Digital transformation is changing everything, fast, and business leaders recognize this.
In EY’s 2018 Digital Deal Economy study, 87% of executives responded that they expected moderate to complete disruption of their sector over the next two years. But predicting the exact nature of change, of what could threaten your existing business and what could drive future growth, is a huge challenge. It’s why a new generation of risk professionals must give organizations the confidence to take the right risks to drive long-term value.
Why organizations need a new risk mindset
To drive growth, we should move from risk avoidance to risk mitigation – and ultimately risk optimization. Traditionally, risk has been seen as a negative. But today, it makes more sense to think of risk as having three distinct aspects:
Upside risks – representing positive opportunities such as through new disruptive technologies, including EY’s strategic workforce planning and change insight tools, or operating models
Downside risks – representing threats such as the possibility of employee fraud or a cyber breach
Outside risks – representing factors outside of an organization’s direct control, such as wider political, economic or regulatory trends
Understanding the distinctions between different types of risk has strategic implications– often the upside risks you don’t take are as important as the downside risks you avoid. But actually deciding on which risks to take can be complicated. This is particularly the case for organizations that need to maintain a balance between sustaining core business lines and investing in innovation (a challenge known as the innovator’s duality).
Leading organizations that will succeed in today’s rapidly changing world are developing a multi-level strategy to understand their risk profiles — and their risk appetite — all aligned with where they want to go from a strategic perspective. They increasingly see risk analysis as a vital part of both strategy’s development and its execution. They are deploying agile risk management approaches to predict and respond to high-velocity risk to minimize downside and seize upside risks.
A new risk mindset for the transformative age
The digital age presents opportunities for immense value creation. Taking advantage of this shift will mean a sea change in the way we think about doing business — both in terms of how value is created and how the attendant risk is managed, whether that means avoiding it or capitalizing on it.
At the spearhead of this paradigm shift will be a reimagined risk function: a unit that can enable the organizational agility needed to embrace risk, promote a more predictive risk approach, and harness new technologies and risk ecosystems to drive improved outcomes and lower costs without losing the independent perspective that is so important to managing risk.
But the biggest risk is moving too slow — or doing nothing at all at a time when the velocity of risk is higher than ever. This will not only make you more vulnerable to both current and future risks, but also lose the trust of shareholders, staff and customers, and see competitors overtake you.
Read the full article, here.
EY legal contacts:
Paula Hogéus – Global Labor & Employment Law Leader
Peter Katko – Global Digital Law Leader