@ the IERP® Global Conference, August 2024
In his presentation, Dr Martin Leo, Chief Risk Officer at, the National University of Singapore, looked at the trends and threats of risk, covering issues like geopolitical risk, cybersecurity and misinformation, among others. Commenting on the origin of BRICS, for instance, he pointed out that the term was coined by Goldman Sachs, noting that while it was now a political alliance, it was created to sell investment products. “It had a fund for investment,” he said. “Then a political alliance was formed.” In the same vein, he queried if AUKUS was a political alliance or a defence alliance.
“Depending on what lens you are using, it’s three nations coming together – and on top of that, there are nuclear submarine contracts,” he said. What all this is telling us, he pointed out, was that this was a geopolitical risk in a form that would not have existed a few years ago. We should be worried about it because it goes beyond political alliances. “A lot of business is increasing or decreasing because of these alliances, and they start off with a certain agenda,” Dr Leo said. “They can be best friends or foes forever. They will always be fighting…(we) don’t know if it will ever be resolved.”
But the fact is that this is the environment businesses operate in. Remarking that no reference could be complete without Artificial Intelligence (AI), he said that it was not so much about the technology as about the real impact it has on people, lives, communities and nations. It was also about how regulators, politicians and businesses will respond; how geopolitics will work with AI, and how one will influence the other. Bringing up the issue of the ageing population, he pointed out that as populations age, there would be fewer people in the working-age population.
This was already a trend: fewer younger, educated people in the labour force. This was likely to affect many economies. “Japan is already on this path,” he said. “The number of people below 65 supporting older people, is decreasing. Economies are ageing. By 2040 or 2050, you will realise that the labour force is smaller than it ever was. What does this mean for companies?” Businesses will have to seriously consider if, in terms of hiring, they have enough staff, are able to train them and be ready to deploy them – or, if they will be caught in a situation without enough talent to sustain themselves.
What kind of implications does an ageing population have? “One person’s risk is another person’s opportunity,” Dr Leo remarked. “While the economy is being affected, we are seeing a lot of products being built and marketed for an ageing population. People who now have a lot of money in hand are willing to spend on travel and the things that they couldn’t do before. The economy is changing – the ‘Silver Economy’ is being built on the ageing population.” But an ageing customer base may not be so tech-savvy; how are companies preparing for this?
New skills, such as in cybersecurity, will be needed. “Because of automation and new technology, the lower-end jobs will go away,” he said. “But you are already running short of jobs in cybersecurity so you reskill in this area.” This will be an advantage/opportunity but will the economy be ready for it? Energy is another risk-prone area that affects politics and economies, with very few countries actually benefitting from the energy crisis. “Every time there is a conflict, fuel prices increase,” he said. “This has been going on for decades, but there is a flip side to it.”
An example was the US power crisis a few years ago which brought the shale gas and fracking industry into the mainstream. “An industry that was not really growing or in-demand became mainstream,” he said. Citing the World Economic Forum’s list of risks and how organisations may be affected as a good reference point, he said risks affecting an organisation should be viewed within the context of how long-term its strategy plans were, without ignoring short-term risks, as these could impair its ability to execute its strategy.
“When you are looking at long-term risk, the perspective matters,” he said. “When you are looking at operational risk, you have to look for the clear and present dangers that you need to be worried about. When you are looking at strategic risk, you need to understand both – what can affect me today as well as what can affect me ten years down the line.” Additionally, risks are not standalone; when organisations consider strategic risk, the fact that all risks are interconnected, cannot be ignored. For instance, there is always dependency on a third-party supplier, or on outsourcing.
“Your organisation is part of a networked ecosystem,” he stressed. “When one part is affected, you will be affected.” Whether they like it or not, risk professionals have to deal with uncertainty in addition to this interconnectedness, and strategic risk makes it even more difficult; challenges increase in tandem with changes in the business and the economy. He advised identifying the risks that could affect business strategy, the organisation’s ability to execute, and the trends to be considered; including those the competition can leverage on.
Simultaneously, it is also about the opportunities that an organisation does not leverage on, which prevents it from growing as it should, he added. “Finding the strategy is an integrated set of choices,” he said. “It isn’t about creating an advantage for today, for this quarter or the next. It has to be a sustainable advantage related to corporate development.” In tandem, the organisation must consider what could undermine its strategy. He stressed that strategic risk was unique to the organisation. “Your culture, business model, and footprint are all different,” he said.
Similarly, firms cannot pick somebody else’s strategic risk and use it as their own. “If you don’t understand the uniqueness of your organisation, you are not going anywhere,” he said, advising against running strategic risk management from the head office, without going down to the ground to understand staff competencies and agility, how they should be skilled or upskilled. “It comes back to connecting all the pieces, putting them together and saying how it will affect your strategy,” he said. “It is about creating a resilient organisation. You need to survive despite threats and trends.”
Organisations must ask themselves if they can sustain growth and the competitive advantage they may hold in today’s market. Risk professionals must be aware of what is happening inside and outside, and be able to influence strategic thinking, based on their ability to properly identify the signals from the marketplace. “Strategic risk is about identifying the signals,” he said. “Pick up the small signals. The further you can look back, the better you can look forward. Strategic risk is about being able to sense those signals and understanding what they mean.”
