from innovation while taking advantage of the opportunities, companies need to understand how the various disruptive technologies are being used in their organizations and in their industries. We are reminded by a near daily drumbeat of news stories about failures and missteps of how essential it is to have effective procedures in place when deploying and managing new technology.
And yet, in this year’s Excellence in Risk Management survey, we found that nearly half of respondents could not say that their organization had a clear technology risk management process (see Figure 2). And only 14 percent expressed strong confidence that such a process was in place. Clearly there is work to be done.
Seventy-five percent of respondents said one of their organization’s goals is “to become more digital” (see Figure 3). When we dug further to find out what that means, we broke the responses into two areas: those that related to operations and efficiency, and those that related to growth.
There was a clear orientation in responses toward operational improvements, such as delivering goods faster and automating core processes. There’s no question that such improvements are valuable. For example, many industries—insurance being one—are built in part on masses of paper, scanned images, and PDFs, or what data analysts refer to as “unstructured data.” Efficient machine learning algorithms require such data to be structured, which can be done with natural language processing and other advanced technologies that will soon become prevalent.
But at the same time, it’s important to keep an eye on ways in which digitization will change the way companies interact with customers—thus changing the nature of their risks.
Today’s companies must ask: What new markets are we looking to open? How are we positioning the company for growth? The important link is the shift in risk profiles, which are changing at an accelerating pace. Risk executives must lean in to these changes. They should drive internal conversations to help understand the implications of new business models. And they should deploy an analytical decision-making framework that ensures the risk finance approach is optimized against an ever-changing risk profile.
So we see companies continuing to digitize and trying to manage and accomplish more with an ever-increasing cascade of data. Our survey, now in its 15th year, has long found the sheer volume of available data for risk management to be a source of both opportunity and consternation. In the 2017 Excellence survey, for example, the “inability to model the magnitude of the risk” was the most commonly cited barrier to organizations’ understanding the impact of disruptive technology risks. At the same time, improving the use of data and analytics was the No. 1 focus area for developing risk management capabilities.
So it’s no surprise that this year’s respondents said they are looking for technologies to help sort through the chatter in the data (see Figure 4). They want to be able to use data to see the risks on the horizon, inform their response when a crisis arises, and help them refine risk finance.
With disruption being the new normal, risk professionals will be increasingly sought out to contribute to their organizations’ strategic decisions. A failure to develop the needed insights and connections could put the risk function in the background as their organizations move ahead. Fortunately, both the desire and the talent to play a leading part are there.