NC State and Protiviti recently released a report entitled, “Executive Perspectives on Top Risks 2018.” The report lists the top ten risks that account for the “key issues being discussed in the boardroom and c-suite” of those organizations surveyed.
Topping the chart at risk #1: “rapid speed of disruptive innovation.”
The report states:
“This top risk for 2018 reflects respondent concerns that disruptive innovation or new technologies might emerge that outpace an organization’s ability to keep up and remain competitive.”
Unfortunately, the second Top Risk is “resistance to change.”
“As many organizations have discovered in recent years, strategic error in the digital economy can be lethal. If major business model disruptors emerge, respondents are concerned that their organization may not be able to timely adjust its core operations to make required changes to the business model to compete.”
Lethal disruptors compounded by the inability to make course corrections. This sounds like a one-two punch, sure to knock out even the most stalwart of companies.
But what can be done about it? How can ERM help? Here are a few steps you can take today to help your organization prepare for disruptions—and even turn them into a strategic advantage.
- Identify the Risk
This is the most basic step in the risk management lifecycle, and yet companies still fail to apply it properly to the risk of disruptive innovation. Personally, I think this is because companies are trying to identify the very innovations that could impact them in the future. But the role of a risk professional isn’t to identify innovations—it’s to identify risks to the organization.
In a risk workshop with executives, start by identifying your organization’s requirements for success based on your current business model. Do you rely on brick-and-mortar stores? Is there a dependency on other countries or products in the supply chain? Are there special service components that set your brand apart from others?
Then identify potential disruptions to those requirements. Don’t forget about your existing risk dashboard; you can use it to help identify those disruptive risks.
Here are a few examples:
- If your organization relies on print material (like the brick-and-mortar bookstores), then a disruptive innovation could be a change in the marketplace that increases the supply and demand for other media formats. You don’t have to know what that media format could be or the device that it could be used on. At this phase, you’re just identifying a potential disruption. (This risk event occurred with the advent of ebooks.)
- If your company relies on in-store sales, then a disruption could occur if would-be customers no longer had to come inside to purchase their goods. Again, you don’t have to know the kind of technology or service that would keep you from entering the store. (This risk event occurred when Amazon made online shopping easier and more affordable.)
- If your company manufactures traditional internal combustion engines, then a disruption could occur if alternative fuel options (of any kind) were to become more readily available. (The impact of this is still being realized in the automobile industry.)
(Read actual case studies in these posts: Techniques Used by One of the World’s Largest Automakers for Identifying Future Risks and 3 Threats Leave Long-Standing Food Brands Struggling)
Keep a registry of every innovative risk identified. You may feel pressure to disregard a risk as too far-fetched, with executives claiming that the technology doesn’t exist or that customers will not want it. Be sure to address these concerns thoughtfully, but don’t be swayed by them! ERM’s role is to challenge assumptions, and those claims from executives are assumptions, not fact. The technology might be right around the corner. And as far as consumer demand goes, there are far too many variables for anyone to determine exactly what customers will want in a year or two or five.
- Assess and Analyze the Risk
Once you’ve identified disruptive risks, assess each of them the same way you would any other risk type. How likely is the risk to occur? What would be its impact? How much control do you have over its effect to the organization?
You may also want to do some research to get a better idea of what’s going on in your industry or supply chain. Are your competitors hinting at a large strategic shift? Are groups actively working to create the new technology? Or is the technology still theoretical (for now)?
- Prioritize the Risk for Action
Once you have an idea of the potential impact and likelihood of the disruptive risks, it’s time to prioritize them for action.
Here are the response strategies and how they measure up when it comes to disruptive risks:
- Avoid – This is not a proper response because you can’t control what other organizations do or how customers will respond.
- Transfer –You can’t buy insurance to cover the risk of another company scooping up all your customers with new products and services, so this is not a good response strategy.
- Mitigate – You probably won’t be able to lower the likelihood of disruptive technology affecting your organization, but you can mitigate the impact by preparing for it. This could involve special training, hiring staff with new skill sets, enhancing existing product lines…anything to give you the ability to absorb the impact of the change.
- Seize – That technology you’re afraid your competitor is developing…what if you designed it first? What if you designed it better? What if you embraced the future and became the competitor other organizations were trying to keep up with? That’s the essence of seizing opportunities—and the fact that you’ve identified this risk before it became an event creates a big opportunity for your organization.
Now, here’s the tricky part: most organizations are resistant to change. (Remember, that’s the second risk in the Top Risk report noted above.) That means your executives may identify the risk, you may help them create a response plan, and then…nothing. Those responsible for implementing the changes, from management down to the line staff, may resist every step of the way.
Fear and confusion.
It can be hard for staff to understand why their brick-and-mortar business is focusing so much time and energy on online shopping, or why a traditional internal combustion engine producer is focusing on hybrid engines. They may fear their talents are no longer needed or that they’ll be laid off if the company takes a new direction.
The best response? Get ahead of the change management risk by involving workers in planning discussions early on. If they feel their voices have been heard, they’re more likely to provide support to the decisions being made.
When it comes to disruptive innovation and change management risks, the key for success is flexibility—being ready to change course as needed for the benefit of the organization.
(Check out these blog post for more on flexibility and risk management: How Well Does Risk Management Adapt to Changes? And Enterprise Risk Management as a Strategic Tool for Companies)
If you’ve already identified innovative risks that could disrupt your organization, then you’re ahead of the curve! Make sure you keep those risks on your dashboard for visibility, then get to work on those action plans to mitigate the risk or seize the opportunity ahead of you.
Never even thought about disruptive innovations? That’s okay! Now you know how to get in front of them before they ever occur. But technology is changing daily, so don’t delay; start scheduling those risk workshops today!
Where is your organization when it comes to disruptive innovations – actively identifying risks or haven’t thought about them?
Please comment below or join the conversation on LinkedIn.
If your organization needs to focus on seizing the opportunities associated with disruptive innovation, contact me to talk about your situation and how you can be the hero of your organization!
(Looking for more resources? Check out Play Bigger: How Pirates, Dreamers, and Innovators Create and Dominate Markets, by Al Ramad, Dave Peterson, Christopher Lochhead, and Kevin Maney. As they say, “Winning today isn’t about beating the competition at the old game. It’s about inventing a whole new game.”)
Sign Up For Our Newsletter
Sign Up For Our Newsletter
Helping companies achieve their vision and strategy, and succeeding in today's turbulent world, is something I'm honored to be a part of. Whether you're an occasional blog visitor or a long-term client, thank you for letting us be a part of your journey.
Most Recent Posts
Without a doubt, one of my family’s favorite holidays is Christmas. Part of the fun, especially for our son, is seeing what “Santa” brought, but most importantly, we treasure the spirit of peace and goodwill the season brings. And after what seemed to be a never-ending warm spell, the weather is expected to be good…Read More
As the end of the year draws near, I think we’d all agree that while it wasn’t without its challenges, this year also wasn’t quite as turbulent as the previous two. While a lot of people are juggling company parties, shopping for friends and family, and special activities for the kids, most companies are putting…Read More
Strategic planning is a challenge – of all people, I understand… After all the meetings, risk and data analysis, and brainstorming of the preceding months, it’s tempting to think this is the end of the road and you can relax. Contrary to this common perception though, this is exactly not the time to relax, but…Read More
Be honest – have you ever done something that you soon realized was a real rookie mistake? Me raising my hand… Considering the nature of ERM’s role to ask questions and challenge assumptions (often during conversations with executives), it can be argued that, in at least some cases, the expectations bar for risk professionals is…Read More
On occasion, I like to take some of the concepts we risk professionals think about in our jobs and apply them to different personal situations…take some of the same concepts we use when working with executives to develop corporate strategy and manage risks or uncertainty around that strategy. It’s Thanksgiving week in the U.S. –…Read More
Periodically, I have the pleasure of speaking one-on-one with Hans Læssøe on a variety of topics around ERM, strategic risk, and other issues and trends. As you know from my previous conversations (here, here) and posts featuring his work, Hans was formerly a practitioner at the iconic LEGO Company, but even more notably, is a…Read More
Everyone likes a clear-cut template that offers an easy way to create or manage something…I mean what’s not to like about a step-by-step process for accomplishing what you want? Sometimes this can work without any issues, such as the case with the Project Management Book of Knowledge (PMBOK), ISO 9001 standard, or a new cooking…Read More
One thing I was taught to appreciate from a young age was the value of education and knowledge. It didn’t necessarily matter what the subject was, just that I always maintain a learning or growth mindset regardless of my current status in life. This mindset has served me well over the years, and it’s a…Read More
It’s amazing how technology has developed and changed our working world over time. Imagine trying to run my risk and strategy consulting firm without tools like Zoom, Box, Slack, and other ERM-specific technology tools. There is no way we would be able to serve our clients the way that we do. Just consider how the…Read More
If you’ve been handed the task of creating an ERM program for your organization, let me first offer my congratulations quickly followed by my empathy for the task ahead of you. I don’t say that to scare you but to provide a small dose of reality. Building, launching, and refining an ERM program that is…Read More