Risks or Opportunities?
A recent report from Ernst & Young outlined the top 10 business risks for "multinational firms that are leaders in their industries." While that may sound like a pretty rarefied place for a company to be operating, the majority of the concerns—or reasons to be concerned—identified in the report should resonate with executives at any size of firm; not least because the majority of them can be attributed directly to economic conditions. Perhaps most striking, however, is that only five of the top 10 risks also appeared in the top 10 in 2008—a statistic that emphasizes just how quickly the business environment is shifting around us.
1. The credit crunch (2)
2. Regulation and compliance (1)
3. Deepening recession (New)
4. Radical greening (9)
5. Non-traditional entrants (16)
6. Cost cutting (8)
7. Managing talent (11)
8. Executing alliance and transactions (7)
9. Business model redundancy (New)
10. Reputation risks (22)
(Figures in parentheses denote 2008 position)
Of the ten risks, at least four (credit crunch, recession, cost cutting, executing alliance and transactions) are directly attributable to the current economic environment, a fact that has two major implications: first, that almost everyone else is facing those exact same challenges and, second, that the scale of those challenges will decrease as and when the economy starts to improve. That's the good news.
The bad news is that there are still six major risk factors on the list that are unlikely to go away no matter how much the economy improves in the short to medium term—and, assuming that any company still in business now is going to make it out of the recession, it's the ability to deal with those variables that will make the difference between success and failure in the future. Unfortunately, the time to start dealing with those variables isn't when the recession goes into remission—it's now.
Looking down the list, it's not difficult to think of a company or industry that springs to mind as having succumbed to each specific risk, and, in doing so, to find a cautionary tale for all companies that follow. While I'm not going to waste anyone's time with reminders of firms that have gone under due to the credit crunch and recession, what is worth noting is just how many of these factors affected the likes of GM and Chrysler. By my count, those companies failed to deal with at least eight of them, and maybe as many as all ten. (For the record, my list of "definites" includes no's 1, 2, 3, 4, 5, 6, 9 and 10.)
One of the most interesting features about any list of this sort is that it represents not only the risks companies face today, but the opportunities that others are looking at tomorrow—at least for the six factors that aren't products of the recession. While some companies will struggle with regulation and compliance issues, someone out there (probably at a consulting firm) is figuring out how to make money from it. Ditto the scores of companies setting up in the green tech and energy fields. Even companies who are finding that their business model has been made redundant—or is fast becoming so—have a unique opportunity to develop a new one that will pay. It might not be as much fun as resting on your laurels and watching the money roll in, but it's the new reality for companies in everything from the newspaper and TV business to, well, the auto industry.
As Vault's CEO wrote here just a few days ago: "The 20th century is over." The 21st century will belong to those companies and leaders that are not only capable of identifying the risks, but of seeing the opportunities they present.