Business agility is key to mitigate known and blindside risks

17 December 2018 Consultancy.org

At a time of increased regulatory reform and economic upheaval, the risk landscape is becoming more and more heated. Business leaders need to consider risks, including blindside risks, by assessing their readiness and mitigating exposure through roadmaps and action plans. Being agile and countering with speed and effectiveness is a key part of this risk management approach.

In new report from BDO, titled ‘Global Risk Landscape 2018,’ researchers asked leaders from companies in various sectors and regions – with revenues between $100 million and $10 billion – to provide insights on their top risks and how they manage them. They found that although the range of risks that businesses face is similar, there is a growing chasm between the commercial leaders – innovators, who are more inclined to look at external risks – and those businesses whose commercial performance is weaker, and who are more challenged by operational risks.

BDO relates that businesses need to innovate, often technologically, in order to manage risk, and that those which do not will face greater competitive pressure in addition to macro threats. The report authors also found that “from the very large businesses down to the smallest businesses, digital transformation is adding an additional risk challenge to board room knowledge.”Top 10 blindside risks

Blindside risks

Risks that cannot be predicted – blindside risks – cannot be prepared for. The top blindside risk is regulatory risk, cited by 62% of respondents. Given the current regulatory environment, it is perhaps no surprise that regulatory risk is seen as the greatest blindside risk by all respondents across geographies and industries, jumping from second place in 2017 to first place in 2018.

‘Macroeconomic developments’ ranked a close second, however, cited by 60% of respondents as talk of trade wars and rates hikes creates uncertainty across the globe. Macroeconomic developments –which rose from third to second place – can likewise have an existential impact upon a business, particularly as new trade agreements and barriers are established. Recent cases in point include the imposition of tariffs upon imports of metals into the US and the renegotiation of Britain’s trading arrangements with the EU.

Rapid change in the global environment, with various natural disasters as well as structural changes to the weather, meanwhile, was chosen by 56% of respondents.

Respondents are also worried about their supply chains (53%); geopolitical risks, particularly in the Middle East; and increased competition as formerly local competitors take a more global approach. Talent risk – from retention to attraction and engagement – was cited by 49% of respondents, while cybercrime and a failure to innovate were noted as top blindside risk by 43% and 42% of respondents, respectively.

Positive impact of innovation by performance level

The two areas of risk that have increased most in leaders’ minds since 2017 – supply-chain and environmental risk – are reflective of clear developments in the wider global risk environment, where protectionism is accelerating and climate-related challenges are increasing.

The question is how can firms counter blindside risks? In order to manage blindside risks, businesses can change the speed at which they operate and respond to change, according to BDO. Increased ‘agility’ can assist in reducing the impact of macroeconomic effects; and while most direct impacts are typically sectoral, they can also affect elements of services and products. It is thus possible for a sector leader to anticipate such effects ahead of competitors – and to optimize client relationships and costs to better suit the new world order.

Innovation

Rapidly shifting market dynamic can create risks even for large traditional firms, customers change their behaviours and market access evolves. Innovation can be a central avenue to keep up with changes, while potentially defining the market evolution. According to the report, analysis of innovation in advanced economies over the past 50 years shows that the rates of return for R&D are usually higher than capital investments – doing 75% better in some cases.

The research further dug into the impact on cost / process efficiencies innovation spending brought to companies at different performance levels. Overall, 52% of top performers noted an impact, while 62% of median performers noted an impact. Customer centricity was tagged as benefitting from innovation, as cited by 64% of top performers and 58% of median performers. Competitive relevance was noted as positively improved by innovation at 60% of top performing respondents, followed by 52% of median performers and 56% of low performers.

Business model

Getting things right before wider changes impact their businesses is a key part of business risk planning. Overall, various businesses have different levels of future-proofing as part of their strategies. Around 16% of respondents said that they currently have an outmoded business and operational model, with limited investment in change.

Around a third (30%) of respondents said that they are currently developing a strategy for future-proofing their business, with some part of the strategy focused on meeting the business model and technological changes that could affect future outcomes. 26% of respondents say that they are past the planning phase and are currently implementing various changes to meet future sustainability and business model change needs. Finally, 28% of businesses said that they have already transformed their businesses in line with projected market and consumer changes, with key investments in the ‘right technologies’ to secure future sustainability.

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