- Regulatory and compliance risk
- Global financial shocks
- Aging consumers and workforce
- The inability to capitalize on emerging markets
- Industry consolidation/transition
- Energy shocks
- Execution of strategic transactions
- Cost inflation
- Radical greening
- Consumer demand shifts
E&Y looks at risks in three broad categories across multiple industries:
- macro threats arising from general geopolitical and macroeconomic environments
- sector threats from trends or uncertainties in a specific industry
- intense operational impacting the strategic performance of leading firms
I'd like to draw your attention to these risks:
Aging Consumers and Workforce
Areas such as asset management and insurance are experiencing dramatic shifts in demand as their consumer age. The auto sector is facing severe competitive challenges as a result of their aging workforces. Numerous industries are experiencing dramatic shifts in demand, often dramatic growth, as average ages rise in Europe, North America, and Japan. To be competitive, companies need to better understand specific needs of these new consumers
Emerging MarketsEmerging markets, while great areas for new growth, they also pose great risks. Global companies will need to partner/form networks with firms in many markets. There are also currency, operational, regulatory, language, and cultural risks in these countries, especially as firms manage outsourced business and supply chains in these markets.
Execution of Strategic Transactions
There is a major risk that transactions undertaken in response to industry consolidation may fail to deliver, not because they are poorly conceived, but because of a failure to meet operational challenges. Also, new types of strategic transactions, including divestitures in real estate, spin-offs in auto, and separation of telecom companies into utilities and service providers are driving further risk.
Consumer Demand Shifts
The failure to anticipate and respond to consumer demand shifts driven by
demographic shifts, such as growing consumer aging could be a strategic risk when the changes are significant, fast or unexpected.
The Next 5E&Y spells out their next 5, equally critical, yet not making the top 10 list, and my choices amongst them are:
War for Talent - shortage of technical expertise; asset management and
real estate, which are seeing talented staff poached by alternative investments; and pharma, which is facing a ‘skills crunch. Especially in emerging markets , growing regional concentration/clustering of talent – while expertise can be found in more nations than ever, within nations it is becoming more concentrated in a small number of clusters. This phenomenon is particularly true in biotech and other high-tech areas. This leads to increasing wage rates, property rental, and competition for expertise.
Threat of Private Equity’s Rise. Especially in auto, where Private Equity firms are leading unplanned, hostile takeovers by consolidating, and forcing restructuring and creating spin-offs.Inability to Innovate is significant for business in 2008. Innovation is becoming an increasingly crucial strategic challenge as markets mature. Stagnation in mature markets means that companies have to innovate to find profit. However, innovation is a substantial risk as nine out of ten new products fail.
Threat of a China Setback. China might experience volatility as it continues with an
extraordinary pace of development. A growth slowdown in China could leave oil & gas companies suddenly facing a low oil price environment. A severe slowdown could add to turmoil to world markets or threaten banks or insurance companies with large China exposures; or a natural disaster in China could disrupt global supply chains.To effectively combat these risks, Ernst and Young recommends that company leaderships must:
- Conduct an annual risk assessment that defines key risks and weights probability and impact on business drivers.
- Go beyond financial and regulatory risk to consider the wider environment in which the organization operates and the full extent of its operations.
- Conduct scenario planning for the major risks that can be identified and develop a number of operational responses.
- Evaluate the organization’s ability to manage the identified risks, specifically that risk management processes are linked to the risks that the business actually faces.
- Effective monitoring and controls processes to provide both earlier warning and improved ability to respond.
- Keeping an open mind about where risks can come from.
If you are an employee of a global corporation how can these trends impact your career and employer personally?
What are you going to do about it?
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ReplyDeleteThat is definitely a useful article. However I seriously feel that we tend to underestimate the importance of integrity of leaders on business ethics. This seems to be taken for granted most of the times. Also it is not considered important to the metrics used for assessing the performance of a business or its leader, so a company may be generating the right numbers in the larger picture but inside it could be ticking time bomb. This despite the fact that over the years we have seen huge behemoths collapse due to slippages on these fronts: Enron, WorldCom, AA it’s a long list. In fact the current sub prime fiasco in USA and the impending credit card crisis can also be attributed if not fully, but considerably to dilution of business policy & ethics. I personally feel that HR has a major role to play in avoiding such disasters. I am sure that HR studies the experience, skill sets of a candidate but does adherence to business ethics figure in the requirements? Granted it’s not an easily quantifiable trait but are even attempts made to cross check it?
ReplyDeleteSeems the biggest risks are not spoken for- like the risk that global climate change could cause far reacing social disruption.
ReplyDeleteAnd did I read that right that the word terrorism was not mentioned ? Any serious nuclear or biological attack producting major casualties could unhinge any number of complex systems.
How about the possibility of unexpected interactions of engineered finanical systems leading to the inability to conduct business as usual for lack of capital, liquidity, contracts stability, or infrastructure maintenance ?
What this list really seems like is a list of threats to the status quo's wealth distribution arrangments , which may or may not reflect real global economic risks to the greater number of human beings.