The digital era is upon us — there’s no denying it. Apps like Uber and Lyft have reimagined ground transportation and clothing companies like Nike and Under Armour are now in the business of connecting consumers through data generated on fitness trackers like Nike+ and MapMyRun.
As more becomes connected, this era of digitization continues to create significant market disruption globally and bring about unprecedented business opportunities that may have previously been considered high risk.
This shift is changing how many companies view risk, as they are unable to ignore this digital disruption. The question now becomes, how do companies evolve their risk management practices to turn market transitions into market opportunities?
State of the Industry
Let’s start by taking a look at the global business landscape as a whole. Technology is breaking down barriers and opening doors for change, but it isn’t the only thing affecting global businesses. In the past five to 10 years, there have been some fairly significant changes to the global environment with new influences emerging that affect global financial risk management practices:
There are many market forces at play that will affect companies in different ways. Before you begin developing a risk management strategy, understanding the implications is crucial in shaping your program.
Where to Start
Globally, customers need to be risk-intelligent and understand the opportunities and business impacts associated with risk management, as it’s not a one-size-fits-all model. An effective risk management process takes a multi-disciplinary, global approach spanning insurance, operational risks, financial risks and legal liability processes with the ultimate goal of balancing operational and economic costs with the company’s desired risk appetite.
With evolved market conditions, the digital era requires new considerations in risk management. Here is what businesses now need to consider when building out a strategic risk management approach:
Once a business has examined the aforementioned considerations, it must develop a robust risk management approach and strategy, being mindful of market opportunities, costs and the dynamic nature of risk management.
Setting Parameters and Implementation
Companies need to determine what financial risk capacity they have, how much they are willing to undertake, where gaps may be and if it creates an opportunity they want to exploit. As such, it’s important to closely examine the global landscape when determining an appropriate risk strategy.
For example, in areas of the world experiencing heightened security, where companies may want to avoid operating risks, new markets may emerge. Businesses will find these growing areas to be a good opportunity to explore risk and look to capitalize on the region. Take Cisco’s commitment to digital transformation in emerging markets, for example. By embracing this transition and fostering an environment of innovation, India alone potentially stands to add $224 billion in economic value over the next decade.
Once an organization determines they can take on more risk, the next step is to weigh options with a critical eye on creating enough flexibility and balancing it to maintain a healthy risk appetite.
This is where financing comes in. There are a lot of options and resources available, but as technology proliferates and even the most traditional of industries and companies make major investments in their IT infrastructure, companies often discover that it is best to partner with a vendor financing organization. Equipment finance companies can act as trusted partners, working with their vendor partners to execute the company’s risk management plan. This can enable the vendor to streamline, simplify and improve customer experience, leverage balance sheets, develop an end-to-end lifecycle transaction, help determine risk capabilities, maximize cost savings and reduce revenue loss.
Looking Ahead
To maintain a strategic risk management approach, companies must review their programs — while considering global and market conditions — and make routine adjustments. A shift or utilization of risk capacity in one area of a business may have an impact on the risk capacity of another part of the business. Companies have to realize that risk appetite and a company’s risk profile are constantly changing as a result of the dynamic global environment.
One final, but very important factor is the need to balance long-term customer and partner relationships with global influences and possible market scenarios.
Risk management will always require a fine balancing act that may change because of factors out of an organization’s control. However, through consistent risk portfolio monitoring and risk capacity planning with a well thought-out vendor finance solution in place, customers can see around corners and proactively address risks versus constantly being reactive.