While technology is critical and necessary for businesses, it often is challenging to effectively ... [+]
Innovation and technology are at the top of nearly every business agenda. Technology is critical to innovation, and it also serves as the accelerator for many parts of businesses’ growth plans, from manufacturing to distribution to marketing to finance. As the last decade has increasingly shown, companies that are unable to adopt new technologies quickly and effectively or don’t have the right mix of talent run the risk of being outpaced, outsmarted, and otherwise disrupted. In many cases, the willingness and ability to adopt technology determines a company’s very survival.
In fact, our research showed that leading companies that amplified their technology investments during the pandemic significantly extended their growth advantage over competitors, growing revenue at five times the rate of laggards, exceptionally higher than the two times rate of growth they enjoyed a few years prior.
While technology is critical and necessary for businesses, it often is challenging to effectively implement and apply. To make the right technological shifts, companies need to have the right organization, people, and skills in place. This is a fine line; organizations sometimes move too quickly, which could lead to unintended consequences like operations glitches, security and risk concerns, or a poor customer experience, while firms that move too cautiously run the risk of being outmaneuvered as they find it harder to satisfy customers, attract needed talent and ultimately lose market share.
Technology transformation is necessary, but successful transformation depends on solving two key issues.
First, companies need to make not only the right investments but the right amounts of investment, in people, training and technology infrastructure. And, importantly, this needs to be done across the technology spectrum. For example, at one level, technology automates simple processes and lowers costs. At a higher level, it provides insight leading to better business decisions and ways of working, enabling people to be more effective in their roles. Companies need to address both levels, integrating technology to lower costs but also to support and encourage innovation.
Second, companies need to figure out the right pace of adoption. This can be tricky, as innovation does not often move at a predictable pace. Rather, it moves in fits and starts, with frustration and stagnation often preceding periods of rapid progress. Bill Gates was quoted as saying back in 1996 that “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction.” This remains as sage advice today.
We have seen this cycle play out many times including recently with the global COVID-19 vaccine project, which saw cross-competitor collaboration leading to a vaccine developed in a shorter period than once previously thought possible. In parallel, every industry has seen the rapid adoption of cloud, analytics, artificial intelligence, and machine learning – changing dramatically how they work in both process and pace. And change will continue to bring new opportunities, with everything from electric vehicles to the metaverse to quantum computing. Companies need to get used to the idea that linear planning won’t work as well as it has in the past; there won’t be straight line gains each quarter, but rather flat periods followed by bursts of growth.
Companies’ risk management functions need to be in a position to help keep the risks of innovation and technology adoption under control. Risk managers can serve as impartial advocates for the right balance of investment and the right pace of adoption. And they can explore the benefits of new technologies while helping identify the risks associated with these technologies. Quantum computing provides a good example of a technology with great promise but with new security risks, in this case related to quantum computing’s ability to overwhelm current encryption protocols.
Risk management has a major ongoing responsibility to address the risks involved in digital transformation but it needs the confidence and skills to effectively do so. For example, consider that only 49 percent of respondents in our 2021 risk study said they were “fully capable” of assessing risks associated with the cloud, with even smaller numbers reporting readiness for AI, blockchain and other new technologies.
As organizations move faster and change more often, technology will become even more critical and integrated to achieving strategic outcomes. To keep pace with the heightened level of transformation, risk has to increase its technology skills, awareness and acumen, as well as more proactively and frequently engage with the business around technology risk. Those who do so can help their organizations advance their technology agendas with the right investments at the right speed and tackle the transformation roadblocks as they emerge along the way.
