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| The 10 most plausible, strategic business risks - of a future Industry 4.0 |
Context
As part of my PhD research I recently came across a published paper released by Salzburg University (Birkel, Veile et al. 2019), which attempts to outline what the most material, strategic business risks will be during Industry 4.0 - in turn, I thought I would share.
Industry 4.0
The Fourth Industrial Revolution (aka Industry 4.0) is the term introduced by the World Economic Forum to try and explain how rapidly emerging technologies are collectively re-shaping our global consciousness, our social behaviours, our preferred politics, the cities we will live in, our places of work, our management practices and even our future careers. In brief, Industry 4.0 represents the physical state of our future working world.
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Industry 4.0 is expected to be a sustained period of continually emerging technological advancements which will forever alter the way we humans behave, socialise, work and exist. For this reason, many forward looking organisations are starting to conceptualise what the workplace requirements of the future will look like. Industry 4.0 will in turn require a suitably enabled Workforce 4.0 and in both cases; new knowledge, skills, methods and tools will be required.
Of course this then naturally leads us to a number of risk-based follow up questions, such as; what will the required knowledge, skills, methods and tools of Risk Management 4.0 look like and what material risk exposures should organisations start planning for now? These questions are exactly what the University of Salzburg attempts to answer in their referenced paper.
Risk Management 4.0
If anything, the Fourth Industrial Revolution is a Cyber Revolution and so the risk management profession is going to have to embrace the threats & opportunities of a greatly enhanced Cyber culture. More specifically, Risk 4.0 is going to have to understand the potential business impacts and risk exposures of a world struggling to find a natural balance and operating rhythm for such technological enablers as big data, predictive analytics, artificial intelligence, the internet of things, digital systems, cloud based applications, data streaming and altered reality.
During Industry 4.0 contributing organisations should expect an era of advanced complexity and perpetual disruption - many new businesses and operating methods will emerge whilst simultaneously eradicating many others. Industry 4.0 will create countless new professions which means new jobs, skills, and expertise will be required. Further, what we currently accept as leading practice or business as usual, will almost certainly change.
Considering this shifting landscape, the University of Salzburg set out to interview a broad range of modern organisations, their leadership and their appointed risk officers in an attempt to document what the most plausible risks to future organisations will be. The idea being to help existing organisations start to proactively plan for these risks.
The final published works can be reduced to the following ten most plausible risks:
- Reduced profitability exposures – keeping up with the shifting technological and customer needs of Industry 4.0 will require mass investment, recapitalisation & restructuring. Increased capital spend on new-unproven business enablers, will almost certainly create profitability exposures for many existing organisations
- Risk of false investments - investing in new technologies/methods in a rapidly evolving, highly volatile market always the carries the risk that new investments become disrupted or obsolete before they are able to deliver on their desired return - think how Australia invested almost $50 billion in a 4G national broadband network, only to be disrupted by 5G technology mid-implementation
- Industry Power Shifts – new technologies, new market entrants and shifting client needs will inevitably lead to an increased number of mergers, acquisitions, liquidations and other forms of industrial natural selection. All of which have the potential to disrupt the established industry power balance, as well as all the associated operating relationships which are dependant on that power balance - think IBM vs Apple
- Disruption of Established Business Models - rapidly emerging industry advancements may result in an equally rapid transfer of customer needs & allegiances. Such rapid shifts in customer behaviour may result in the absolute disruption of established business models, competitive competencies and operating paradigms - think BlockBuster Video
- Advanced Competition – the rapid emergence of new industry players with more advanced/more innovative service offerings may result in many industry incumbents being forced to “play catch up” for decades thereafter - think Blackberry & Nokia
- Shock loss of a Critical Business Dependency – shifting market circumstances combined with rapidly emerging industry forces, may result in the disruption of a business-critical partner, client or service provider - think anybody who has been dependent on a major supplier/benefactor who suddenly and unexpectedly announced they were insolvent
- Volatility of Global Procurement – ongoing relationship shifts (or sudden shocks) across the global supply landscape, which is highly integrated and co-dependant; may result in critical materials suddenly becoming significantly more difficult to procure - consider how Brexit will impact the availability, costs, trades & tariffs on all goods across Europe
- Mass Skills/Expertise Volatility – rapidly evolving job requirements, combined with mercenary industry recruiting tactics may result in a depleted, unprepared or under skilled workforce - think of the difficulties associated with teaching your parents to program a VHS Video Recorder back in the 80's, or to surf the Internet in the 90's. Now think how many existing employees don't currently have the skills necessary to succeed in the Cyber age and how difficult it is going to be to upskill them all
- Internal Resistance to Change – an organisation-wide, cultural failure to accept and prepare for rapid and momentous industry changes may result in significant business bureaucracy, inefficiency and lack of market competitiveness - do I really need to provide an example for this? If so, just take a look around your own organisation and count the people who react poorly whenever changes are proposed to their work place paradigm
- Intellectual Obsolescence – rapid industry advancements may critically expose the outdated thinking and practices of the incumbent business and its appointed leadership - think Barnes & Noble or Encyclopaedia Britannica's failure to embrace the power of digital print over hard copy print
So what?
Although the Salzburg paper is mostly exploratory, none of the risks on their list are implausible. In fact, most modern practising risk offers would almost certainly view these risks as being highly plausible... which of course then begs the most important question of all; "What is your organisation's invested risk management capability doing about it all?"
Industry 4.0 is here, the time to act is now! If the above thought piece was of interest then I recommend you also read "RISK 4.0 - what the risk management discipline will need to offer during the age of the Fourth Industrial Revolution" - reachable through the following link; https://lnkd.in/gVHGgpD
Related Topics:
- The Three Lines of Defense: Integrating Third-Party Risk Management Across the Organization
- ENTERPRISE SECURITY RISK MANAGEMENT-A HOLISTIC APPROACH TO SECURITY
- Incorporating Information Security Risk Assessments into the Third-Party Risk Management (TPRM) Process
The Author: Warren Black
About:
I am an Engineer, Risk Professional and Complex Systems’ Thinker who has particular interest in understanding how the complexity sciences may offer a better means to controlling emergent risks within highly complex, operating environments. I currently consult on how to improve organisational Governance, Risk & Assurance practices so that they may reflect not only the degree of investment at risk, but also the specific environmental complexities in play.
I believe that over the past decade in particular, I have accrued deep expertise in my chosen subject matter as evidenced by the fact that I was the head of Program-wide Risk for BG QCLNG and have held Senior Project Risk & Business Advisory roles at both Deloitte and Marsh & McLennan Risk Advisory Practices.
I am also arguably one of only a handful a Risk Professionals who has built a full end-to-end risk management & reporting framework for an organisation of over $25 billion (BG QCLNG). At its peak this was the 8th largest project in the world and is hence a significant indicator of my capability.
As a practising complexity & risk specialist, I have worked within two of the world’s largest mining project hubs (BHPB and Rio Tinto), three of the Queensland mega LNG projects (GLNG, APLNG, QCLNG), Australia's largest construction company (Leighton’s/CIMIC), The State of NSW's largest Infrastructure PMO (I&P PMO),
Victoria's Largest Rail PMO (VicTrack), Brisbane's largest city Rail Project (Cross River Rail) and the largest publicly funded civil & infrastructure PMO in Queensland (Brisbane City Infrastructure). Also, as a demonstration of my commitment to my art; I am currently engaged in a PHD by Research whereby I am "Investigating a Complex Systems Approach to Complex Project Risk Management". I believe that the complexity sciences provide a new generation lens upon which to help risk management transition into a future world of complex working relationships and perpetual disruption.
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