If there is one word that is capturing the new normal pace of the age we are in, it is acceleration. We are accelerating into the digital era, thanks to the explosion of data, accessibility of cheaper computing power, and broad adoption of technologies like machine learning and the growing web of connected devices composing the internet of things. An increasing number of companies are taking advantage of these trends to develop more innovative and compelling experiences for their customers, drive better and faster decisions, streamline their operations, and proactively reduce operational risks within their eco-system.
But while digital transformation promises accelerated innovation and economic advantages, the shift often creates unprecedented challenges for many companies steeped in legacy culture, process, technology, and ways of working. Not surprisingly, business model disruption and technology disruption are ranked as the top trends impacting their company over the next 12 months by the most recent 2017–2018 NACD Public Company Governance Survey. While board members are grappling to understand the implications of these changes for their organization, they must also turn their attention to the digital literacy and preparation of the company’s workforce to prepare it to face new challenges.
One critical challenge that can’t be ignored is the company’s role in preparing its workforce for intelligent automation. The World Economic Forum’s Future of Jobs Report predicts that 7 million jobs could be lost over the next five years through redundancy, automation, or disintermediation, with the most significant losses in white-collar office and administrative roles. Others argue the job losses could be less over the long term and there is much debate among economists, historians, and think tanks on the level of job destruction and creation that will come from automation. But two things are certain: one, in the near-term, we expect much workforce force disruption; and two, as artificial intelligence algorithms increase in sophistication and computational power, the pace of intelligent automation is likely to accelerate and push the workforce to focus on higher value activities. To meet that challenge, the workforce of the future will need to acquire a new set of skills rapidly in order to interact with the future of intelligent systems.
Unfortunately, many companies aren’t entirely equipped to assess and prepare their workforce for this disruption, especially in corporate functions like finance, treasury, risk management, and human resources. Research suggests these critical functions are still struggling to understand the full scope and impact of new technologies. For example, the 2018 AFP Risk Survey, supported by Marsh & McLennan Companies’ Global Risk Center, polled over 600 senior-level treasury and finance executives. The majority of respondents to the annual survey cited artificial intelligence, robotic process automation, and data engineering as technologies that could expose their companies to some risks, including disruption to business operations and regulatory risks. Only 14 percent of the same group surveyed say they are “significantly prepared” to manage these changes effectively and more than half (54%) say they are only “moderately prepared.” Similarly, the 2017 Excellence in Risk Management report, by Marsh and the Risk & Insurance Management Society (RIMS), found an awareness gap among many risk managers on the use of disruptive technologies by their organizations. The survey also found that more than half of organizations have not conducted risk assessments for disruptive technologies.
It is clear that the need to invest in re-tooling the workforce couldn’t have come at a more critical time. At the heart of this investment should be access for the workforce to a digital literacy program. Digital literacy is notably separate from computer literacy. Rather, it should be a focused program that educates employees in emerging fields such as big data, machine learning, process automation, blockchain, and the internet of things. The program would provide practical applications that are contextual to the employee’s role.
Thanks to advancements in online technology, there is now an array of learning opportunities available to employees and to board members alike. For example, Massive Open Online Courses offered through companies like edX and Coursera offer an array of courses, as well immersive, state-of-the-art educational content developed by top technology companies. Many of these platforms cater to the needs of individual enterprises and can customize digital literacy pathways for employees based on their industry and current skillsets. A small but growing number of companies are exploring these platforms as an avenue to accelerate learning within their organization.
A subset of technology companies is also opening up access to core technology courses beyond their employee population as a way to shore up interest in the technology used at the company and to close the skills gap. Microsoft recently announced the Professional Program for Artificial Intelligence for aspiring engineers and analysts with to a basic introduction of AI to mastery of the skills needed to build deep learning models for AI solutions that exhibit human-like behavior and intelligence.
Last but not least, there are more traditional ways to close the digital literacy gap. AT&T Corp., for example, sponsors a low-cost online master’s degree in computer science from the Georgia Institute of Technology’s school of computing and offers a variety of courses to retrain its employees who work in jobs that will become obsolete, such as landline installation and repair.
The concept of digital literacy is still at an early stage, but it is a critical foundational step that companies need to take to prepare their workforce for their future. Technology is disrupting everything in its path—including the demand for, and demands on, the workforce—and it’s not slowing down. The question boards need to ask is whether their organization is prepared to oversee the transformation of their company’s workforce proactively or passively react to the inevitable technological progress that will disrupt down the road.
Leslie Chacko is a director in Marsh & McLennan Companies Global Risk Center and leads research on emerging technologies. He has over 14 years of experience in advising clients in the financial services and high tech industries at the intersection of strategy, technology and risk.
The top risks for 2018 provide interesting insight into changing risk profiles across the globe. Protiviti and North Carolina State University’s Enterprise Risk Management Initiative have completed the latest survey of 728 directors and C-level executives regarding the macroeconomic, strategic, and operational risks their organizations face.
1. The rapid speed of disruptive innovations and new technologies within the industry may outpace the organization’s ability to compete or manage risk appropriately. With advancements in digital technologies and rapidly changing business models, are organizations agile enough to respond to developments that alter customer expectations and require change to their core business models? Disruption of business models by digital innovations is a given in this environment. Even when executives are aware of emerging technologies that obviously have disruptive potential, it is often difficult for them to have the vision to anticipate the nature and extent of change and the decisiveness to act on that vision. In this environment, emotional attachment to the business model can be dangerous because significant adjustments to it are inevitable.
2. Resistance to change could restrict the organization from making necessary adjustments to the business model and core operations. This risk and the risk of disruptive change present a dilemma to companies. On the one hand, there is concern about inevitable disruptive change and, on the other hand, a fear the enterprise will not be agile and resilient enough to adapt to that inevitability. This resistance could lead to failure to innovate and force reactionary responses when it’s far too late.
3. The organization may not be sufficiently prepared to manage cyber threats that could significantly disrupt core operations and damage its brand. To no one’s surprise, this risk is listed among the top five risks in each of the four size categories of organizations we examined. Both directors and CEOs rated this risk as their second highest risk concern. Technological advancement is constantly outpacing the security protections companies have in place.
4. Regulatory changes and scrutiny may heighten, noticeably affecting the manner in which organizations’ products or services will be produced or delivered. Regulatory risk, which has been one of the top two risk concerns in all prior years that we have conducted this survey, has dropped some in 2018. However, it is still a major concern for executives and directors. Sixty-six percent of our respondents rated it as a “Significant Impact” risk.
5. The organization’s culture may not sufficiently encourage timely identification and escalation of significant risk issues that could notably affect core operations and achievement of strategic objectives. This issue, coupled with concerns over resistance to change, can be lethal if it leads to the organization’s leadership losing touch with business realities. If there are emerging risks and the organization’s leaders are not aware of them, the entity has a problem.
6. Succession challenges and the ability to attract and retain top talent may limit the ability to achieve operational targets. Likely triggered by a tightening labor market, this risk is especially prevalent for entities in the consumer products and services, healthcare and life sciences, and energy and utilities industries. To thrive in the digital age, organizations need to think and act digital, requiring a different set of capabilities and strengths. This risk indicates that directors and executives believe their organizations must up their game in acquiring, developing, and retaining the right talent.
7. Privacy, identity management, and information security risks may not be addressed with sufficient resources. Given the high-profile reports of hacking and other forms of cybersecurity intrusion reported in 2017, this risk is somewhat expected. As the digital world evolves and enables individuals to connect and share information, fresh exposures to sensitive customer and personal information and identity theft also spring up.
8. Economic conditions in markets the organization currently serves may significantly restrict growth opportunities. However, the drop in this risk’s ranking from prior years suggests that respondents seem more positive about macroeconomic issues going into 2018.
9. Inability to utilize data analytics to achieve market intelligence and increase productivity and efficiency may significantly affect core operations and strategic plans. Respondent concerns are growing regarding their company’s ability to harness the power of data and advanced analytics to achieve competitive advantage, manage operations, and respond to changing customer preferences. In the digital age, knowledge wins. Advanced analytics are the key to unlocking insights that can differentiate companies in the marketplace.
10. Companies that were not “born digital” face significant operational challenges. Companies that are not steeped in digital operational culture may not be able to meet performance expectations related to quality, time to market, cost, and innovation. Competitors with superior operations—and those digital companies with low operations costs—present notable risk that is only heightened in the digital economy. Hyperscalability of digital business models and lack of entry barriers enable new competitors to emerge and scale redefined customer experiences very quickly, making it difficult for incumbents to see change coming, much less react in a timely manner to preserve customer loyalty.
The overall message of this year’s study is that the rapid pace of change in the global marketplace creates a risky operating environment for entities of all types. The board of directors may want to evaluate its risk oversight focus for the coming year in the context of the nature of the entity’s risks inherent in its operations. If their companies have not identified these issues as risks, directors should consider their relevance and ask why not.
That may sound like odd advice. After all, the whole world has gone digital—digital channels, digital stores, digital communities—and most businesses have spent the past decade thinking about almost nothing else.
But I’d argue that digital has become too pervasive to make sense as its own category. There’s no world of clicks separate from the world of bricks. There’s just a new hybrid world where people live their lives—a world in which “digital” is no longer a useful way to organize your thinking.
Boards should focus instead on a related “D” word: disruption. Thanks to digitization, all of us—at work, at home, and on the go—have new expectations about services, products, relationships, and experiences. We want higher levels of richness, relevance, convenience, and timeliness in all our interactions with companies. Disruptors like Uber Technologies, Amazon.com, and Facebook, have found ways to meet rising expectations, and in doing so they’ve defined what “good” looks like everywhere. These tech juggernauts are signaling that they intend to insert themselves anywhere they can remove friction, capture customer attention, drive out market inefficiencies, or strip away information to fuel their data and insight engines.
Most important, as digitization unfolds, power has shifted from companies to people, from supply side to demand side. That means boards need to focus on fundamental questions. They need to focus less on “where the puck is heading” and more on questions that dig in deeper: How fast can we move? Does our company have time to shift from low-growth to high-growth businesses, before disruptors steal our customers? Where do we have assets that can become the basis of new information-powered businesses? And the crucial issue in a time when customers are immersed in offers of low price and one-click convenience: How does our company stay relevant? How do we change our strategy for capturing and retaining customers’ attention?
The point isn’t to be right about the end-state—you won’t be. But you do need to encourage your management team to develop a point of view about how the future is shaping up, areas that your company has strong idea about, areas of weakness that may need more strategic thought, and options that will let you rally behind certainty and probe uncertainty. With this kind of framing, the board can take a disciplined approach to managing risk from digital disruption, instead of just trying to minimize or avoid it altogether. ‘Disruptors at your doorstep’ can become a rallying force and focusing lens —helping your team make clear choices about what to keep, what to start, and what to stop, liberating resources from declining businesses to fund growth and business reinvention. Put differently, think of imminent disruption as a crisis. As we’ve learned from times past, never waste a crisis.
The other critical conversation is about modernization of core capabilities, work approaches, and talent. Often this conversation shows up as an innovation challenge. As large incumbents, can we do new things and do things differently? Can we take a page from the playbook of digital market leaders like Amazon and Google? Some of these companies rent and assemble capabilities to get further faster, as opposed to building and managing everything on their own. They appear to work fluidly across functional and product “silos”—in fact, they have no silos to combat. And they tune their business cadence on the inside to reflect rapid changes in the external environment. In other words, they can operate in agile cycles with integrated teams.
Is your response to these thorny issues a “digital strategy”? I’d argue not. Disruption, on the other hand, requires vigorous debate to focus management energy on doing the right things, faster and with greater flexibility.
So forget about digital strategy. You’ve been losing sleep over it for too long. If you focus on the right issues, you won’t necessarily sleep better, but you’ll get a lot more value out of those wakeful hours. And value, after all, is the point.
Rick Chavez is a Partner and the Americas Head of Digital at Oliver Wyman.