Technology and business model disruption create opportunities and risks

27 September 2017 Consultancy.uk

Executives at some of the world’s largest companies continue to tie both risks and opportunities to changes in the global business environment. Technology is cited as creating the biggest opportunities for future business. However, the implementation of digital technology also creates challenges and risks. In addition, new business model efficiencies offer companies ways to reduce costs, but also create opportunities for competitors to siphon off market share. Globally, geopolitics and changing consumer preferences are noted challenges.

The global economy is undergoing a period of uncertainty, in light of disruptive changes in technology, geopolitical shifts and the ascension of populist leaders and causes. In the UK, concerns over Brexit negotiations continue to rear their head on an almost daily basis, while the tweets of one of the world’s most powerful leaders, Donald Trump, remain a cause for uncertainty regarding domestic and international security.

The effect of these events, as well as larger economic conditions, changes in consumer expectations and advances in technology, create additional risks to businesses across the globe. The modelling, interpretation and reporting of current conditions is often performed by the consulting industry, which itself supports companies to better understand their situation and to develop strategies to make the most of risks and opportunities.

In a study from A.T. Kearney, titled '2017 Views from the C-Suite: Adapting to Disruption', the firm asked 400 C-suite executives, including CEOs, board members, and other managers from companies with more than $500 million in revenues across the globe, about their current business environment as well as that of external economic conditions.

Business opportunities.

Business leaders cited the successful adoption of new technologies as the number one priority. The segment continues to draw considerable investment from businesses, as well as being a hot demand service for the consulting industry. The second most popular area of opportunity for businesses relates to this, with the improvement of business model efficiency heavily linking with digital transformations, while strategies for such improvements include focus on customer services outcome improvement. Opportunities three and four were cited as ‘improving strategy execution’ and ‘successful innovation’, the latter of which, in particular, continues to be elusive and is not necessarily solved merely by throwing money at it.

Technology comes with various other risks, aside from implementation issues. Once systems are up and running, cyber security becomes a new area in which business interests may be hit. Recent global scale ransomware attacks, as well as more invisible daily network penetrations, last year cost the global economy an estimated $480 billion, while businesses suffered an estimated $280 billion in losses across the globe.

External opportunities

Risks related to innovation difficulty ranks second. Innovation tends to come with few guarantees, although not innovating comes with various risks. The situation presents a catch 22 for businesses in a range of sectors, both an opportunity, and a risk. This is the case for business models too, with many businesses facing potential decline as their models become increasingly inefficient with respect to market changes. The adoption of new technologies has been noted as potentially risky, with, for instance, up to two thirds of digital transformations failing.

Changing environments

The researchers also looked at changes in the external business environment that create opportunities for businesses. The top cited change was a favourable competitive landscape, although this is usually tied to companies with a strong product offering and a global marketplace opportunity. The research further found that business leaders are relatively upbeat about the prospect of technological disruption in their sector. Business model disruption had seen an upsurge in demand for restructuring advisory services in recent times.

External political risk

External challenges and risks, meanwhile, continue to emanate from the external environment. The most concerning of these, among respondents, is the apparently unstable geopolitical environment, with a range of factors – from Brexit in Europe to new US policy and political turmoil in Brazil – creating a raft of unknowns. Respondents also face changes in the regulatory environment. The rapid change in technology, for instance, is set to spur new legislative efforts to protect consumers from risks that many fail to understand or are conscious of.

“The degree to which technology and political risk dominate this year's results is striking. Technology continues to represent both opportunity and challenge," said Erik Peterson, managing director of the Global Business Policy Council and co-author of the study. "At the same time, global executives are paying much more attention to government actions and identifying risks stemming from geopolitical tensions and domestic regulatory and tax policy changes.”

External political risks

In terms of the most severe risks to the globalised economy from the rising populism and protectionism, 40% of respondents cited the ‘international trade in goods’, with the US in particular already posturing with protectionist policies on various goods – such as steel and the automotive industry. Other areas that may see risks from the rise of populism include the ‘international trade in services’, cited by 37% of respondents. Globalised labour market/immigration follows, on 35% of respondents.

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