February 2018, Vol. 245, No. 2

Features

Executive Perspectives on Top Risks for 2018

The rapid pace of technological developments and disruptive innovations, along with organizational resistance to change, are the top concerns for boards of directors and business leaders around the world heading into 2018.

This is according to the results of the sixth annual Executive Perspectives on Top Risks Survey conducted by global consulting firm Protiviti and the Enterprise Risk Management (ERM) Initiative in the North Carolina State University Poole College of Management.

The report assesses the concerns of 728 board members and executives globally. The results indicate that growing concerns around disruptive innovation significantly outpace fears of economic uncertainty and regulatory scrutiny, which have consistently been the top risk issues of board members and executives over the past several years.

Threats related to cybersecurity are a top risk area for business leaders as well, particularly in light of recent cyber-attacks, such as WannaCry, along with those affecting major organizations like Equifax. Of particular note, board members across all industries perceive a much riskier environment in 2018 relative to 2017.

“Disruption and digital transformation are taking place across all industries and threatening core business models,” said Pat Scott, an executive vice president with Protiviti. “It’s clear from our latest survey that there has been a major shift in the top concerns for organizations.”

Digitalization-related risks have supplanted overall economic conditions and regulatory scrutiny atop the list of risk issues for board members and executives who are worried that the effect of new technologies on established business models could outpace the organizations’ ability to keep up and remain competitive, he added.

“It’s no longer a question of if digital will upend your business, but when,” said Jim DeLoach, a Protiviti managing director. “While a number of organizations already have digital strategies in place, digital transformation needs to become entrenched as a core part of the organization to ensure that companies are able to embrace disruptive change in the current business environment. This risk plus heightened concerns regarding resistance to change create a formidable challenge to executives and directors. Leaders know that failure to keep up with the rapid pace of change can place an organization in the position of becoming captive to events rather than charting its own course.”

Top 10 Risks  

Following are the top 10 risks identified in the Executive Perspectives on Top Risks for 2018 report:

1. The rapid speed of disruptive innovations and new technologies may outpace our organization’s ability to compete and/or manage the risk appropriately, without making significant changes to our business model.

2. Resistance to change may restrict our organization from making necessary adjustments to the business model and core operations.

3. Our organization may not be sufficiently prepared to manage cyber-threats.

4. Regulatory changes and regulatory scrutiny may heighten.

5. Our organization’s culture may not sufficiently encourage the timely identification and escalation of risk issues.

6. Our organization’s succession challenges and ability to attract and retain top talent may limit our ability to achieve operational targets.

7. Ensuring privacy management and information security and system protection may require significant resources.

8. Economic conditions in the markets we serve may significantly restrict growth opportunities.

9. Inability to use data analytics and big data to achieve market intelligence, and increase productivity and efficiency may significantly affect our management of core operations and strategic plans.

10. Our existing operations may not meet performance expectations related to quality, time-to-market, cost and innovation.

From an industry perspective, the financial services and energy, and utilities industry groups saw the largest decrease in overall risk. This is likely due to reduced concerns about macroeconomic risks and regulatory change, as reflected in the survey findings.

The technology, media and communications industry group expressed the highest concern regarding the magnitude and severity of risks overall.

“In light of the shifting risk landscape, it’s particularly interesting to observe an increasing concern among survey respondents that their organization’s culture may not sufficiently encourage the timely identification and escalation of risk issues to senior management and the board,” said Mark Beasley, Deloitte professor of Enterprise Risk Management.

The survey was conducted in the fall of 2017, and respondents represent international organizations across public and private sectors. P&GJ