Reputation named top strategic risk among large companies

Company reputation and the fallout from reputational damage have surpassed economic and business model concerns as the top strategic risk for large companies, notes Deloitte LLP, which released its Exploring Strategic Risk survey report Tuesday.

The findings are based on a global survey conducted by Forbes Insights that involved more than 300 respondents from the Americas (33%), Europe/Middle East/Africa (33%), and Asia/Pacific (34%).

Almost all respondents were C-level executives (263), board members (22) or specialized risk executives (21). All surveyed companies had annual revenues in excess of $1 billion (or equivalent).

Reputational risk was ranked third among strategic risk concerns in 2010, notes a statement from Deloitte, which provides audit, tax, consulting and financial advisory services to public and private clients spanning multiple industries.

For some industries, reputation has risen from outside the top five strategic risk concerns to the top of the list, Deloitte reports. This includes the energy and resources sector, where reputation was ranked 11th three years ago.

Polled companies point squarely at social media as contributing to the rise of reputation risk. Findings show that almost 50% of respondents listed social media above other technologies, such as analytics, mobile applications and cyber attacks.

“The time it takes for damaging news to spread is quicker, it goes to a wider audience more easily, and the record of it is stored digitally for longer,” explains Henry Ristuccia, Deloitte global leader, governance, risk and compliance. “Even in an environment where economic conditions remain tough and technology threatens business models, this is why companies place reputation at the top of their strategic risk agenda,” Ristuccia says in the statement.

Citing “several reputational episodes in the past three years,” he points out “the only sector where reputation hasn’t risen as a strategic risk factor is financial services where it was already No. 1 following the financial crisis and subsequent fallout.”

Companies identified data mining and analytics, normally seen as beneficial to a business, as the second most concerning technology threat, the statement notes. The top five technology threats to the business were social media, 47%; data mining and analytics, 44%; mobile applications, 40%; cloud computing, 38%; and cyber-attacks, 36%.

After reputation, companies identified their business model as the second highest strategic risk in 2013, and forecast this to remain the case in 2016, Deloitte reports. The role of technology looks to play a large part in this concern, with 53% of companies surveyed believing that technology enablers and disrupters are emerging that could threaten their established business models.

“Cyber-attacks and the transformative power of apps and cloud computing present obvious risks, though some may find it surprising to see analytics and ‘Big Data’ in this list,” says Ristuccia.

“Companies recognize the potential of this data, but appear concerned about how to grasp it properly. The key question is how to examine the data to find meaningful and relevant takeaways for business strategy,” he adds.

Respondents report devoting more time to strategic risk by senior management. More than 80% of companies surveyed say they explicitly manage strategic risk rather than just limiting their focus to traditional risk areas, such as operational, financial and compliance risk. 

Although progress on strategic risk management is evident – 94% of companies surveyed have changed their approach over the past three years – the Deloitte statement adds that most executives admit their programs do not support their business strategy well enough.

Work remains to be done to tie strategic risk management to strategy, with only 13% of executives surveyed stating their risk management program supports their business strategy “very well.”

Other survey findings include the following:

• two-thirds of companies reported their CEO, board or board risk committee now has oversight when it comes to managing strategic risk;
• 61% of companies believe their strategic risk programs are performing at least adequately in supporting business strategy development and execution;
• only 13% of companies rate their risk management programs as being five out of five in terms of supporting the development and execution of business strategy;
• 66% of companies have established a common definition of strategic risk; and
• asked which strategic assets companies are investing in to counter perceived strategic risks, 47% cited human capital, 32% cited brand name and reputation, and 26% cited customer capital as key items.

“One of the most critical strategic risks is the ability to keep pace with innovation,” Ristuccia suggests. “Companies that fail to keep pace may soon discover that a competitor’s innovation has become a major disruption to their business model.”