Digital disruption, change resistance and cyber are top Board concerns

24 January 2018

Board members perceive a much riskier environment in 2018 compared to 2017. The rapid speed of disruptive innovations and dramatic changes that new technologies may have in the marketplace is, across all corners of the globe except Africa, the top threat. Not surprisingly, according to new report – while economic conditions are generally improving, previously untouchable organisations are finding themselves faced with threats that could take them out of business.

A study, conducted by consulting firm Protiviti in cooperation with North Carolina State University, has asked over 700 executives globally to assess the top risks they face in their industry/business. The analysis broke down risks into thee categories: Macroeconomic risks; those likely to affect their organisation's growth opportunities; Strategic risks; those that the organisation faces that may affect the validity of its strategy for pursuing growth opportunities; and Operational risks, threats that might affect key operations in executing its strategy.

Digital disruption

The analysis reveals that board members are seeing a riskier environment, with nine of the top 30 risks rated by them as having a “significant impact.” At the top of the threat landscape of executives is the rapid speed of disruptive innovation. This strategic risk is one which rocketed to the top for 2018, surpassing concerns about the economy and regulatory oversight, which have held the top two spots in all prior years when the researchers have conducted this survey.

In 2017, digital transformation consulting became a $23 billion industry, as panicked companies sought the aid of external experts in order to avoid being outflanked by innovative competitors. Sixty-seven percent of the respondents rated this risk as a “significant impact” risk. The top risk for 2018 reflects respondent-concerns that disruptive innovation or new technologies might emerge that outpace an organisation's ability to keep up and remain competitive.

Top 10 Risks for 2018Advancements in digital technologies and rapidly changing business models have enabled a new generation of start-ups to challenge long-term market incumbents for their share of consumer revenues. Respondents were consequently focused on whether their organisations could become agile enough to respond to sudden developments that alter customer expectations and change their core business model quicker than such competition. For most large companies today, it's not a question of whether digital will upend their business but when. Concerns of this nature therefore ramped up for 2018 from fourth overall last year to the number one concern this year – as well as being in the top five risk factors for every one of the stakeholder groups that Protiviti analysed.

Resistance to change

Coupled with concerns about the emergence of disruptive innovations, the business leaders polled highlighted a major concern as being an overall resistance to change within the organisation. With the need to morph organisations to suit a rapidly changing market, should a company meet with pushback from within its own ranks, this could majorly hamper transformation efforts, and concede vital ground to agile competitors. Respondents are therefore growing even more focused on tackling any lack of willingness to make necessary adjustments to the business model and core operations that might be needed to respond to changes in the overall business environment and industry.

Many organisations have discovered over the past decade that a strategic error in the digital economy can be lethal. If major business model disruptors emerge, respondents are concerned that their organisation may not be able to timely adjust its core operations to make required changes to the business model to compete – as exemplified by Kodak and Nokia in the age of the smartphone.

According to a previous Protiviti report, in order to tackle this, leaders are increasingly looking to internal audit for the right risk culture. Internal audit leaders are increasingly leant upon to help their business develop the right risk culture, presenting the internal audit function with a clear opportunity to play a transformative role in responding to the evolving needs of key stakeholders, who want assurance that the organisation is aware of and addressing all types of potential risk.


Another key topic of concern for global board members is managing cyber threats. A tumultuous 2017 saw a number of high profile hacks hit major institutions such as the NHS, and even top cybersecurity consulting provider Deloitte. Threats related to cyber security are therefore still a sizable concern as respondents focus on how events might disrupt core operations. This risk continues to be one of the most significant operational risks for three of the six groupings examined.

Concerns relating to privacy and identity protection continued to rank high among the top risk concerns for 2018. In 2017, cyber breaches cost the worldwide economy in excess of $280 billion a year. The presence of this risk in the top two is likely to continue to be prominent for some time to come, with new frailties being revealed in top computing systems on almost a daily basis – notably including a fault found at the start of 2018 in every single iOS computer’s Intel chip.

Top risk for companies with large revenues


Regulatory change and heightened regulatory scrutiny also ranked high in the responses of board members’ major concerns. Thanks in no small part to the high-profile launch of the GDPR in May 2018. This risk continues to represent a major source of uncertainty among the majority of organisations. 59% of respondents considered this a “significant impact” risk, and the particular variant has been in Protiviti’s top two risk concerns in all prior years for this particular survey.

However, compared to last year’s results, while they are still a major concern, regulatory worries are less at the forefront of businesses’ concerns in 2018. Indeed, as recently as 2016, regulatory factors were top of the pile. Political gridlock and checks and balances in governing institutions appear to have, for now at least, hamstrung further significant change on the regulatory front, while in the United States, the Trump administration has continuously sought to deregulate industry, rather than increase the regulatory burden of corporations.

Company culture

In fifth, meanwhile, board members fear that their company culture may not be conducive to escalating risk issues in a timely fashion. Respondents continue to assert a need for attention to be given to the overall culture of an organisation to ensure the escalation of risk issues. This risk issue first appeared in Protiviti’s 2015 risk survey, and has featured in the top-end risks each year since. While the issue has not risen beyond fifth this year, the level of concern regarding it is at a two-year high, with 61% of respondents rating this risk as having a potentially “significant impact”.

Interestingly then, three of the top five risks for 2018 relate to operational risk concerns, and each has the greatest increase in risk ratings from 2017. Two of those risks relate to cultural issues – resistance to change and the organisational environment hampering the identification and escalation of risks. Concerns about the emergence of competitors who can leverage digital-based technologies to trim operational costs is also an increased concern, and barring a major change, will likely remain a key factor come 2019, as companies continue to exhibit a veracious appetite for digital innovations.

Top risk for companies with mid-sized revenues

New risks

Two risks moved into the top list of risks for the first time this year. Respondent concerns were seen to be growing surrounding their ability to utilise data analytics and big data to achieve competitive advantage and to manage operations and strategic plans. Those questioned seem to sense that other organisations may be able to capture intelligence that allows them to be more nimble and responsive to market shifts and changing customer preferences.

In the digital age, knowledge wins and advanced analytics lie at the heart of unlocking insights that can differentiate firms in a competitive the market. Additionally, respondents voiced concerns about the ability of their organisation to adjust existing operations to meet performance expectations as well as competitors. This is especially heightened by the concern that new competitors may be able to leverage digital capabilities that allow them to introduce new business models more cost effectively. Hyper-scalability of digital business models and lack of entry barriers enable new competitors to emerge and scale very quickly in redefining the customer experience, making it difficult for incumbents to see it coming at all and react in time to preserve customer loyalty.

When asked about the magnitude and severity of risks for not reaching profitability targets over the next 12 months, CEOs had a score of 5.9 on a scale of 10, while three important counterparts in the Board, Chief Financial Officer, Chief Information Officer and Chief Audit Officer, scored respectively 6.3, 6.3 and 6.4. This could show that CEOs are generally more relaxed on the topic, or, as the executive who takes overall responsibility for the health of a firm, their concerns are more likely spread over wider areas than short-term profitability alone.

Differences were also visible across regions, as while all bar Africa agree on the top risk – the strategic threat from the rapid speed of disruptive innovations – there are variant local flavours. Not surprisingly, concerns over low interest rates, economic conditions and volatility in financial markets are Eurozone organisations' top three risks. However, the decrease in the concern over economic conditions from 7.3 to 6.2 suggests that business conditions are improving for European-based organisations.

Top risk for European companies

North American respondents identified cyber threats and succession challenges and the ability to attract top talent as top five risks. African respondents, who identified concerns about political stability and economic conditions as primary worries, also included succession challenges and talent retention in their main five issues to face. Respondents from the Asia-Pacific region were the only group to identify the risk of uncertainty surrounding key suppliers as a top five risk, which is most likely because supply chains in many Asian companies are based on a low-cost model that no longer support present day growth imperatives.

Digital dominates

Despite localised variables, the researchers highlighted that digital is still the dominant theme. “The concern from being able to adapt to disruptions and change course appears to be at the forefront for all executives.” This is a major challenge, but also offers a unique benefit: the unique aspect regarding disruptive change is that it represents a choice, said the authors, leaving executives to choose which side of the change curve they want their organisations to be on.

The researchers further elaborated, “Organisations need to make a conscious decision about whether they are going to be the disruptor and try to lead as a transformer of the industry or, alternatively, play a waiting game, monitor the competitive landscape and react only when necessary to defend market share.”

However, how this question is answered is of paramount importance, with the study concluding, “With the speed of change and constant advances in technology, rapid response to new market opportunities and emerging risks can be a major source of competitive advantage. Conversely, failure to remain abreast or ahead of the change curve can place an organisation in a position of becoming captive to events rather than charting its own course. For those organisations choosing not to actively disrupt the status quo, their challenge is to be agile enough to react quickly as an early mover. If organisations are not proactively thinking about how they might respond, they may be too late to deal with the impact.”

Related: The top 10 business risks for executives and multinational companies.


Four ways digitalisation is transforming car brands and dealers

16 April 2019

From changing expectations from the customer to new stakeholders entering the industry, the digital transformation of global automotive industry means it is facing the wholesale transformation of its business model. In a new white paper, global consulting partnership Cordence Worldwide has highlighted four major digital trends that are transforming the relationships between car brands and dealers with consumers.

With digital transformation drives booming across the industrial spectrum, automotive groups are no different in having commenced large digital transformation programmes to improve productivity, efficiency, and ultimately profitability. Falling sales figures mean the automotive sector is facing an increasingly difficult road ahead, something which means companies in the market are even more hard pressed to find new ways to improve their bottom lines.

While it offers major opportunities, the industry’s move to digitalise is not without complications. It has triggered a series of major internal changes, which have presented automotive entities with the challenge of becoming a “customer-oriented” industry. A new report from Cordence Worldwide – a global management consulting partnership present in more than 20 countries – has explored how automotive companies are navigating the rapidly changing nature of digital business.

New business models

The level of change likely to be wrought on the automotive industry by digitalisation is hard to overstate. Automation could well lead to significant reductions in the number of accidents, higher vehicle utilisation and lower pollution levels, while leading to a $2.1 trillion change in traditional revenues, with up to $4.3 trillion in new revenue openings arising by 2030.

As a result of this colossal opportunity, it is easy to see why almost all automotive groups now have digital departments, with generally strong communication within the digital transformation and the customer approach. The changes to society which this may have are potentially distracting automotive firms from the change it is leading to in its own companies though, according to Cordence’s paper.

The automotive market is dead, long live the mobility market

Because of this, the sector’s business model is set to transform over the coming decades. With digitalisation speeding up the appearance of concepts such as car-sharing, a subscription package model will likely become more palatable. At the same time, car and ride-sharing models will cater to the sustainability criteria of millennials, who will rapidly become one of the automotive market’s leading consumer demographics in the coming years.

Antoine Glutron – a Managing Consultant with Cordence member Oresys, and the report’s author – said of the situation, “These ‘old school industries’ are now working on creating new opportunities, but in so-doing are facing challenges and threats: new jobs, new technologies, new ecosystem of partners, necessary reorganisation, different relationship with customers, and even new businesses. The customer approach topic is in fact a real challenge for car companies as it implies changing their business model and adjusting their mind-set to address the customer 4.0: from product-centric to customer-centric, from car manufacturer to service provider.”

Digital customer experience

In the hyper-competitive age of the internet, even top companies face an uphill challenge when it comes to holding onto customers through brand loyalty. Digital disruption has resulted in changes to consumer behaviour, which is forcing a range of marketing strategists to reconsider their old, possibly out-dated strategies. As modern customers wield an increasingly impressive array of digital tools and online databases, they and are now able to quickly and conveniently compare prices, check availability and read product reviews.

The automotive sector is no exception to this trend, according to the study. In order to adapt to the needs of the so-called ‘customer 4.0’, car companies will increasingly need to change their business model and move away from product-centric companies to customer-centric ones, from car manufacturers to service providers.

Glutron explained, “As an automotive company, you can no longer expect customer loyalty simply with good products; you must conquer and re-conquer a customer that “consumes” your service. The offer now has to be global, digital and personalised. Your offer has to be adapted to this customer’s needs at any given moment. A key issue related to data control is to build customer loyalty by creating a customer experience 'tailored' throughout the cycle of use of the 'car product': purchase, driving, maintenance and trade-in of the vehicle.”

One way in which the sector may be able to benefit from this desire for a tailored experience is via connectivity. Consumers are generally positive about new connective features for automobiles, and many are even willing to pay upfront for infotainment, emergency and maintenance services. Chinese consumers, where the connected car market is set to hit $216 billion, are already particularly interested in paying a little more for navigation and diagnostic features in their future new car. This can also enable automotive companies to exploit a rich vein of customer data, enabling them to rapidly tailor their offerings to consumer behaviour.

New automotive segments

Digital transformation has also brought with it the rise of completely new application areas. As mentioned earlier, the most well-known example is the autonomous or self-driving car, where the last steps forward were not taken by major automotive groups but by technology companies such as Tesla. While this may have given such firms the edge in the market briefly, a number of keystone automotive names will soon be set to take the plunge into the market themselves, leveraging their car manufacturing prowess and huge production capacities to their advantage.

Before companies rush to invest in this market, however, it is worth their while to remember that the readiness and uptake for such vehicles differs greatly geographically. For example, following a study published in 2018, 92% of Chinese would be ready to buy an autonomous car, compared with only around 35% of drivers in France, Germany and US. Meanwhile, the infrastructure of different nations will also be significantly less accommodating of the new technology.

Use digital for steering thr activity

Elsewhere, Cordence’s analysis has suggested that hooking the cars of tomorrow into the Internet of Things is also likely to see a rapid change in the business model for car maintenance, providing real-time diagnostics for problems. This presents chances for partnerships to improve the connectivity of cars, especially with tech companies; for example, PSA partnered with IBM for a global agreement on services in their vehicle. Meanwhile, data could also be sold to other parties with an interest in this data, such as the government, which could use it to manage traffic levels, or ensure that only adequately maintained vehicles take to the road.

Glutron added, “With the increase in the amount of client data and connected opportunities, the recommendation is to set up data-centric approaches. The value is now in the customer data. The general prerequisites are to rework the data model and the Enterprise Architecture and generally build up a data lake including data from all sources (internal and external, structured and unstructured).”

From automotive to mobility

Relating further to the idea of connectivity, the report claimed that automotive firms must now adjust their models in line with the provision of end-to-end mobility, rather than treating the sale of a car as an end point in their relationship with the customer. In order to realise this transformation, transformations are likely to become more and more important.

A network of partner companies means automotive firms can provide a global mobility experience. As the vehicle is increasingly connected to its environment, new partners can also be cities, governments, and other service providers within the global mobility services industry in which the car brands want to take part.

According to the study, the target is clear. Companies must look to a holistic transport service, offering to move customers from A to B in a unique and pleasant way – otherwise they might as well take public transport. At the same time, they should extend the services reachable “on-board” (especially the enhancement of the connectivity between the car and smartphones or other connected devices), and reach high standards in terms of user experience (online sales, online payment, customised experience during and after the use of the car).

Concluding the report, Glutron stated, “These mobility market transformations could be considered a threat for the car manufacturers. Quite the opposite: if they take up the challenge and review their business model so that they become the service provider – communicating no longer to a driver but to a ‘mobility customer’ – they can then take advantage of their expertise and their position as a historical player. The most convenient means of transport are cars, and building a car is highly-skilled work.”