Risk Management Challenges in South Africa

“The future belongs to those organisations that can integrate strategic management, risk management, enterprise performance management, and integrated reporting, Get them all right and you own the future. No wonder that integrating these disciplines is becoming the essence of true strategic risk management.” Andre Bezuidenhout, Head: Risk Management and Compliance Department, SA Reserve Bank (SARB)

Managing risk has always been a touchstone of the most successful companies. But in today’s risk-filled business environment, it can be hard for executives to have confidence that their plans and strategies will play out as expected.

A big reason for this is that strategic risks – those that either affect or are created by business strategy decisions - can strike more quickly than ever before, hastened by rapid-fire business trends and technological innovations such as social media, mobile and big data.

“Risks are increasing both due to the evolution of the business landscape, new technologies and the interconnectedness of global and local economies. As a result, companies have access to vast quantities of data. And fortunately, this has been met with advances in technology that allow businesses to use this data to make intelligent decisions in the face of the new risk environment, where fast decision-making has become critical to survival.” - Says Colin Hill, Senior Solution Manager: Risk Management and Financial Crimes at SAS South Africa.

Companies that fall behind on the innovation curve may quickly fall prey to innovation’s evil twin – disruption. That is just one reason managing strategic risk has become such a high priority for many of South Africa’s executives. Strategic risk has become a dominant focus, with the vast majority of South Africa’s companies now explicitly managing strategic risk – rather than limiting their focus to traditional risk areas such as operational, financial and compliance risk.

Many of South Africa’s companies are also taking a broader view of strategic risk, that doesn’t just focus on challenges that might cause a particular strategy to fail, but on any major risks that could affect a company’s long-term positioning and performance.

Reputation risk is seen as the biggest risk concern globally and has become increasingly prominent in South Africa, due largely to the rise of social media. Which enables instantaneous global communications that make it harder than ever before for companies to control how they are perceived in their marketplace.

Additionally, risks specifically related to South Africa include economic trends, talent acquisition and retention, political legislation trends, business model, energy & service costs and supply, and labour relations and union activity all seen as having the highest impact.

Providing a stark reflection on some of the local strategic challenges faced by domestic companies. Who also often cite human capital, innovation, collaboration and innovation: pipeline as their top strategic assets.

Confronted as they are by what Tom Friedman of The New York Times called “The Great Infection” IE a hyper-connected world grounded in social media, cloud computing, 4G wireless, ultra-high-speed bandwidth, mobile devices which all make managing risk a growing necessity in the country.

Changing how they manage strategic risk

Whilst in the past many organisations in South Africa have focused on embedding the process of strategic risk identification. Increasingly it is about how to change business strategy and both manage and take advantage of strategic risk. Whilst there is also a significant focus on local challenges, with the top strategic risks focused on corruption, fiscal crisis, credit rating downgrades and economic slowdown or recession all increasing the likelihood of strike action.

These key strategic risks being emblematic of the significant challenges faced in South Africa and have the risk of continuing to reinforce the lack of competitiveness of South African companies against global organisations. South African companies also see both the threat and the opportunity in technology disruptors on their future business. Given that geographic expansion is often a top strategic initiative.

South Africa’s Risk Management Going Forward

In an era when risk can become reality in the blink of an eye South African companies have begun to seek new capabilities and approaches for managing strategic risk.

In particular, they are now considering a much broader set of risks and strategic assets – including people, intellectual property, customers, marketing efforts, and even “the crowd.” Yet these risks and assets are often much more difficult to measure, capitalise on, and hedge against – and thus demand a much more systematic and sustained approach to monitoring and managing risk.

To address the risk challenges of tomorrow today, South Africa’s companies should look outside of their traditional corporate structures – adopting more of an “outside-in” perspective when assessing their strengths, challenges, and opportunities.

This will require a new focus on gathering data and appreciating external perspectives from “outside” sources, including customers, bloggers, information trendsetters, and marketplace and security analysts. It will also demand to learn from other companies and industries.

Although companies around the world have made significant strides to shore up their strategic risk management capabilities, most recognise they still have room for improvement. Given the increasing speed and global impact of risk (and the growing importance of innovation), organisations must be open to any ideas that could enhance how they manage strategic risk – even if those ideas originate elsewhere. To operate with confidence in an expanding universe of strategic risk, companies need to explore every possible advantage.

For South African organisations this idea is even more critical given the increasing impact of global risks on local strategy and the increasing need to compete in an open global marketplace. Looking ahead, it will not be an easy road with perceived future risk challenges in the areas of leadership, technology and strategic alliances.

South African companies do however see the future investment potential in human capital, innovation through collaboration and networks with other organisations innovation pipeline, which if driven as core components of their business strategy - will ensure a greater competitive advantage overall in the global market.