How companies respond to strategic threats in a hyper-connected world

Technological advances, from social media to cloud computing, have spawned new potential threats to businesses worldwide – and corporate enterprise risk management (ERM) has evolved to counter them, a Deloitte survey of about 300 executives or board members around the world finds.

Eighty-one per cent of respondents said they now focus on strategic risks rather than just enterprise risks. Applying ERM to strategic goals means, for example, to go beyond potential threats to a public company’s profitability and address potential threats to the company’s share price. In particular, companies in the Americas have zeroed in on key risks that could affect a company’s strategic goals.

The top five technology risks the Deloitte survey identified were social media (47%), data mining and analytics (44%), mobile applications (40%), cloud computing (38%) and cyber-attacks (36%). 

Technology enablers and disrupters such as social media and Big Data are on top of executives’ minds, ahead of other strategic assets such as talent and the ability to innovate ahead of competitors, according to the Deloitte survey. That is particularly true in Asia.

Worldwide, 91% of executives and board members polled said they have changed business strategies since the emergence of these technological innovations.

The information explosion of the past decade has brought forth a multi-dimensional matrix where no single voice dominates and where information and opinions are easier to access but harder to evaluate and control, according to the Deloitte survey. In response, “companies are making a deliberate effort to improve their strategic risk management capabilities and performance.”

Survey respondents most feared the damage risks embedded in the information explosion could do to their companies’ reputation (40%). Looking ahead, they worry even more what the technological innovations will do to economic trends that affect their company’s strategic goals.

While survey results suggested that participating companies, which all had annual revenues exceeding $1 billion, did a fairly good job integrating risk management with business strategy, they also showed there was room for improvement.

Nearly 40% of respondents believed that the risk management programme did not support their company’s ability to develop and execute a business strategy well.  

Suggestions from Deloitte on ways to sharpen strategic risk management include:

• Take a broader view of strategic risk by focusing not only on challenges that could cause a particular strategy to fail but also on risks that would threaten a company’s long-term positioning and performance.
• Integrate strategic risk analysis into a company’s overall business strategy and planning processes.
• Task the chief executive, the board of directors or a board risk committee with overseeing strategic risk management.
• Explore whether a strategic risk offers an opportunity to create value, for example, by using the strategic risk to determine whether the company has the right people or whether it operates in the right markets.

Related CGMA Magazine content:

“Five Likely Threats That Should Keep Global Leaders Up at Night”: Threats that keep top experts and high-level leaders up at night are the risks that are beyond any one company or even one nation to handle. A report from the 2013 World Economic Forum lists the most likely ones with the biggest damage potential.

“Five Emerging Strategies for Coping With Unknown Risks”: Unknown, complex risks that often are outside the executive team’s control increasingly threaten companies. Here are five strategies for battling those unknown risks.

“Business Shifts Require Refreshing of Risk Management Techniques”: As global markets shift, companies are making major changes in strategies and operating models. These business transformations require a bolstering of risk management techniques as a shaky global economy, tax increases, technology and expansion to new markets and geographic areas all present new risks to businesses.

“Good Risk Management Changes Corporate Culture, Boosts Earnings”: Good risk management goes beyond keeping the company out of trouble, a new study on risk investment levels suggests. Companies that did it best reported three times EBITDA than those that just did basic risk management.

—Sabine Vollmer (svollmer@aicpa.org) is a CGMA Magazine senior editor.