Reputation now matters more than ever for companies - Deloitte

Managing reputation is now the biggest strategic risk consideration for companies both globally and in South Africa. But South African companies have slightly differing view on other risk factors relative to their global peers, while the proliferation of technology and social media may be the influence on how companies manage risk. This is according to the latest strategic risk survey, Exploring Strategic Risk: A South African Context, conducted by professional services firm Deloitte.

"The spread of risk is so much greater now and as a result companies have to be better prepared and faster to respond than they were as recently as five or even three years ago," says Mark Victor, Director for Risk Advisory at Deloitte.

A central finding of the survey is that 81% of respondents both in South Africa and globally have an explicit focus on managing risk. Moreover, 88% of SA respondents say their company has changed how it manages risk over the past three years, while globally, 94% of respondents say they have.

The comparative findings are based on a global survey of over 300 international senior managers and executive respondents; 234 responses were obtained from the local version of the global survey. Just under half, or about 47%, of South African respondents are executives or risk specialists.

Surveyed companies came from all five major industry sectors: consumer and industrial products, life sciences and healthcare, technology, media and telecommunications (TMT), energy/resources and financial services.

Additional detailed insights were obtained from key representatives of local companies to include local perspectives on the local and comparative results.

The report focuses on strategic risk as one of the identified four types of risks that executives have to grapple with, being the risks which affect or are created by a company's strategy.

The report also tracks perceived risk priority over time, starting in 2010, moving to the present and looking ahead to 2016. Globally, a company brand and reputation had already emerged as a key risk while SA executives identified customer and market concentration as a key risk then. South African executives see reputation and economic trends as key risk at present, and in 2016, have identified leadership shortage and succession as future risks, while their global peers see economic trends as being a key risk in three years.

Victor says reputation was already a key risk in financial services three years ago more than other sectors, probably a reflection of the fallout from the financial crisis, which had struck just two years earlier.

Now, reputation has emerged as a key risk in other sectors, most notably energy and resources, where 84% of companies identify it.

This is probably due to events such as the BP oil spill and the growth of activities such as fracking, as well as increased scrutiny of a company's conduct towards the environment.

South African executives then identify brand, talent acquisition and retention as well as political legislative trends as their next biggest risk concern. An example of political legislative trends can be seen in the latest credit as well as well as mining and resources laws amendment. Local executives then place business model, and how it is affected by technology, as the next big risk factor.

Their global peers identify business model and economic trends as well as competition as their next biggest risk factors.

A finding that will be of concern to South African business is that South Africa and the Europe Middle East and rest of Africa lag behind the process of integrating risk to strategy. Asked how well they think their risk management practices support their company's ability to develop and execute its strategy, only 3% said very well, while about half, or 47%, said well and 49% believe not as well. In comparison, in the Americas, 67% believe their risk and strategy integration is being achieved well or very well, while in Asia Pacific region the figure is 63%.

"Risk management and strategy integration is fast becoming a critical component of maintaining a sustainable competitive advantage, as we see organisations move from using risk management for value preservation to also using it for enabling value creation. This finding highlights an area for improvement, which more South African organisations should strive to address due to the envisaged return on investment," says Vanessa White, Risk Advisory at Deloitte.

Arguably the most interesting finding is how technology is seen as both an enabler and disrupter that can threaten a company's business model, with 56% of South African respondents agreeing with the statement, just ahead of their global counterparts at 53%.

South African executives identify the top five threats as data mining and analytics, social media, cyber attacks, cloud computing and mobile applications. Global executives list social media as the top technology threat.

South African respondents were also notably aligned well to their global counterparts in the identification of human capital (today) and innovation (today and in the future) as the top strategic assets to invest in to mitigate strategic risk.

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