Risk teams are crucial to delivering CEOs’ new agenda | KPMG | UK

All change! A dynamic future calls for dynamic risk management

Risk teams are crucial to delivering CEOs’ new agenda

If CEOs want to develop a more dynamic approach to strategy they need strong Chief Risk Officers with holistic, commercial and pro-active view of risk. Melissa Allen, Head of Risk Consulting at KPMG in the UK, discusses the details.

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Partner, Financial Services, Risk and Compliance

KPMG in the UK

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CEO- All change

CEOs face startlingly rapid disruption - in every industry and market. Technology is empowering customers, blurring boundaries between sectors and eroding barriers to entry. As highlighted in KPMG's Global CEO Outlook, almost three quarters of CEOs believe the next three years will be more critical for business than the last 50.

With this accelerated pace of change, it is no wonder then that nearly two thirds of CEOs fear disruption by new entrants. Almost all (88%) are concerned about their customers’ loyalty, most (82%) are worried their products and services losing relevance.

Technology-led disruption is not taking place in a vacuum. Businesses also face a backdrop of exceptional economic, political and regulatory turmoil in the UK and overseas. Unfortunately, companies can’t wait for volatility to end before addressing disruptive threats. Turbulence created by the Brexit vote, for example, may last a decade.

So are established businesses frozen in the headlights of technological disruption? Far from it. CEOs understand the magnitude of the challenge they face and the need for a decisive response. The vast majority (89%) are confident about the future growth prospects of their business and the opportunities to adapt. In fact, 41% expect to be running significantly transformed companies three years from now.

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Digging deeper, more than three quarters of CEOs see fostering innovation as a strategic priority. They plan to make better use of emerging technologies, and 45% hope to strengthen customer relationships by using digital technology more effectively. Indeed, more than half of CEOs want to become the disruptors themselves, with 58% intending to boost shareholder returns by collaborating with other companies. 

For many companies, these changes represent a startling departure from orthodoxy. They not only herald the arrival of more agile, responsive business models. They also bring complex new risk management challenges. For example, CEOs see cyber security as the greatest source of future risk – a finding brought to life by high profile incidents such as Talk Talk’s recent data breach. 

This is where CROs can make a powerful difference. If CEOs want to develop a more dynamic approach to strategy, it follows that CROs will need to take a more holistic, commercial and pro-active view of risk. One high level approach is to develop risk-based strategies that not only identify threats but also the potential opportunities they may bring. This approach when implemented effectively, enables organisations to prepare for the unknown and take bolder actions as a result.

CROs also need to embrace new technology and techniques – like the banks developing specialised communication analytics to reduce their exposure to compliance risks. Technology is a risk but it is also an enabler for faster and more effective risk taking.

In addition, instilling a proactive risk culture is key to sustainable growth. With the right focus, managers across the business - not just in the risk function - can work together collaboratively to mitigate risks and increase the chances for success.

For all their confidence, CEOs face a tall order. Can they transform their businesses while defending current positions? And can they meet those goals while controlling risk and cost? As they implement more fluid strategies, firms will need to a take an increasingly dynamic approach to risk management. Companies will need exceptional vision and leadership to navigate the changes of the next few years, and a strong partnership between CEOs and their CROs can help to turn risk to advantage.

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