Emerging Risks Monitor Report Also Notes Lagging Progress in Digitalization Efforts
Gartner surveyed 144 senior executives across industries and geographies and the results showed that “digitalization misconceptions” had risen to the top emerging risks in the 3Q19 Emerging Risks Monitor survey. “Lagging digitalization” remains in second position (see Table 1). Last quarter’s top emerging risk, “pace of change,” has now become an established risk after ranking on four previous emerging risk reports.
“While the threat of external macro risks such as the U.S.-China trade war are an increasing source of concern for executives, it’s notable that the top three risks in this quarter’s report are all centered around internal operations,” said Matt Shinkman, vice president with Gartner’s Risk and Audit Practice. “Business leaders are most concerned with their strategies around digital and having the resources in place to execute these plans.”
Table 1. Top Five Risks by Overall Risk Score: 4Q18-3Q19
|1||Talent Shortage||Accelerating Privacy Regulation||Pace of Change||Digitalization Misconceptions|
|2||Accelerating Privacy Regulation||Pace of Change||Lagging Digitalization||Lagging Digitalization|
|3||Pace of Change||Talent Shortage||Talent Shortage||Strategic Assumptions|
|4||Lagging Digitalization||Lagging Digitalization||Digitalization Misconceptions||Data Localization|
|5||Digitalization Misconceptions||Digitalization Misconceptions||Data Localization||U.S.-China Trade Talks|
Source: Gartner (October 2019)
Digitalization Anxiety Driven by Business Model Change
Digitalization misconceptions was cited as a top risk by 52% of respondents in the Emerging Risks Monitor Report, with lagging digitalization close behind with a 51% frequency rate. Executives from the IT and telecom sectors were clearly most concerned with digitalization misconceptions, with 75% of executives surveyed indicating this as a risk. The banking and energy industries were most concerned with lagging digitalization, with nearly seven in 10 executives indicating this area as a top risk.
Additional data collected by Gartner from corporate strategists reveals the extent of concerns with organizations’ digital strategies. Slow strategy execution and insufficient digital capabilities were tied among the top concerns of corporate strategists for 2019, with 60% of respondents indicating both areas as top concerns.
Adding to the unease is the large percentage of organizations undergoing some form of digital business change. A large majority of strategists indicated that digitalization was impacting four distinct areas of their business model: business capabilities, profit models, value propositions and customer behavior.
While these changes are underway, uncertainty persists about a clear path from current to future business models. Only 35% of strategists said they felt confident about which investments and initiatives were needed to drive their future business model, while only 20% said they had clarity on how those changes would positively impact their organizations. Just 8% of strategists felt confident that senior leadership agreed with these changes.
“Our data suggests that executives lack confidence in transformational business model changes, even as many are already underway,” said Mr. Shinkman. “To help mitigate the risks of digitalization missteps, organizations should take an incremental approach to business model transformation, with each step in the process building knowledge for future initiatives. Organizing business model transformation into discrete projects lessens the chance of major disruptions.”
Mr. Shinkman also noted that risk executives need to ensure they have a seat at the table during digitalization projects. Gartner research indicates that while two-thirds of risk executives said their organization currently has a digital transformation project underway, only 35% report that enterprise risk management teams are playing a role in the project.
More detailed analysis is available to Gartner clients in the full report and webinar recording 3Q19 Emerging Risks Report and Monitor.
Nonclients can complete free registration to read more in Emerging Risk Trends.