January 3, 2019
January 3, 2019
A challenging year lies ahead for companies in terms of macroeconomic, strategic, and operational risks, according to the latest survey of C-level executives and directors conducted by Protiviti and North Carolina State University’s Enterprise Risk Management (ERM) Initiative.
The global survey asked 825 C-level executives and directors (45 percent representing companies based in North America) about their perspectives on risk concerns. Consistent with prior years, boards and C-suite executives presented a range of views on the magnitude and severity of risks for 2019, suggesting the need for dialogue at organizations’ highest levels to ensure everyone agrees on the risks most critical to the enterprise.
The highest-rated risk themes from this year’s survey are presented below, in order of priority, to provide context for understanding the most critical uncertainties companies face in the new year.
1. The global business environment is riskier in 2019. Survey respondents indicate that the overall global business context is somewhat riskier in 2019 relative to the two prior years. Survey respondents in 2018 only rated seven of the top 10 risks higher than they did in 2017. However, for 2019, respondents rated each of the top 10 risks higher for 2019 relative to 2018. A majority of respondents rated each of the top 10 as a “significant impact” risk using our survey methodology. Looking forward, the message is that digital disruption and changing demographics are major drivers of risk, impacting uncertainty over business model viability, customer preferences, the competitive landscape, workplace dynamics, and even regulatory demands.
2. There were notable shifts in the top 10 risks for 2019. Notably, the risk “existing operations and legacy information technology (IT) systems not meeting performance expectations against competitors, especially ‘born digital’ and/or low-cost-base competitors” jumped to the top of the 2019 list from the tenth position last year.
This risk is a composite of several significant uncertainties, including assurance of the company’s digital readiness, its lack of resiliency and agility in staying ahead of or keeping pace with changing market realities, the restrictive burden of significant technical debt, lack of out-of-the-box thinking about the business model, failure to probe fundamental assumptions underlying the strategy, and the existence or threat of more nimble competitors. Respondents in five of the six industry groups we examined selected this risk as a top-five concern and rated it as a “significant impact” risk concern for 2019.
One risk returned to the top 10 in 2019 after dropping off in the prior year. Respondents indicated their concerns about increasing difficulty in sustaining customer loyalty and retention in light of evolving customer preferences and demographic shifts in their customer base. This risk had appeared on the top 10 risk list in our 2015, 2016, and 2017 reports.
The rest of the top 10 risks are similar to prior years, although their order has shifted. As in the prior year, seven of the top 10 represent operational risk concerns, while the remaining three represent strategic risk concerns. No macroeconomic risk concerns made the top 10 list in 2019 for the overall global sample. As noted below, economic risk fell out of the top 10 list this year; that might not have been the case had our survey been conducted in December 2018.
3. The nature of concerns over uncertainty varies across the world. Overarching views about uncertainty in the business environment seem to be global in reach. Survey respondents in North America identified the same top five risks as reported globally, with resistance to change and cyber risk in the fourth and fifth spots, respectively. Reported results from different regions follow:
4. Firms are more likely to invest in risk management. Interestingly, respondents indicate they are more likely to devote additional time or resources to risk identification and management over the next 12 months relative to their plans in the prior year, suggesting a greater desire to invest in strengthening risk management capabilities. That is especially true for financial services organizations as well as the largest organizations (revenues greater than US10 billion) in our sample. Individuals serving on boards indicate the greatest desire to devote additional time or resources to risk management, perhaps to better inform their risk oversight processes.
5. Regulatory concerns persist, and economic concerns vary across the globe. Survey respondents (particularly in Europe) remain troubled by the threat of regulatory change and increased scrutiny, which has been a top 10 risk in all seven years of the survey. But for the first time, concerns about economic conditions fell out of the overall top 10 list. However, despite that finding for the overall sample, respondents in Europe, Latin America and South America, the Middle East, and Africa did include economic concerns as a top five risk concern for 2019.
Perceptions of economic risks are like a pendulum, as they can change quickly over a short period as new developments transpire (including after our survey period). Interestingly, board members and chief executive officers rated economic conditions as a top five risk, ranking it in the third and fourth spots, respectively.
In summary, it’s clear that organizations must align their culture, people, processes, and intelligence-gathering to embrace this rapidly changing business environment.
We encourage interested parties to read the executive summary of our survey results to learn more and explore deeper analysis into this annual survey. As with our prior surveys, the results captured significant uncertainties by industry, executive position, company size and type, and geographic area.