More than half of executives believe they are adapting effectively to technological changes, according to a recent report by PwC.
The study included close to 1,500 senior risk executives ranging from chief risk officers to audit/risk committee members and chief executives at organisations headquartered in 76 countries.
More than half (60%) of those polled manage innovation risk very effectively or somewhat effectively -- a cohort of the survey population which the study labels as "adapters". Adapters outperform their less effective peers in several areas, including their level of influence over decision-making about innovation, including implementing new technologies to develop new products (57% versus 18% of non-adapters) and the value they say their risk management function brings (58% versus 18%, respectively, note significant value).
Adapters are also two to three times more likely to express confidence in their risk management programme's ability to effectively manage risk from new technologies, including artificial intelligence and the Internet of Things than their less effective peers. Adapters are also more likely to expect revenue growth.
"Adapters are making sure their risk executives are engaged throughout the innovation life cycle and are addressing both the known and unanticipated risks that accompany innovation. Adapters are tackling risk differently and are three times as likely to say their risk function contributes significant value," said global governance risk compliance and internal audit leader Andrew McPherson.
Given the many benefits of embracing innovation in a risk-conscious manner, PwC's survey outlines five distinctions that separate adapters and non-adapters. Adapters engage early and often across the innovation cycle. Adapters are also twice as likely as non-adapters to advise on innovative activities before the planning stage.
Adapters also use multiple actions to address their risk exposure from new initiatives. Adapters more often use four or more actions ranging from revisiting objectives and strategy to sharing the risk than their less effective peers.
Adapters further adjust risk appetite and tolerance with frequency. PwC said adapters adjusted the risk appetite for all eight innovative activities listed in its survey, especially when creating new products outside their core offerings and implementing new technologies.
Adapters harness new skills, new competencies and new tools to support innovation. While 58% of adapters report that they are bolstering their risk management capabilities by adding new skill sets, while 39% of non-adapters plan to do this.
Lastly, adapters monitor and assess the effectiveness of risk management efforts in multiple ways. Some 51% of adapters use external parties to assess their risk management capabilities, while only 27% of non-adapters are monitoring their effectiveness in this manner.
A keen awareness of the necessary actions to address both known and unanticipated risks that accompany innovation can equip risk executives to succeed in this fast-changing environment. Risk executives should be engaged throughout the innovation life cycle to effectively identify, assess and manage innovation risk, said PwC.
"Changing customer behaviour will likely evolve, helped by easier access to products and services as new entrants continue to pop up daily," said Varunee Pridanonda, a partner for governance, risk, control and internal audit services at PwC Thailand.
Businesses must analyse all of these risks before they arise and adjust their business models accordingly to mitigate potential harm. This includes implementing innovation in their services and improving business processes to gain customer loyalty.
They must also put in place an internal control system to reduce operational risks and manage financial and compliance risks, starting from the top of the organisation. This would build confidence and ensure stability among employees and make the organisation sustainable amid an ever-changing business landscape, Ms Varunee said.
