At the start of any value chain is an idea — a concept for a business, a product or a service. To exploit this idea and turn it into a value-generating reality takes a combination of the right assets, talent and culture. The strategic direction of any organization can be shaped by changes to any of these, and digital is increasingly a core enabler to unlocking their value — no matter which part of the organization they inhabit.
The benefits facilitated by new digital technologies are being unlocked in two primary ways:
- By optimizing your existing business processes to improve efficiency
- Through innovations that can create entirely new business models
The challenge for established organizations is to get the balance right between the two: optimizing what should be optimized, and innovating intelligently and aggressively by identifying the right ideas to drive long-term value. Leading organizations are working to solve this conundrum and enter a state EY likes to call innovator’s duality (pdf) — successfully maintaining current lines of business and revenue while simultaneously developing new ones.
To achieve this, organizations should look to embed risk management throughout their value chains, from strategy and ideation to execution and value delivery. Through this approach, digitally-powered agile risk management becomes the ultimate enabler for supporting a flexible and responsive organization. If an organization truly understands its risk, it can seize opportunities with confidence, maintain stakeholder trust and deliver strategic value.
From avoiding to embracing risk
Today, risk management is often focused largely on risk avoidance — looking to the past to stop what has gone wrong and preventing that from happening again.
Risk functions of the future will need to be purpose-led, helping organizations and leadership calibrate their risk appetite by using strategic objectives to focus on opportunities for long-term value creation. To enable this, companies should shift risk monitoring from individual processes to focusing across the value chain — ensuring they understand the impact of each decision in its strategic context. And by predicting and responding to events in real time, they can be more agile in their decision-making.
Organizations who succeed will have developed a dual strategy that helps them build the confidence to seize upside opportunities while also better protecting themselves from downside risks. It is about understanding risk in context of both the potential loss and the potential value creation.
Through a deeper, stronger understanding of their risks and opportunities considered alongside their strategy, organizations can have the confidence to make the right strategic decisions. And basing these decisions on robust analysis means they can take stakeholders — throughout their value chains — on the journey to turn ideas into competitor advantage.