Ernst & Young conducted a survey of analysts from all aspects of the business world in order to identify the top ten risks for global business in 2008. In conducting the survey, analysts were first asked to identify and to rate the most significant business risks to firms within their industries. These top sector risks were consolidated and aggregated to form the top ten strategic risks across the sectors. These risks are (in order):
1. Regulatory and Compliance – Regulation and compliance risk is the greatest strategic challenge facing global businesses in 2008. This is being driven by an escalating regulatory burden in many markets, as well as numerous compliance challenges as companies expand outside of North America and Europe. Regulatory intervention in pharmaceuticals, biotech, insurance, telecoms, and utilities is further elevating this risk.
2. Global Financial Shocks – Analysts acknowledged that few sectors can escape the impact of major financial shocks. The sub-prime mortgage crisis and resulting credit crunch is a recent example of a financial shock affecting sectors across the economy
3. Aging Consumers and Workforce – As consumers age, they demand different products than in years past. This is causing companies to adapt quickly to changing customer preferences. Furthermore, the aging baby-boomer workforce is creating significant human resource challenges in many sectors.
4. Emerging Markets – Companies are increasingly being driven to emerging markets by the saturation of existing markets. Meanwhile, this global expansion carries the risks of currency, operational, regulatory, language, and cultural clashes.
5. Industry Consolidation/Transition – Industry transition was identified as a continuing major strategic challenge moving into 2008. Especially in the media and entertainment sector, mergers and acquisitions is a central feature of many companies’ attempts to respond to the internet’s impact.
6. Energy Shocks – Fluctuations in energy prices and access to supplies pose a clear challenge to the energy sector, including utilities and oil & gas. Beyond the energy sector, a large swing in energy prices could cause economic shocks impacting sectors across the economy.
7. Execution of Strategic Transitions – The recent mergers & acquisitions boom has caused stakeholders to expect these mergers to have an immediate impact on the bottom line. There is significant risk that strategic transitions may not meet stakeholder expectations, especially in the short-run.
8. Cost Inflation – The global economy has been running in a low inflation environment for some time. Analysts believe that the return of high inflation is a major risk to all sectors. In many cases, these pressures are caused by changes in the fundamental structure of an industry. For example, the US auto industry has been greatly affected by demographic changes and health care costs.
9. Radical Greening – Increasing environmental concerns is a strategic risk driven by both consumer demands and weather events caused by climate change. The pace and extent of this new ‘green revolution’ is difficult to predict.
10. Consumer Demand Shifts – It is the task of business to identify and respond to changes in demand. Such challenges are a strategic risk when changes are fast or unexpected. Consumers are rapidly becoming more empowered, challenging companies to quickly meet their demands.
To meet these challenges, company leadership must conduct an annual risk assessment that defines key risks to the business. This assessment must go beyond financial and regulatory risks to consider the wider environment in which the organization operates.
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