Protiviti and North Carolina State University’s ERM Initiative teamed at the end of last year to survey directors and executives across a wide spectrum of industries for our fourth annual Executive Perspectives on Top Risks report. We are drilling down, over a series of blog posts, to provide insight into these executive perspectives within key industries and how these risks may have evolved since the survey was conducted. This post focuses on the consumer products industry.
The list of top risks in the consumer products industry – regulation, customer loyalty, cybersecurity, growth, and employee recruitment and retention – have remained remarkably consistent year-to-year. In 2016, the perceived significance of those risks decreased across the board, but it’s hard to say whether this is a statistical anomaly, or indicative of the anesthetizing effect of managing significant risks over an extended period.
From Protiviti’s perspective, we have not seen anything to suggest any ebb in the disruptive forces at work in the industry. If anything, consumer demands are increasing as technology and competition foster expectations of a consistent and fluid shopping experience across multiple channels – allowing customers to shop online, accept delivery on their doorstep and return goods in the store, for example.
If anything, this so-called “omni-channel” business model is increasing risks, by demanding that retailers simultaneously collect more data and invest in better security to keep it safe and analytics to make it actionable. This increased reliance on data, delivery and telecommunications increases the risk of regulation and regulatory scrutiny.
Finally, it ups the ante on consumer products and services companies to recruit and retain employees and executives capable of embracing change without losing sight of unique brand values and brand-specific customer expectations.
In my experience, the executives I work with are well-aware of these challenges. This leads me to lean toward the idea that executives who responded to our survey are already so engaged in the process of dealing with the risks they identified that perhaps they don’t loom as large as before.
The most interesting risk I see in the industry today is also an opportunity – and that’s deep data analytics. Big retailers have been capitalizing on this opportunity for some time, digging deep, mining customer data, trying to drive repeat purchases. They’re getting very good at providing customers with what they want, when they want it, on the customer’s terms, and still managing to control inventory without running out of stock. That’s not so much the case with mid-size and small companies, but it’s what they should be doing to remain in the game.
Bringing all of that home, I think there are really three areas where consumer products and services companies should be investing now to mitigate risks and get the best return on their strategic risk management investment. The first area is data security – nothing will do more damage, faster, than the public disclosure that a retailer failed to protect customer credit card data. Second, data analytics – the ability to analyze and predict customer spending – is going to be critical to retail success in an omni-channel world. And finally, talent acquisition – the right team can make a critical difference. These days a new CEO usually comes with a new team and a whole new brand philosophy. Experience has shown that what connects a brand with its customers at one company can turn customers off at another. A CEO with innovative ideas can propel a company upward – or plunge it towards the bottom. So this is a critical risk.
All of these are good challenges to have, and it’s a fascinating time to be in the consumer products and services industry. I would definitely encourage you to download and read the overall survey and the industry findings. And I’d love to read your thoughts in the comment section below.