How can you turn digital risk into a source of competitive advantage?

Transcription

1 How can you turn digital risk into a source of competitive advantage? 15 October 2018 The better the question. The better the answer. The better the world works.

2 moderator Today s Heidi Riddell EY Asia-Pacific Advisory Risk Leader

3 Today s agenda 1 2 Digital disruption in today s business landscape Turning risk into an accelerator of digital transformation 3 Cybersecurity considerations in the digital transformation journey 4 Creating a value-adding risk function for the Transformative Age Page 3

4 moderator Today s Darren Chua EY Digital Strategy and Transformation Advisory Dilys Boey EY Asia-Pacific People Advisory Services Gerry Redmond EY Asia-Pacific Assurance Digital Leader Anthony Robinson EY Asia-Pacific Financial Services Cybersecurity

5 1 Digital disruption in today s business landscape

6 Question What emerging technology is your company planning to adopt in the next three years? (Please select one) A. Blockchain 8% B. Advanced analytics 38% C. Automation 26% D. Artificial intelligence (AI) 18% E. Internet of things (IoT) 10%

7 Digital disruption in today s business landscape 87% of executives see moderate or complete disruption within two years 90% of companies are considering increasing capital allocation toward digital Impact today Impact over the next two years Level of digital impact: today and in the next two years 15% 52% 33% In the next two years, digital is expected to have a much greater impact. 13% 49% 38% No disruption Moderate disruption Complete disruption * By complete disruption, we mean the point where technologies achieve deep penetration and where changing competitive dynamics put pressure on revenue and profits. Level of impact: complete disruption by sector Automotive Telecommunications Industrial manufacturing Mining and Metals Power and Utilities Life Sciences Oil and Gas Media and Consumer Products 43% 46% 42% 46% 38% 38% 35% 40% 33% 36% 31% 46% 29% 35% 26% 29% 22% 24% Relative to the disruption that each sector has experienced to date Today Two years Digital Deal Economy Study, 2 nd edition, January 2018 Page 7

8 Leadership capabilities when building digital capability Digital acumen Leadership competencies Hyper-collaboration Intellectual curiosity Personal attributes 360 thinking Determination Leading virtual teams Inspiration High Ease of development Low Connectivity Adaptability Empathy Cultural curiosity Integration Alignment Capability can be readily developed through training, coaching and skill practice. Capability reflects a deeply ingrained habit, or style, and is not easily developed. Page 8

9 Turning risk into an accelerator of digital transformation Looking at risks differently User adoption Return on assets Risks that offer benefits Market penetration Talent management Employee fraud Upside risks Risks that offer negative or positive impacts Outside risks Competitive shifts Geopolitical Natural disasters Information security Financial integration Regulatory compliance Downside risks Risks that offer negative impacts Key Tax law Expansion into new emerging market Acquisition or divestiture Development of social and mobile platforms Robert Kaplan and Anette Dilyss, Managing Risks: A New Framework, Harvard Business Review, June 2012 issue Transformation of finance function Page 9

10 2 Turning risk into an accelerator of digital transformation

11 Turning risk into an accelerator of digital transformation Consider digital holistically Strategy, innovation and growth Customer experience and multi services solutions Supply chain and operations (SC&O) New business models and ventures Establish a digital supply network Reimagine customer experiences and distribution models New operating models Drive intelligent automation of SC&O processes Collect intelligence across touch points Raise and allocate capital to fund digital transformation Create a more agile supply chain Deepen customer relationships and insights Identify threats and opportunities Respond quickly to market changes Multichannel marketing/sales/ service Technology Risk and cybersecurity Finance, legal and tax People and organization Manage risk as business transforms Create a diverse culture of innovation and ideation Streamline the digital ecosystem Automate processes and controls Keep pace with increasing cyber attacks Redesign the organization to fit the digital age Fully enable digital systems Digitize invoices and documents Understand broader risks of new technologies Transform knowledge across the organization Balance digital innovation with IT maintenance Maximize tax savings from digital initiatives Establish a cybersecurity program Integrate digital technologies to empower people Integrate front-office apps with back-end systems Address legal and regulatory requirements Page 11

12 Question What value do digital transformation projects realize with involvement of the risk function? (Select the most significant impact) A. Better user experience 14% B. Digital trust 38% C. Increased confidence of project delivery (budget and timeline) 38% D. Lower execution costs 5% E. No value involvement is expensive or slows progress 4%

13 Turning risk into an accelerator of digital transformation Consider digital holistically Strategy, innovation and growth Customer experience and multi services solutions Supply chain and operations (SC&O) New business models and ventures Establish a digital supply network Reimagine customer experiences and distribution models New operating models Drive intelligent automation of SC&O processes Collect intelligence across touch points Raise and allocate capital to fund digital transformation Create a more agile supply chain Deepen customer relationships and insights Identify threats and opportunities Respond quickly to market changes Multichannel marketing/sales/ service Technology Risk and cybersecurity Finance, legal and tax People and organization Manage risk as business transforms Create a diverse culture of innovation and ideation Streamline the digital ecosystem Automate processes and controls Keep pace with increasing cyber attacks Redesign the organization to fit the digital age Fully enable digital systems Digitize invoices and documents Understand broader risks of new technologies Transform knowledge across the organization Balance digital innovation with IT maintenance Maximize tax savings from digital initiatives Establish a cybersecurity program Integrate digital technologies to empower people Integrate front-office apps with back-end systems Address legal and regulatory requirements Page 13

14 Transformative Age. Digital focus. Key questions for organizations The auditor has a unique role to deliver an independent, trusted view on this digital agenda as stakeholders and organizations navigate the complexities of the Transformative Age. How can stakeholders be confident in the business readiness of an organization for an increasingly digital world? What are the implications for an organization as its business cycle is transformed and its operating model is digitized? How can a business maximize the potential of automation and centralization to increase global visibility and focus on the customer experience? What impact will digital technology have for how a business manages its accounting and reports its financial performance? Does an organization have the right people, in the right locations, performing the right level of work to leverage the potential of digital transformation? Page 14

15

16 Connecting teams and companies Automating audit procedures and processes Analyzing data with emerging technology Offering value through the digital client experience

17 3 Cybersecurity considerations

18 Cybersecurity considerations Risk Complex Money People Hackers Luck Cloud, IoT, big data, social media, mobile devices, digital 59% increased their cybersecurity budgets; 87% say they need up to 50% more Lack of people with cybersecurity skills, lack of cybersecurity awareness and not enough knowledge in the boardroom Sophisticated, organized crime/state-sponsored; time and funds available Hackers need one lucky shot; businesses need their defenses up 24/7/365 Page 18

19 Question What is the main focus of your cybersecurity efforts? A. Lacking focus; cybersecurity strategy is not defined 5% B. Focus is on protecting the enterprise 32% C. Focus is on adapting to change and further optimization 9% D. Cybersecurity is an important success factor for the growth of the organization and an important component in digital transformation 14% E. Or Combination of B,C and D 40%

20 Cybersecurity risk Protect the enterprise Optimize the cybersecurity Enable the growth of the enterprise Are we compliant? Are there weaknesses in our cybersecurity? Is there already a hacker in our systems? What is our maturity level; how are we doing compared to the competition? Could you help us to get a certification? What are the regulatory requirements? What is the cybersecurity strategy, what are the crown jewels, what is our risk appetite? What are low value activities, can we do them faster, cheaper or minimize them? What can be improved by technologies such as RPA and orchestration, AI, analytics etc.? Where do we need to more? Is our entire supply chain secure? How can we make sure that new channels are secure by design? What is the role of cybersecurity in new business models? How can privacy differentiate you in the market? Collaboration Share threat intelligence Work together to protect the entire supply chain In case of new initiatives: cybersecurity-by-design Private and public-private partnerships Pressure to be in compliance with rules and regulations Page 20

21 Talent management macro trends A changing workforce FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 Jan FY16 YTD Workforce planning Ensure the organization has the right people with the right skills, in the right places, at the right time and at the right cost to execute its strategy and improve its return on human capital investments. Independent contractor - 40% of U.S. workforce by 2020 Gig economy freelancers - Fastest-growing workforce segment 250, ,000 Holistic view of workforce Plan to stay long term 150,000 External staff 92m millennials will bring radically different norms, expectations and behaviors From 18% To 100,000 50,000 0 FTE Career motivation Career design Titles From Roles Employability To Experiences Client talent scenarios "Accepted external staff as necessary evil" "Need external staff to keep up with rapid growth" Page 21

22 4 Creating a value-adding risk function for the Transformative Age

23 Question What is the most significant kind of disruption needed in your risk organization to deliver strategic value in the Transformative Age? (Select one) A. Integration of all risk functions into one approach 34% B. Implementation of technologies such as RPA, AI and advanced analytics 11% C. More collaboration on threats and defenses in the ecosystem 17% D. Data driven approach to risk monitoring 15% E. Specialized resources and training to support a more technical and data driven risk program 23%

24 What will risk look like in the future? In light of the pace of disruption and resulting changes occurring in the business, risk needs to change what it does, how it does it and who actually performs the work. Digitally augment its capabilities Use advanced data analytics, bots and machine learning Be agile and dynamic Use technologyenabled risk assessment process Apply more judgment Focus attention on emerging risks and outcomes Provide dynamic outputs More real-time outputs to deliver its messages and meet stakeholder need Operating model Use data and technology Talent and ecosystems Predict control failures and risk triggers Shift responsibility for continuous monitoring and validation Report results digitally, e.g., dashboards, text alerts Provide business insights and strategic advice on a real-time basis Build and participate in risk communities Enable ecosystem sharing and centralized risk mitigation Implement a balanced workforce Use full-time employees, third-party service providers, machines and contingent resources, as appropriate Deploy resources with the right skill sets Obtain resources that have creative problem-solving skills, an innovative mindset and social intelligence Page 24

25 What will risk look like in the future? Talent and ecosystems Effective risk communities will facilitate ecosystem sharing and centralized risk mitigation. The risk workforce will consist of a balance among full-time employees, third-party service providers, machines and contingent resources. Creative problem solving, innovative mindset and social intelligence will become more valuable than technical knowledge. Page 25

26 What will risk look like in the future? Operating model An agile and dynamic risk assessment process using a common taxonomy, enabled by technology, will allow prompt monitoring of the evolving risk landscape. Risk professionals will apply more judgment in their work and focus their attention on the continued reliability of controls, emerging risks and outcomes. Risk will employ a variety of dynamic outputs, on a more real-time basis, to deliver its messages and meet the needs of its different stakeholders. Page 26

27 What will risk look like in the future? Use of data and technology Risk functions will digitally augment their capabilities with advanced data analytics, bots and machine learning to handle the volume, speed and complexity of data. The adoption of continuous monitoring and validation by the first and second lines will shift the focus from detecting to predicting control failures and risk triggers. Risk functions will digitally report their results (e.g., dashboards, text alerts) in real time, providing business insights and strategic advice. Page 27

28 Three lines of defense What changes we can expect Board of directors Risk committee Audit committee Benefits: Executive leadership Business strategy First line of defense R & D Customer service Procurement Finance Line of business (LOB) risks Technology Tax Legal Human resources Risk strategy & framework LOB risks Oversight & monitoring Business strategy Second line of defense Aggregate risks Centralized risk and compliance management center Operating model Resources Process and controls IT and cybersecurity* Legal*/ regulatory* Finance* Commercial* HR* * Only risk and compliance elements Supply chain* Technology Tax* Business unit-specific risk and compliance functions Firstline audits Second -line audits Audit findings and reports Third line of defense Internal audit External audit Centralization of compliance activities across business units and functions Reduced cost of compliance Elimination of redundancies and improved process efficiencies Increased resource capacity and utilization Improved coordination and alignment on key risks and controls Greater collaboration and transparency Single view of risk Page 28

29 Recap How to turn digital risk into a competitive advantage

30 Parting thoughts Arrival at the future state requires a journey. It is hard to argue that the business is not changing at a rapid pace. Risk has a unique opportunity to embrace change and lead by example. No one is out front, so do not look for early adopters. Start by making real investments in areas of impact and aggressively attack low-hanging fruit. Change will require significant education and communication to all stakeholders. Page 30

31 Contact us Heidi Riddell EY Asia-Pacific Advisory Risk Leader Darren Chua EY Asia-Pacific Digital Strategy and Transformation Advisory Dilys Boey EY Asia-Pacific People Advisory Services Gerry Redmond EY Asia-Pacific Assurance Digital Leader Connect with us ey.com/digitaltrust Follow us Anthony Robinson EY Asia-Pacific Financial Services Cybersecurity Page 31

32 Thanks for participating

33 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com EYGM Limited. All Rights Reserved. EYG no Gbl ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com

34 Disclaimer This material has been prepared for general informational and educational purposes only and is not intended, and should not be relied upon, as accounting, tax or other professional advice. Please refer to your advisors for specific advice. This presentation is 2018 EYGM Limited. All Rights Reserved. EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Page 34