Resilience in a digital world does not mean fearing the technologies that move business forward. John Ludlow argues that, in the fourth industrial revolution, innovation and risk management must work together
The rapid pace of technological advancements today can seem exciting, unpredictable and daunting in equal measure. Developments in cyber, artificial intelligence and the internet of things are accelerating the convergence of physical and digital spaces, and in doing so they are completely changing the business landscape.
This presents a dual challenge for the risk community. On the one hand, these changes are giving rise to unprecedented risks that we couldn’t even imagine just five years ago. This is an age when a teenage hacker working out of his bedroom can potentially cause as much economic damage as a tropical storm, when a systems failure or social media event that hits the unprepared business can leave a reputation in tatters.
Yet on the other hand, the biggest risk of all is not to embrace technological innovation. The opportunities for innovators who find openings that others fail to spot are unprecedented, and those that don’t can get left behind very quickly. Well-established organisations are particularly vulnerable to this risk because they are now competing with nimble, start-up organisations whose business models are centred around technology.
The biggest risk of all is not to embrace technological innovation
The financial services sector is a case in point. The introduction of new digital financial technology is changing how banking and insurance customers access services, putting banks and insurers in competition with new non-bank start-up technology firms offering highly agile FinTech solutions. Because disrupters are often free from traditional legacy systems and constraints, and often operate in a less regulated environment, they have the ability to develop and deploy new connected solutions at speed.
What is resilience in a digital age?
It has always been the case that firms must reconsider their purpose from time to time to stay successful. But the key point is that change can now happen at break-neck speed and how we respond can be the difference between sustainable success and failure.
Against this background Airmic, which represents those who work in risk, commissioned a report from CASS Business School to examine the impact that the so-called Fourth Industrial Revolution can be expected to have on the resilience of companies. Although Roads to Revolution is fundamentally positive, it warns that organisations cannot continue to manage risk as they have in the past and expect to remain successful.
“Board members need to understand that traditional resilience measures alone are insufficient in the digital age,” our report says. Regular reviews of the stakeholder purpose and continuous business model reinvention are necessary for the future success and sustainability of the organisation.
We need not fear concepts such as Artificial Intelligence, Blockchain and Quantum Computing
The report underlines that good governance becomes even more important in the cyber age. But it goes further than that: traditional corporate governance principles on their own are inadequate in the face of digital transformation. In simple terms, there are a whole lot of emerging risks out there that could flatten a company unless they are identified, understood and overseen.
Innovation and risk management must work together
We need not fear concepts such as Artificial Intelligence, Blockchain and Quantum Computing, but there will be losers as well as winners. The winners will be those organisations and individuals that acquire the necessary expertise, collaborate and embrace change.
In the digital world, innovation and effective governance must go hand-in-hand. Changing this culture and putting risk at the heart of corporate thinking is a top priority.
In addition to this, organisations must act quickly and understand the importance of agility if they are to compete successfully with tech-centred newcomers. Roads to Revolution stresses the importance of being able to initiate a “more flexible deployment of resources” in the digital world and to nurture a “creative lens with regard to emerging risks”.
Innovation and risk management can, mistakenly, be viewed as opposing forces. Many board members do not understand what positive risk management can do for their businesses, whilst many risk managers do not understand and align to the business drivers sufficiently to wield strategic influence within their organisations. In the digital world, innovation and effective governance must go hand-in-hand. Changing this culture and putting risk at the heart of corporate thinking is a top priority.
John Ludlow is CEO of Airmic, the association for all those who work in risk