Risk trends 2019

Fleet of foot: how risk leaders can get ahead of populist, protectionist and policy uncertainties, part of PwC’s 22nd Annual Global CEO Survey trends series

We’re all getting whiplash from the rapidity and unpredictability of change. Although most industries have been dealing with disruption — often from new technologies — for some time now, external factors such as the new trade and tariff ecosystem, a fluctuating regulatory environment and geopolitical volatility have led to a sharp increase in pessimism across sectors.

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Fleet of foot - a new approach to risk

Jim Woods, Partner, PwC Hong Kong, and Sam Samaratunga, Partner, PwC UK, outline three strategies to help manage risk in turbulent times.

Top ten threats

This year, PwC's 22nd Annual Global CEO Survey found that threats that are top of mind for CEOs are less existential and more related to the cost of doing business.

This dramatic turnabout from last year’s exuberance, when the economy was more robust and the geopolitical environment more stable, is a result of threats that are perhaps less existential but more pressing than they have been in the past, with tangible effects that can be felt in real time. But now, the more immediate threats of overregulation, continued fallout from Brexit, global trade disputes and national policy uncertainties will have a more direct impact on the ease and ultimate success of doing business. Pervasive digital transformation also continues to increase risk, although innovations such as AI and robotics are creating operational efficiencies that help offset these challenges.

These new, government-related threats, including protectionism, populism and exchange rate volatility, are pushing CEOs to stick closer to home and turn inward to drive revenue growth. Indeed, 77% of leaders say they are planning to focus on operational efficiencies over the next 12 months, and 72% report relying on organic growth to drive revenue. As a result, they are adjusting their supply chain and sourcing strategies, shifting production to alternative territories and delaying capital expenditure and foreign direct investment.

There are three key strategies to better manage your risks in this fast-paced environment.

Agile leadership is critical

There is no time to waste, as companies must get ahead of what are often populist-driven policies that can upend a regulatory or trade ecosystem within a matter of months. To survive and thrive in such turbulent times, short-term strategies should include:

  • building a more agile leadership team, to better handle the volatility, uncertainty, complexity and ambiguity evident in the business landscape
  • making sure the board has the right skills for today’s risk environment, with some board directors chosen based on having the right geopolitical expertise and relationships with trade and industry groups to proactively manage policy and regulation implementation
  • at a minimum, recruiting a board member with strong experience in the digital sphere (there are an increasing number of chief digital officers joining boards) and working towards up-skilling the other board members on digitisation 
  • more frequent comprehensive risk reviews; in the past, most risk reviews took place annually, but this approach is no longer viable, as a risk register needs to be continually updated and discussed by board members.

Use technology to enhance risk management

In fact, risk management should be integrated across all parts of the organisation and woven into the overall business plan. A dynamic risk approach should be enhanced by analytics and data modelling tools that are focussed on providing insight that helps decision-makers respond and adapt to changing circumstances, whatever form they take. A growing element of risk management should be targeted at the company’s use of new technology itself, particularly at how well it uses customer data and AI in a responsible way. Times have definitely changed — the need for trust in data and emerging technologies, and the potential impact of national policies or regulations on companies’ digital strategies, is increasingly important. Companies should lead from the front on harnessing innovation and build consensus with policymakers on the appropriate regulatory path.

Keep business strategy focussed on opportunities

Risk leaders need to give management greater confidence that they are being supplied with sufficient information to make the right decisions, accepting that outcomes won’t always be perfect. Managing risks is paramount, but eliminating them altogether is impossible. Instead of hunkering down, companies need to recognise that some of the greatest opportunities for growth will come from a cross-border approach, facilitated by further technology advances.

And CEOs must be aware that in some ways the market is moving faster than regulation, and having a leadership culture to withstand risks as they emerge is essential. New technologies such as blockchain and FinTech applications have relatively few rules to constrain them; this lack of regulation heightens risk, increasing the chance of unpredictable events or outcomes.

In addition, political pressures on governments across the globe will result in faster-moving regulatory environments, which will impact businesses at a granular level. But risk leaders don’t have the option of delaying strategic decisions and doing nothing. They can firefight to protect revenues while focussing their resources and doing the minimum to avoid problems in the immediate future. Or they can invest in a more multi-pronged approach to come up with ‘no-regrets’ decisions that have taken all the possible ramifications into account.

Opportunities amid turbulence

Large or small, organisations need to pay attention to the weak signals that hint at unexpected conditions to come, becoming more fleet of foot and agile as they consider the options under a variety of circumstances and test out different models. As everyone else pulls in their horns and retreats, be mindful of opportunities, as well as inherent risks. Selective investments in foreign markets may position companies for growth beyond the more predictable revenue generation from organic growth strategies. There will be winners and losers but, ultimately, these headwinds will blow businesses in the right direction. There always will be opportunities amid the turbulence.

Contact us

Jim Woods

Global and China/Hong Kong Risk Assurance Leader, Partner, PwC Hong Kong

Tel: +(852) 2289 2316

Sam Samaratunga

EMEA and UK Risk Assurance Leader, Partner, PwC United Kingdom

Tel: +44 (0)7710 058286

George Stylianides

Global Risk Consulting Leader, Partner, PwC United Kingdom

Tel: +44 (0)207 804 3364

Tracey Riley

Assurance Services, Partner, PwC Canada

Tel: +1 416 941 8422

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