As 2019 moves us deeper into the fourth industrial revolution, business models can become obsolete quicker than ever before. The opportunities associated with technological changes are unprecedented, but so are the risks for those that fail to embrace them. John Ludlow, CEO of Airmic, argues that businesses that want to thrive in 2019 must understand where value really lies and how they can leverage and protect it.
If there is one thing we can say with certainty in these exceptionally uncertain times, it is that the next twelve months will see at least one major UK organisation fail. And while we can’t predict who that will be, or the particular factors involved, we can say with confidence that there will be an underlying failure of risk leadership at the heart of the crisis.
The UK’s future has not been this uncertain since the end of the Second World War. The Brexit fog is descending thicker and faster, impairing visibility and creating extremely difficult business conditions. As we enter the new year, any outcome seems possible.
The good news is that your job as business leaders is not to have a crystal ball, but to have an effective risk radar: to make sure your businesses are resilient to whatever comes their way.
Is technology making your business model obsolete?
Technology has long been an enabler for business models. It has made processes faster, more consistent and more efficient. But in the past, underlying business models were largely unaffected by technological progress.
Today, by contrast, it is completely altering the business landscape. Technological developments are integrating businesses, shortening the routes to markets (often direct to consumers) and revolutionising the management of data. Meanwhile, artificial intelligence is accelerating how we receive and process information.
Combined, these factors are changing the way consumers consume and the way businesses do business. Business models can become obsolete quicker than ever before.
At the same time, value created in businesses over the last decade is far more likely to be found in intangible assets such as reputation, brand and intellectual property than in bricks and mortar. A study suggested that over 82 per cent of Fortune 500 companies’ value now resides in intangible assets.
These trends are hugely exciting, opening up infinite possibilities and new sources of profit. However, keeping pace and managing the new types of assets and the catastrophic impacts that they are vulnerable to, are daunting challenges.
Businesses must ensure that their risk governance is keeping pace with the fourth industrial revolution
Assign responsibility for all new assets
Last year, Airmic commissioned research by Cass Business School on the impact of the digital revolution on business resilience. The report, Roads to Revolution, found that legacy corporate governance principles were no longer adequate to provide effective monitoring, strategy and legitimacy to organisations.
Businesses must therefore ensure that their risk governance is keeping pace with the fourth industrial revolution. Boardrooms focused only on the upside value of the new business landscape are failing to identify who is responsible for the development and protection of these new sources of value and the assets created.
Ask where responsibility lies for money, property and people and the answers come back quickly. However, ask about artificial intelligence, data and intellectual property and the answers are slower and less precise.
Developing clear roles, responsibilities and joined-up ways of working to tackle the risks to the entire spectrum of assets and stakeholders must become a core expectation for businesses.
Data, which underpins almost all technological advances, is a case in point. The lack of care of personal data has caused societal outrage and eroded trust in business, and hence the GDPR was born. If businesses had adopted better data governance and assigned clear responsibility before the EU made it compulsory, there would have been fewer casualties in this process.
A challenge for business leaders is to be outward looking rather than inwardly obsessed
A final challenge for business leaders as they look at the year ahead is to be outward looking rather than inwardly obsessed.
One of the key conclusions of Roads to Revolution is that “board members need to understand that organisational resilience alone is insufficient in the digital age. Continuous business model reinvention is necessary not just for future success, but for the very survival of the organisation.”
Now is the time to use your networks, both internally and externally, to look at mega trends, changes, opportunities and threats.
Ask what they mean for your business; watch competitors and understand why they make the decisions they make. Constantly challenge your purpose and strategy through the eyes of your stakeholders. Are you still relevant?
But always take the initiative in a way that is underpinned by sound risk management. To thrive in today’s challenging environment, remember that the better the brakes on a car, the faster you can drive.