Risk management professionals should be leading the charge to help their companies understand how disruptive technologies will affect business strategies and operations – and those risk managers who don’t lead the way will be relegated to a support role, according to the new 2017 Excellence in Risk Management (PDF) report. Disruptive technologies as defined in the report – for example, telematics, sensors, smart buildings and the Internet of Things – are those that either purposefully displace existing products or that introduce groundbreaking ways of doing business. The report, created by Marsh & McLennan Companies in partnership with Risk & Insurance Management Society (RIMS), suggests that risk managers may be focusing, to their detriment, on current rather than emerging risk.
Companies that integrate such technologies early on are generally able to stay ahead of their competitors, but they also face a significant challenge: while innovation allows companies to keep their business models fresh, it also disrupts an organization, making risks more complex. Risk management professionals need to adopt a proactive approach to these technologies, understand the risks and rewards, and educate executives on how those risks and rewards will impact business strategies, the report suggests.
For example, until recently, the responsibility for driving a vehicle rested solely on the consumer, but as automakers are using new technologies like parking, lane, and brake assists, car manufacturers now have liability related to safety and performance; that changes their risk profiles.
While the Excellence in Risk Management Report shows that more than half (55%) of risk managers say their companies have not conducted risk assessments for disruptive technologies, a recent report from PwC, Risk in Review 2017, indicates that risk executives do believe that smart risk management allows a company to be strategic and proactive rather than protective and reactive, thereby leading to “revenue and profit growth, expanding market share, lower employee turnover, and greater ability to withstand disruption.”
The Excellence in Risk Management report also seems to show that a “disturbing percentage” of risk managers are unaware of the prevalence of disruptive technologies. For example, 52% of risk professionals say their company doesn’t use or plan to use the Internet of Things (IoT). Yet a 2016 white paper from the Telecommunications Industry Association said that within two years, more than 90% of companies will be using IoT technologies. The white paper said that nearly half (48%) of US businesses are actively using IoT, and another 43% expect to deploy IoT solutions within the next 24 months.
To proactively prepare for the business risks and opportunities presented by disruptive technologies, Excellence in Risk Management suggests risk managers should follow certain steps, including:
- Engage key stakeholders, from senior leaders to operations employees and even suppliers, in looking at risk and bringing their insights to the decision-making process;
- Invest in the use of data, analytics and technology;
- Educate about risk management across the organization;
- Integrate risk management into strategic planning.
PwC’s report suggests that shifting more risk management responsibilities to the “first line” – that is, business units and corporate executives – will make companies more agile and more able to anticipate and mitigate risk events.