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
Technology, Media & Telecommunications Industry Group – Top Risks for 2016
For four of the top five risks, the current year risk ratings are somewhat lower relative to last year and more consistent with 2014. Regarding the top three risk issues – rapid speed of disruptive innovations, cyberthreats and privacy/identity management – the lower results this year likely result from an intense focus by companies on proactively addressing these areas, especially with recruiting talent and undertaking extensive risk management and mitigation efforts. Both privacy/identity management and the rapid speed of innovation decreased minimally in significance over the prior year, yet they clearly remain top-of-mind risk issues for Technology, Media & Telecommunications companies.
Numerous data breaches and successful cyberattacks have resulted in prudent companies and their boards of directors and management teams clearly recognizing the risk and preparing detailed incident response plans to anticipate what may be an inevitable data breach. The survey results mirror observations in the market that Technology, Media & Telecommunications companies are preparing for and managing the risk proactively. The same holds true for ensuring there are adequate resources to address privacy and identity management along with information security and system protection.
Survey respondents indicated that global economic conditions represent a significant risk issue. Numerous factors are contributing to a volatile period in the global economy, particularly at the onset of 2016. While the survey responses are from late 2015, it is likely that today this risk would be judged to be more acute. Companies in this industry group are impacted by global economic conditions given the breadth of the supply chain and the customer base. At the same time, they are buoyed by the level of innovation and the many new products hitting the market. Business transformation initiatives underway to take advantage of the move to digital processes are being driven by the products and services offered by Technology, Media & Telecommunications companies. This is raising confidence levels for long-term success, even amid short-term fluctuations in the economy.
Technology, Media & Telecommunications organizations contend with risks associated with the speed of innovation in the normal course of business. Today, perhaps unlike a decade ago, they understand much better how to prepare and align themselves for change. As a result, it is surprising that respondents indicated that resistance to change is among the top risks for this industry group. Perceptions of this risk may result from concerns that current business models are becoming outdated. Core operations must be able to make changes and adjust rapidly to the market, particularly if the business model is becoming outdated. Similarly, people and culture are critical elements. Without people willing to respond to changing market realities and current customer demands and potentially contribute to a new business model, companies can lose substantial competitive advantage.
For further results and a copy of the overall survey report, visit www.protiviti.com/TopRisks.