Two, recent reports have highlighted the direct link between innovation and risk. In the most recent, published this month, research from specialist consultancy Marsh shows that, while two-thirds of executives around the world rank cybersecurity as a Top Five priority risk area, only 19% are highly confident in their organisation’s ability to tackle a cyber event – and only 30% have devised contingency plans.
In its poll of 1,300 execs throughout every sector and business size, the consultancy also found that 75% of them identified business interruption as the cyber-loss scenario with the greatest potential, financial impact. But fewer than 50% actually estimated financial losses – and of those, only 11% measured cyber-risk exposure in a quantitative fashion.
The report notes: “Consider that in 1975, just 17% of the market value of S&P 500 companies was tied to intangible assets, including data, intellectual property, and other technologies. The bulk of their value was in physical assets. Today, the numbers have reversed: Just 16% of value is in physical assets; the rest comes from intangibles. That shift has been facilitated by, among other things, advances in computer processing, cloud computing, sensors, software, and ever-smarter devices.”
The second report, published in January by management-consulting firm Oliver Wyman, notes that, while finance professionals are increasingly looking to adopt technologies such as AI, blockchain and robotic process automation, few are prepared for the new types of business risks that may stem from those technologies. What kind of dangers – to firms, customers and reputations – can leaders incur by prizing innovation far above risk management?
The Institute of Leadership & Management's head of research, policy and standards Kate Cooper explains: “All technologies are developing at such a rate that it’s getting increasingly difficult to keep up with the surprises they deliver as they become more and more mature. But effective risk management is all about imagining and envisioning events and scenarios that haven’t happened before, and that you hope will not happen. So you have to be ahead of the curve, and carry out as much research as you possibly can on the potential directions of travel for the technologies that are most relevant to your organisation.
“The risks of not undertaking such efforts are far greater than the risks that may stem from the technologies themselves – for if you don’t get a sense of what shape those tech-related risks may take, you will be completely unprepared. Any improvised contingencies that you put in place amid a genuine, technology-based risk event will therefore be leaps in the dark. You will have no way of knowing whether those hastily arranged countermeasures will have any effect – or, indeed, if they are really suitable in the first place.”
Cooper notes: “The fact that the two reports have unearthed these issues with such urgency is very encouraging. As recently as 10 years ago, risk management didn’t have such a high profile in leaders’ considerations. Back then, the emphasis was much more on health and safety, and the effects of the workplace upon employees’ physical constitutions. Now, we’re talking more openly about all sorts of risks, whether they happen to be mental-health risks or, even more prominently (with particular reference to the financial sector), conduct risks.
“So we certainly have a fertile climate for discussing risk in multiple forms. And as technologies evolve, proliferate and intertwine – in step with our business requirements to innovate – the importance of effective risk management is only going to grow. The leaders who understand this will be best equipped to take their organisations into the future.”
For further insights into this topic, BOOK NOW for the Institute’s upcoming Vision webinar with risk-management expert Luke Taylor – founder of Risk Reward Awards – set to take place from 12:30pm to 1:00pm on Wednesday 21 February