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.”)