Businesses should be questioning the effectiveness of their risk management practices and budgeting in order to find new ways of improving profitability in the continually dour economic climate, Ernst & Young claims.
According to the consultancy and advisory group’s new report, Business Pulse: Exploring the dual perspectives of the top 10 risks and opportunities in 2013, pricing pressure and cost cutting continue to dominate the list of risks for businesses globally.
Ernst & Young Asia-Pacific risk leader, Rob Perry, said the same risks have led the top 10 globally and in Australia for the past five years. However, he perceived a sharpened focus on pricing pressures and cost control this year given ongoing economic uncertainty in world markets.
Perry claimed Australian businesses now accepted they can no longer wait for an upturn but must instead increase their focus on doing what they can to cut costs and ramp up efficiencies.
“It’s time to question the effectiveness of our risk management practices as well as budgets, and companies should be asking themselves if they have been effective in reducing residual risks over time and improving the controls that really matter,” he said.
As well as finding new ways to be profitable in the face of shrinking developed markets, companies also need to make tough decisions on how to cut costs without compromising product and service standards, Perry continued.
“This is in contrast with 2011, when companies were focused on the risks associated with regulation and compliance, and the most significant opportunity came from optimising their operational strategy,” he said.
The top opportunity for businesses in today’s environment is innovation, especially within rapid-growth markets. Perry pointed out research and development spending in rapid-growth markets was growing a four times the rate of developed markets.
“To exploit these rapid-growth markets, companies must align the opportunities directly to their risk appetite,” Perry warned. “It is not a question of how companies get into these markets; it’s a question of how they succeed.”
Other areas for business growth include new marketing channels such as social media, which ranked as the fourth-greatest business opportunity in the 2013 Ernst & Young survey, jumping up from eighth in 2011. However, emerging technologies also came in ninth on the list of greatest risks.
“For all the steps that companies have taken around cloud computing, social media, mobile and other emerging technologies, they continue to fall behind in arming themselves against information security threats, creating a gap that grows ever larger,” Perry commented.
Ernst & Young’s report was based on surveys of 641 senior executives from companies across 21 countries including Australia.
The top 10 list of business risks:
- Pricing pressure
- Cost cutting and profit pressure
- marketing risks
- Macroeconomic risk: weaker or more volatile growth outlook
- Managing talent and skill shortages
- Expansion of government’s role
- Regulation and compliance
- Sovereign debt
- Emerging technologies
- Political shocks
You can download the Ernst & Young report here.