2021 Top Risks- UK
The continuing global challenges and potential existential threat posed by the ongoing COVID-19 pandemic. Political divisiveness and polarisation. Social and economic unrest. Gridlock. Artificial intelligence (AI), automation and other rapidly developing digital technologies. Rapid shift to virtual, remote work environments. Changes in the geopolitical landscape. Shifting customer preferences and demographics. Fragile supply chains. Wildfires and hurricanes. Volatile unemployment levels and record low interest rates. Escalating competition for specialised talent. Immigration challenges. Cyber breaches on a massive scale. Terrorism. Big data analytics. Future of work.
These and a host of other notable risk drivers are all contributing to significant levels of uncertainties, making it extremely difficult to anticipate what risks may lie just over the horizon. Unanticipated events are unfolding at record pace, leading to massive challenges to identify the best next steps for organisations of all types and sizes, regardless of where they reside in the world. No one is immune to the significant levels of uncertainty, and C-suites and boards need to be vigilant in scanning the horizon for emerging issues. Because no one can possibly anticipate everything that lies in the future, organisations must focus on building trust-based, resilient cultures, led by authentic leaders, that can pivot at the speed of change
In this ninth annual survey, Protiviti and NC State University’s ERM Initiative report on the top risks on the minds of global boards of directors and executives in 2021 and, in a new dimension to this study, over the next 10 years, into 2030. Our respondent group, which includes 1,081 board members and C-suite executives from around the world, provided their perspectives about the potential impact over the next 12 months and next decade of 36 risk issues across these three dimensions:
- Macroeconomic risks likely to affect their organisation’s growth opportunities
- Strategic risks the organisation faces that may affect the validity of its strategy for pursuing growth opportunities
- Operational risks that might affect key operations of the organisation in executing its strategy
2021 Top Risks- UK:
Protiviti’s 2021 Top Risks survey highlighted that leaders of organisations in virtually every industry, size of organisation and geographic location are reminded all too frequently that they operate in what appears to most to be an increasingly risky global landscape courtesy COVID-19. This once in a century pandemic has drastically increased the threats emerging from the impacts it has had on the macro-level. Organisations today 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 and the need for resilience and agility at pivoting when the unexpected occurs. Moreover, when the pandemic hit this world, every organisation was looking at the government authorities and regulators to help them more than ever. Market shifts and needs created by COVID-19, enabling technologies, and increased cyber threats represent the key themes for 2021 in the UK.
The Top 10 Risks in UK as per the survey for 2021 are discussed below:
- The macroeconomic risk of Government policies surrounding public health practices, social distancing, return-to-work, crowd limits, and other pandemic related regulations and protocols can have a significant impact on the businesses in UK market. The overall score for this macroeconomic risk was 6.21. Due to the outbreak of COVID- 19, the various protocols issued by the Government have a direct impact on how a company operates, and their adherence adds to the overall expenditure in terms of health insurance of employees, work from home allowances, employee absenteeism, etc.
- The next top risk is the threat to operational capabilities in terms of preparedness to manage cyber threats that have the potential to significantly disrupt core operations and/or damage a brand. A wide range of hostile actors use cyber space to target businesses in UK. They include foreign states, criminals, "hacktivist" groups and terrorists. The resources and capabilities of such actors vary. Foreign states are generally equipped to conduct the most damaging cyber espionage and computer network attacks. (Source)
- Another operational risk is the privacy/identity management and information security/system protection which requires the use of significant resources in terms of setting up the infrastructure to ensure that such risk can be avoided. Such risk can have a potential impact on a business. Workforces are struggling to adapt to new work-from-home mandates, and companies are ill-prepared to enable these new access demands. Financial services companies in particular are struggling to deal with a multitude of remote authentication related challenges. Organisations are diverting personnel and resources to meet the shifting demand.
For the consumer, online shopping has become the norm, but so too has opening accounts digitally; even if you look at financial accounts where many would say there is a higher risk of loss. 89 percent of UK citizens say they would open a financial account digitally - using a mobile app or on a website - of those 83 percent would open a current account, 70 percent a credit card account and 74 percent would take out a mobile phone contract.
But the move to digital channels comes with the responsibility to protect both customers and organisations from fraud. This includes application fraud – i.e., a fraudster uses a stolen or synthetic identity to open an account and account takeover fraud - where fraudsters know enough about someone to login to their accounts and take them over.
Also, at present, some 75% of the UK’s international data flows are with Europe. After Brexit, it is estimated that without an agreement in place, average data compliance costs could rise for businesses in the UK. (Source, Source 2)
As per the survey, the macroeconomic risk arising out of economic conditions in the market, particularly related to unemployment and government stimulus, may significantly restrict growth opportunities for an organisation. Britain's unemployment rate has risen to 4.9 percent as a record number of jobs were wiped out by the coronavirus pandemic. Due to this, the overall impact on the economy can potentially harm a business to a large extent. (Source)
Another top risk is the threat to managing existing operations, IT infrastructure, and lack of digital IQ in the workforce and insufficient use of digital thinking and capabilities which may not meet performance expectations related to quality, time to market, cost and innovation. Also, there is a risk in form of competition in the market, especially from new competitors that are “born digital” with a hyper-scalable business model and have a low-cost base for their operations, or from established competitors with superior operations. In 2020, the COVID-19 crisis made organisations in UK to accelerate their digital transformation just to survive. But now, the way of doing business has changed, and competitiveness depends on optimising the use of these digital technologies. (Source)
It is also observed that there can be a strategic risk arising out of the market conditions imposed by and in response to COVID-19, including shifts in consumer behavior to digital channels, which may continue to impact customer demand for a company’s core products and services. This may result in investing in the digital infrastructure, thus increasing the overall expenditure. (Source)
The next top risk is from the macroeconomic perspective, related to adoption of digital technologies (e.g., artificial intelligence, robotics, natural language processing, visual recognition software) in the marketplace and in an organisation which may require new skills that either are in short supply in the market for talent or require significant efforts to upskill and reskill existing employees. In UK, many organisations believe that internal skills gaps are at least partly responsible for the challenges they have encountered in the shift to digital. Cybersecurity, website/app development, social media marketing and project management are the top digital skills that are anticipated to be required in the next six months in order to survive. Given the massive role that digital technologies have played in the past decade and still most firms find it hard to keep pace with it, it’s not surprising that this is expected to be a top risk in 2030 as well. (Source)
Another top risk that can potentially impact an organisation is that it may not be able to change the business model to embrace the evolving “new normal” imposed by the current pandemic and emerging social change. Organisations need to manage the impact on creativity, loss of interaction and conversations, and lack of support for younger staff. (Source)
As per the survey, there is also a macroeconomic risk that may arise due to evolving changes in global trade policies (e.g., Brexit, escalating tariffs and border restrictions), which can affect the ability to operate effectively and efficiently in international markets. Brexit has adversely affected growth in the U.K.'s financial center of London, which saw only 1.4% in 2018 and was close to zero in 2019. Brexit also diminished business investment by 11% between 2016 and 2019. (Source)
The last top risk may affect the operations of a business due to the inability to utilise data analytics and “big data” to achieve market intelligence and increase productivity. As a result of this, efficiency may significantly affect the management of core operations and strategic plans. Organisations in UK are facing challenges in prioritising investment in data and analytics capabilities, and difficulty in recruiting and retaining workers with the skills needed to develop and maintain analytical systems. In some cases, businesses have recognised the potential of data and analytics, but have been unable to make a convincing enough case to leaders for financial resources. (Source)
We also conducted a forward-looking survey inviting responses from market participants around the risks that they expect to emerge in the market by 2030. Along with a few risks that are expected to continue till 2030, the UK market expects to see a number of new risks emerging as well. One of the biggest emerging risks is the rapid speed of innovations outpacing the organisation’s ability to compete and/or manage the risk appropriately. These innovations will be enabled by new and emerging technologies and/or market forces and organisations strongly feel that they will have to make significant changes to their business model in order to stay competitive as well as relevant. Several organisations also expect shifts in perspectives and expectations about social issues and priorities surrounding diversity, equity and inclusion to occur at a faster pace which will challenge their ability to attract/retain talent and compete in the marketplace. The firms also foresee succession challenges piling up as a result of tightening talent market which may result in limiting their ability to achieve operational targets. In addition to these risks, heightened regulatory changes and scrutiny are also expected to affect the manner in which the products or services will be produced or delivered by these organisations. Another key risk for the UK market in 2030 is the risk of new competitors emerging as a result key of market activities such as M&A. This new competition will threaten the market share of existing players and challenge the status quo.