Topics:   Risk Management,Strategy

Topics:   Risk Management,Strategy

March 2, 2021

As Directors Look to 2030, Strategic and Disruption Risks Loom Large

March 2, 2021

At least half of corporate directors’ top 10 risks over the next decade tie back to digital, data, and cyber concerns, according to Protiviti’s Executive Perspectives on Top Risks: 2021 & 2030. This study also focused on the 2021 risks, presenting both a short-term and long-term view of the global risk landscape. The survey of 1,081 C-level executives and directors on macroeconomic, strategic, and operational risks highlights leaders’ views regarding the disruptive risk landscape through 2030. Conducted near the end of 2020, the survey asked participants to rank 36 risk themes based on their relative impact over the next decade to provide a context for understanding the most critical uncertainties companies will face between now and then.

These are the top risks for 2030:

  1. Adoption of digital technologies may require new skills that are in short supply
  2. Impact of regulatory change and scrutiny on operational resilience, products, and services
  3. Rapid speed of disruptive innovation may outpace the ability to compete
  4. Leadership succession challenges and ability to attract and retain talent
  5. Privacy, identity management, and information security challenges
  6. Substitute products or services may arise that affect our business model
  7. Sustaining customer loyalty and retention may be difficult as preferences and demographic shifts evolve
  8. Ability to compete with “born digital” and other competitors
  9. Ability to utilize data analytics and “big data” to achieve market intelligence and increase efficiency
  10. Cyber threats

Key takeaways from the 2030 risks portion of the survey are summarized below.

The future of work looms large on the horizon. Zeroing in on concerns about the changing nature of work, specifically, the issue is whether organizations can successfully upskill or reskill millions of employees whose job functions will be displaced by the widespread adoption of artificial intelligence (AI), automation in all its forms, natural language processing, visual recognition software, virtual reality simulations, and other digital advances. The objective is to enable displaced employees to perform new job functions created by these same technologies that will be essential to operating successfully in the digital economy. As AI disrupts customer interactions with businesses, these new job functions will likely involve interpreting and acting on customer data to drive improvements in processes, products, and services.

Companies that formulate how and where they need to skill their workers and are also intentional as to how they will execute their plan to do so to achieve the business outcomes they expect are most likely to have a competitive advantage. On a macroeconomic scale, if the private sector is unsuccessful in upgrading skills in the workplace, the ripple effects throughout global markets will be huge. The future of work is the fourth-ranked risk in 2021 and the top risk for 2030, making it one of the defining business challenges of the next decade.

That said, human resource concerns run deeper than the shifting nature of work. Another long-term concern relates to sourcing and retaining the top talent needed to compete and thrive in a disruptive environment. Talent wins. Companies need talent to reimagine their market positioning, integrate emerging digital technologies into the business, execute complex strategies, and reinvent business models that will sustain the organization’s relevance and growth over the next decade. This reality triggers a related strategic concern that companies will not be able to keep pace with the rapid speed of disruptive innovation. It takes talent to do that. Without the best and brightest people, it is impossible to face a disruptive future with confidence.

No one expects the risks of data security and cybersecurity to diminish. Data privacy and cyber threats again are among the top 10 risks to business in 2021 and are also on the top-10 list for 2030. Cyber threats remain a moving target, and data privacy concerns promise to become even more complex as the digital age continues to advance. There is no reason to believe these realities will change.

Regulatory risk is elevated when viewed over a longer time horizon. The potential for regulatory change and greater scrutiny of how products and services are provided is second on the list of the top 10 risks for 2030. In the 2021 outlook, it is the seventh-rated risk. That difference in ranking may be due to executives’ expectation of future environmental legislation as well as laws and regulations that will drive social change, increase taxes, and be the impetus for developing alternative products and services. The latter point gives rise to yet another risk, which relates to the emergence of alternate products or services that could affect the viability of current business models. Disrupt or be disrupted.

Four risks on the top-10 list for 2030 are not on the top-10 list for 2021. Three of these risks are strategic issues; the fourth is an operational risk. Leaders are concerned that disruptive innovations over the next 10 years may drastically alter customer behavior (risk three). Customer loyalty is likely to prove fleeting as preferences and demographic shifts evolve (risk seven). New markets and competitors offering alternative products and services are expected to expand customer choice in ways that could affect the viability of current business models and planned strategic initiatives (risk six). These market developments can erode the brand image and market share of incumbent organizations that fail to pivot and adjust, placing a premium on having sufficiently robust data analytics and “big data” skills to achieve the intelligence needed to differentiate companies in the marketplace (risk nine).

The message for the next decade? Fasten your seat belts. When they look to 2030, business leaders are concerned about the future of work, impactful regulatory change, talent development, novel products and services that may replace older versions, fleeting customer loyalty, competing with “born digital” peers, and the rapid speed of disruptive innovation. The latter risk, in particular, was ranked 18 for 2021 but jumped to the third-ranked risk for 2030, reflecting an expectation of disruptive change over the next 10 years. Facing the coming decade with confidence will require strategic positioning. The effective utilization of data analytics and the ability to pivot in the face of disruptive change will prove vital to sustaining business relevance. And a trust-based, innovative culture made possible by authenticity and empathy at the top, acting with intention, a high digital intelligence in the workforce, a strong customer focus reinforced by data analytics, a meaningful commitment to diversity and inclusion, and the fostering of transparency will facilitate organizational resilience.

Boards should consider the above risks in evaluating their companies’ strategic outlooks. If management has not identified these issues in the formal risk assessment process, directors should consider each risk’s relevance to the company’s business and ask why not.


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Comments

Jim DeLoachMarch 12, 2021

Thank you, Suzanne for commenting. Stay safe.

Suzanne CaseMarch 11, 2021

Good insights on expected changes in risk landscape in the coming years.