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Strategic Business Risk 2008 – the Top 10 Risks for Business
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It is never the risk that causes damage or creates opportunities – it is how we respond.
About this Report Risks are inherent in every forward-looking business decision so successful risk management should be an integral part of an organization’s strategy and operations – an important dimension of good management practice. There has been a great deal of work done in the area of risk management in recent years. Ernst & Young has been engaged in significant global activity to clarify stakeholder perspectives, map management activities and identify leading practice from which all can benefit. Likewise, many companies have invested significant resources globally in risk and compliance initiatives. Financial risk and regulatory risk have been the focus of much of this effort. In both cases, there are externally determined rules and frameworks with which companies need to comply and emerging best practice guidance on processes and controls that can help. We have worked with many companies who have found that the challenge of compliance can lead to opportunities for performance improvement through improved processes and enhanced communication. Some companies are now looking more closely at their operational risks, prioritizing these and thinking about how they can manage and monitor these in a coordinated way, the result of which can again be opportunities for performance improvement. What is clear is that to gain further business advantage, companies must increasingly look at the extended risk universe, from finance and compliance risk – to operational and finally, strategic risk.
A Different Perspective on Strategic Risk Our experience, however, suggests that strategic risk has not necessarily benefited from developments in management practice. Much that has been written about strategic risk seems to be at such a macroeconomic level that the implications for action by the management of a specific company can be lost. More significantly, the different implications for companies operating in different sectors can be blurred. Someone’s challenge is frequently someone else’s market opportunity. We decided to explore the area of strategic risk from a different perspective. In collaboration with Oxford Analytica we focused on the strategic risks facing 12 of the world’s most important sectors: asset management, automotive, banking & capital markets, biotechnology, consumer products, insurance, media & entertainment, oil & gas, pharmaceuticals, real estate, telecommunications and utilities. These sector studies served as the primary source for the overall comparative report of our findings.
S TRATEGIC B USINESS R ISK : 2008 – T HE TOP 10 R ISKS
FOR
B USINESS
Contents The Ernst & Young Strategic Business Risk Radar
2
Scanning the Sectors
3
The Top 10 Risks for Business
8
– Regulatory and Compliance Risk
8
– Global Financial Shocks
10
– Aging Consumers and Workforce
12
– Emerging Markets
12
– Industry Consolidation/Transition
15
– Energy Shocks
15
– Execution of Strategic Transactions
17
– Cost Inflation
17
– Radical Greening
18
– Consumer Demand Shifts
18
The Next Five
21
Conclusion
26
Contacts
28
1
The Ernst & Young Strategic Business Risk Radar We have found the use of the radar – our risk radar – to be a simple and useful device to allow us to present a snapshot of the top 10 strategic business risks for a company, a sector or indeed the global economy as a whole. The radar allows us to show both the scale