Managing Risk in a Digitally Transforming World: What to Know Now

The innovations of the Fourth Industrial Revolution—the cloud, artificial intelligence, the Internet of Things, and beyond—are transforming business worldwide, opening up new business models, platforms, and opportunities. At the same time, today’s digital transformation has expanded a company’s vulnerabilities—especially for businesses with international operations.

Consider the business implications of:

  • A cyber attack on an industrial control system. In 2018, 31 percent of professionals managing these systems experienced a security incident.
  • An inability to find skilled workers in areas like data science and analytics
  • Shifts in political power from workers left behind in this Fourth Industrial Revolution

As digital transformation changes the risk landscape, it also is changing how globally focused businesses address operational, political, and economic risk. An overview follows of these interconnected areas, with recommendations for risk management in a digitally transforming world.

Digital transformation and operational risk

One of digital transformation’s most obvious risks to operations involves cybersecurity.

Increasingly ambitious cyber criminals with more powerful weapons are expanding their attacks beyond individual companies to vital systems and infrastructure. For January 2019 alone, the Center for Strategic and International Studies reported such attacks against telecommunications, internet, media, and transportation infrastructure. In its 2019 Cyber Threat Outlook Report, Booz Allen Hamilton cited the threat of water disruption attacks for U.S. companies with global footprints.

Amid these intensifying threats, companies are pressed to keep up with escalating compliance and workforce demands. As regulators respond to public concerns about security and data privacy, corporations risk multimillion dollar fines like the one paid by Google in France for GDPR violations. In addition to GDPR, 117 countries—as well as each individual U.S. state—have their own data protection laws.

To navigate these complexities, companies with multinational operations need skilled workers. According to the World Economic Forum, “A huge premium rests on the near-term ability of businesses to upskill employees and shape the next generation of talent.” Yet in a 2018 PwC survey of CEOs, 75 percent of respondents expressed concern about a shortage of digital skills.

Will a company have local professionals trained for cybersecurity and compliance responsibilities, or will such talent need to be brought in or recruited from elsewhere?

As highly skilled fields like data science grapple with a shortage of qualified workers, many other sectors face obsolescence and mass unemployment. According to 2018 research by Bain and the World Economic Forum, over half (57 percent) of jobs are at risk of automation. And this scenario has wide-ranging risk implications.

Digital transformation and political risk

From the social media-fueled uprisings of the Arab Spring to bots and hacks used to influence elections, we’ve seen digital transformation’s influence on politics. Today, technology’s impact on employment and economics is further shaping the political landscape.

Zia Qureshi, a visiting fellow with The Brookings Institution, noted that as new technologies shift demand from low- and middle-level skills to higher-level skills, “Long-term economic growth has slowed and wealth inequalities have increased, fueling today’s societal discontent, political backlash, and rising populism.”

As elections from Australia to Austria reshape governing bodies around the world, factors such as nationalism and immigration certainly come into play. Yet the impact of the Fourth Industrial Revolution cannot be discounted. Many voting citizens feel left behind in a digitally transforming world. For a globally focused company, such disenfranchisement can manifest itself in strikes, protests, changes in the nation’s desirability as a place to do business, and changes in the people making the rules—with potentially disastrous repercussions.

Digital transformation and economic risk

How can a multinational company effectively place its bets on a strong and agile economy—and avoid the risks of doing business in a place of turmoil or stagnation? We advise looking at national programs, policies, and responses.

Is a market proactively focused on job training and reskilling? In India, one of the world’s largest digitally transforming nations, efforts such as the Skill India public-private partnership have helped address the need for skills and jobs, creating greater inclusion, and building a healthy and sustainable future for citizens and cities.

How is the market positioning itself as an attractive, forward-thinking place to do business? As digital transformation triggers reshoring, nearshoring, and other structural changes to global value chains, “Countries will need to fashion themselves into attractive destinations within global supply chains,” according to a recent report by the World Economic Forum. The report cited “production readiness” factors such as innovation, international trade, and volume and mix of products.

And how is a nation working to ensure sustainable, shared benefits for all?

“Paradoxically, as new technologies boomed in recent years, productivity growth, which is the main driver of long-term economic growth, slowed rather than accelerated in the major economies,” Qureshi noted. He also observed that, “The gains from today’s technological advancements are not automatic; how they are realized and shared depends crucially on policy responses.”

Risk management action items

For managing risk in today’s world of digital transformation, Booz Allen recommends a threat intelligence program that proactively tracks impending shifts in the political and economic environment. We also suggest an examination of the following:

  • Have key aspects of infrastructure been under cyber attack—and with what repercussions?
  • How strong is the in-country workforce in cloud, data science, DevOps, and elsewhere? What programs are in place for rapid upskilling and long-term talent development?
  • How is digital transformation impacting economic growth and, in turn, the overall political climate in a given market? What policies and programs are in place to make digital transformation work for businesses and citizens alike?