Research Conducted by Protiviti and North Carolina State University’s ERM Initiative
Volatility in equity markets. Falling oil prices. Global terrorism. Escalating healthcare costs. Uncertainties in political regimes in certain parts of the world. Disruptive technological innovation. Expanding regulation and oversight. Shifts in expectations about China’s economy. Strong U.S. dollar. These and a host of other significant risk drivers are contributing to the risk dialogue in boardrooms and executive suites.
Entities in virtually every industry and country are reminded, all too frequently, that they operate in a risky world. Recent terrorism events, perceived adjustments in expectations about economic conditions in China, the rapidly increasing costs of healthcare, and continued concerns about cyberdata breaches vividly illustrate the realities that organizations of all types face risks that can suddenly propel them into global headlines, creating complex enterprisewide risk events that threaten reputation and brand. The rapid and steep decline in oil prices was not anticipated by many players in the energy industry, reminding everyone that they need to expect the unexpected. Boards of directors and executive management teams cannot afford to manage risks casually on a reactive basis, especially in light of the rapid pace of disruptive innovation and technological developments.
In their fourth annual survey, Protiviti and North Carolina State University’s ERM Initiative report on the top risks on the minds of global boards of directors and executives. Our respondent group, which includes 535 board members and C-suite executives from around the world, provided their perspectives about the potential impact over the next 12 months of 27 specific risks across these three dimensions:
- Macroeconomic risks likely to affect the organization’s growth opportunities
- Strategic risks the organization faces that may affect the validity of its strategy for the pursuit of growth opportunities
- Operational risks that might affect key operations of the organization in executing its strategy
Consumer Products and Services Industry Group – Top Risks for 2016
It is interesting, and a bit surprising, to find substantial consistency this year in the top risks for Consumer Products and Services companies, yet the significance of those risks is lower compared to last year. One possible reason: There is a rise in the likelihood that these organizations plan to devote additional time and resources to risk identification and management, with a notable jump since 2014. It could also signify better understanding and improved education among the board and C-suite executives regarding these risks and how their organizations are managing them. Nevertheless, these risk issues remain critical for Consumer Products and Services organizations to address.
Regulatory changes and scrutiny is an understandably higher risk for Consumer Products companies, even though the industry does not have the level of regulation that Financial Services companies face. Of note, more Consumer Products organizations are integrating elements of other industries into their product and service lines, such as entertainment, communications, mobile devices and healthcare, which opens them up to more regulatory oversight. And with a new U.S. president being elected in November, there is speculation that regulations and oversight of business could change significantly depending on who is elected.
Customer loyalty and retention is, of course, a foundational priority for the industry. Over the last year there was another significant jump in online and mobile shopping. In response, Consumer Products companies are investing more resources in their omni-channel programs to steer their customers to their properties (online and physical) versus large online stores. Omni-channel enables consumers to shop within their preferred channels based on time, location, availability and price, among other factors.
It is well-documented that Consumer Products companies have been the targets of some major cyberattacks in the past few years. Boards and executive management remain very concerned. Among other potential vulnerabilities, the sheer number of payment terminals these organizations manage continually makes them a prime target. Most have now installed new payment terminals to accommodate chip & pin credit cards, as well as terminals with near field payment systems to pay by phone. However, many of these terminals still only read a credit card swipe, which is far less secure. Bottom line, cyberthreats won’t disappear as a risk any time soon for consumer-focused companies, which continue to lead other industries in data and privacy losses.
In a positive development, consumer confidence rose significantly in the past year. Recent financial market fluctuations have affected consumer confidence levels, but they are still high compared to just a few years ago. However, Consumer Products companies are monitoring world events closely, which took a toll on the economy and appear to be continuing this year. It would not be surprising to find this risk increasing in significance next year.
Lastly, retaining top talent is a top priority for Consumer Products companies. Unemployment rates are at their lowest levels in years, making the talent recruitment and acquisition process far more challenging than in the recent past. These organizations are focused on keeping their best people.
For further results and a copy of the overall survey report, visit www.protiviti.com/TopRisks