Letter from the Editor, December 2015
In this issue, David Farrell reviews Emerging Risks: A Strategic Management Guide, in which a number of respected authors assess and propose a process for managing emerging risks, and the strategies that need to be put in place, drawing on examples of best practice.
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Managers are now facing business risks that seem closer to the domain of science fiction than anything one would see in business school texts or case studies. Since I started reading Emerging Risks: a Strategic Management Guide, we have witnessed an automobile commandeered by hackers via its radio (resulting in a 1.4 million vehicle recall in the United States), and an insider trading syndicate indicted for hacking the servers of a public relations firm to exploit the non-public information contained in draft press releases for financial gain.
Emerging Risks: a Strategic Management Guide, edited by Catherine Antoinette Raimbault and Anne Barr, is a relevant read in that it draws the business reader into contemplating a broad range of risks to ensure an analysis of emerging risks is fully integrated into corporate strategy. True business leaders distinguish themselves by thinking about the things others miss, or fail to plan for, and this is also the case with contemplation of emerging risks. By definition, an emergent risk is one that we have yet to fully assess in terms of its impact and probability of occurrence. An important principle set out in the book is that early contemplation facilitates early detection, which in turn facilitates a more effective response, be that by way of diversification, remedial action, market exit, or risk transfer by way of insurance.
The contributors to this volume are subject matter experts in a broad range of specialised risk domains, each contributing a chapter on topics that include nanotechnology, information technology, electromagnetic fields, chemicals, and biological risks. There is also sufficient detail to enable the generalist reader to start asking the right questions about the key risks to their enterprise in each of these areas.
With regard to new information and communication technologies, it is evident that developments in information technology have eclipsed centuries of innovation, as software advances have overtaken precedent technologies at a rapid pace. Risk assessment—and indeed regulatory frameworks—have struggled to keep up. Hacking and denial-of-service attacks by rogue states or criminal gangs come with ever increasing costs, as machine-to-machine communication govern more and more aspects of our lives. The societal impact will be increasingly significant as automation and redesign of work will result in certain enterprises requiring far fewer employees, with even the jobs of knowledge workers under threat.
Adding to the complexity of risk assessment, multinational companies have global supply chains, which introduce the concepts of supply chain and country risk, two additional dimensions to be added to the risk assessment process. Businesses must make a balanced assessment of the benefits of outsourcing, such as lower unit costs and lower inventory carrying costs, against the risks they introduce.
Outsourcing the manufacturing of even a small sub-assembly can cause significant disruption if a high value product cannot be completed or shipped as a result. The example given in Emerging Risks is of a French aircraft carrier immobilised after the sole company with proprietary technology to manufacture its propellers went bankrupt. The author of this chapter, Eric Wieczorek, reminds us that, as each sub-supplier has its own supply chain, there is a multiplicity of overlapping risks, as there are also risks inherent in connecting these supply chains. A company’s supply chain risk analysis should therefore also extend into suppliers’ supply chains if it is to be undertaken thoroughly.
As an example of what to look out for, in the chapter on chemicals, Jean-Pal Fort points out that our concern should be less with chemical producers, whose regulatory obligations are codified and well understood, and more with the downstream users of those chemicals. If those users are sub-suppliers, one must exercise even more caution. If nano materials are used, as Alain Lombard points out in his chapter, we are in somewhat unchartered waters, as the regulatory framework is struggling to keep up with ever-growing applications of nascent technology, let alone able to set the parameters of risk containment. The technology is evolving rapidly, with applications across multiple industries and the long term impact on human health and our environment is not well flagged and, therefore, not well understood. Ill-informed is ill-prepared.
François Bricaire’s chapter on biological risk reminds us of the threat posed by bioterrorism, and the recent incidences of SARS, MERS and Ebola, all highly contagious diseases with high fatality rates, the speed and spread of contagion of which is enabled by global travel. As the world becomes more interconnected, the business impact can be both swift and significant. Thankfully, at the same time, the risk response has shifted to early identification of potential risks, prevention, more rapid intervention, and better harmonisation of international responses. Evolved businesses’ responses to biological risk include better business continuity planning, facilitated in part by the technologies that permit, amongst other things, remote working.
In mapping the probability and impact of emerging risks, the authors of the chapter on country risk, Olivia Hassid and Lidija Milasinovic, remind readers to pay attention to reputational risk, giving the specific examples of the consequences of intervening in another country’s natural resources, or via outsourced contract manufacturing, its labour market and regulatory regime.
The anticipation and detection of emerging risks are integral to the risk management process. From a governance standpoint, it is very much the responsibility of the board to ensure that, in discharging its oversight with respect to risk management and internal control, emergent risks are regularly reviewed and assessed. As this book makes clear, emergent risks are complex and frequently interact, so a multidisciplinary approach is required. There are some useful examples of emergent risk mapping from the insurance industry discussed in the final chapter.
By covering a broad range of disciplines, Emerging Risks: A Strategic Management Guide puts the reader in the frame of mind to anticipate the unexpected and to contemplate new risks, their consequences, and how these risks can be mitigated or transferred.
Emerging Risks: A Strategic Management Guide, can be ordered direct from Gower Publishing.
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