Business environment is “becoming riskier”

Business leaders believe the global business environment is becoming ‘riskier’, according to a new report from consultant Protiviti. The Executive Perspectives on Top Risks 2019 report, published in conjunction with North Carolina’s State University’s Enterprise Risk Management initiative, focuses on the ‘key issues being discussed in the boardroom and C-suite’.

Its findings are based on data from a survey of 825 board members and executives from businesses across the world. In the survey, each respondent identified the top risks to their businesses in 2019.

They were also asked to rate the potential impact of 30 specific risks using a 10-point scale. A score of one signified ‘no impact at all’ while 10 indicated ‘extensive’ impact. Risks with average scores of six or more were classed as having ‘significant impact’.

The risks spanned three areas:

Macroeconomic risks– which could potentially affect organisations’ growth, such as volatility in global financial markets and the impact of world leaders on international markets.

Strategic risks– which might affect the validity of growth opportunity strategies. For example, will the growth of new technology outpace businesses’ ability to react to changes it brings? Will organisations be able to adapt to social media innovations and trends affecting their customers’ purchasing habits?

Operational risks– which might affect key operations in businesses’ execution of their strategies, such as management teams’ alignment with shareholders’ needs or the long-term viability of key suppliers.

Key findings

  1. Overall,the global business environment is riskier in 2019 than it has been over the past two years. Respondents rated all the survey’s top 10 risks as being likely to have a higher impact in 2019 than in 2018. In that year’s survey, seven out of the top 10 risks were identified as having more impact than in 2017. The results clearly show that executives believe the global environment has become a riskier place to do business since 2017.
  2. The level of business uncertainty varies across the globe.Respondents from six out of the eight geographic regions agreed that the magnitude and severity of risks are at a ‘significant impact’ level for 2019. Businesses in India, South America and Latin America are the most concerned about the severity of risks. North American organisations are the least concerned and placed just two out of the top five risks at that level.
  3. Funding and investment in risk management is more likely to happen in 2019. Businesses appear to be more willing to devote time and resources to identifying and managing risk in 2019 than they have been in previous years. This was particularly the case with financial service and larger organisations (those with $10 billion plus revenues). It’s clear that the riskier nature of the global business environment is sharpening the focus of board members on ensuring they have effective risk management programmes in place.
  4. Businesses are most concerned that their existing operations and IT infrastructure may not be able to meet expectations or compete with ‘born digital’ competitors in 2019. This risk factor jumped from tenth place in 2018 to the top spot in 2019. In fact, five out of the six industry groups in the Protiviti sample recorded it in the top five risks. Businesses also now appear to have concerns about customer loyalty and how they can achieve it, given shifts in customer preferences and demographics. Customer loyalty is vital for growth in business and in order to not stay stagnant. Naturally, to ensure that businesses gain lifelong fans, companies find reaching out to a loyalty agency to help build a customer loyalty program that will keep customers happy and coming back for more is the best way to tackle this growing issue. This risk factor dropped out of the top 10 risks in 2018 but has returned in the latest report. Businesses also indicated that operational risks will be concerning them most in 2019. Just three out of the top 10 risks were from the strategic risk group. No macroeconomic risk made the top 10.
  5. Concerns over regulatory changes persist. Organisations from Europe fear the threat of regulatory change more than businesses from other parts of the world.

Overall, economic risks did not make the survey’s top 10 even though businesses from a number of geographic regions, including Europe, placed it in their top five.

Risk drivers

The results of the Protiviti report make for an interesting read for risk managers, and it appears more time and resources are being invested in risk identification and management as businesses become more concerned about how their businesses will thrive in 2019.

There are many drivers behind the increased number of boardroom conversations about risk and how to mitigate it. In Europe, Brexit clearly continues to have an impact while new technologies, shifting customer preferences and demographics, cyber threats, unemployment levels and the strong US dollar are all contributing to the renewed focus on risk management.

These factors are leading to more demands at board level for effective risk management programmes and capabilities to be in place.

As the report concludes, boards and C-suites should now be closely examining how their organisation approaches risk. It would be prudent for risk managers to revaluate and ensure their organisations and clients have the tools and techniques in place to minimise risk and to ensure the main concerns highlighted in the report are part of current risk management plans.

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