By Peter Bannister
All companies must manage risk. Failure to do so leaves them vulnerable to external and internal factors that can destabilize their market position or stunt growth opportunities. Yet, companies are operating in times of change and with change comes risk. Nowhere is this more the case than in financial services where we find consolidation of companies, fragmentation of services, changing customer demands, new competitors with disruptive technology. On top of this, agile business models, evolving regulation, and technology are transforming the way business is done and the speed that services are provided at. Without the right level of planning and anticipation of potential events, the future can feel unacceptably uncertain.
Forward-looking risk management helps manage this. It establishes a framework for risk identification and preparation in the face of wide-ranging and complex risks and a fast pace of change.
Hindsight, insight and foresight
Hindsight can inform what has happened, and the value of this should not be forgotten in risk management. If operations are impacted by an event, it is imperative to collate all information, drill down into it and generate a clear view of what occurred, how and why. On a rolling basis, data can reveal patterns of cause and effect and these should inform activities in the present and mitigating action to attempt to prevent re-occurrence in the future.
Predictive analytics deals with scenarios of the future. Fortunately, no crystal balls are required; instead a wide range of planning activities should sit beneath two deceptively simple questions:
- What is likely to happen?
- What must be done?
In the first, data mining can detect patterns to project and predict potential outcomes. Robust forecasting around trends and the likelihood of potential outcomes occurring must form a part of this activity. When it comes to planning for what must be done, scenarios- and constraints-modelling should form part of risk management activity, as should decision optimization.
A 7-point forward-looking risk management checklist
Organisations with effective forward-looking risk management practices are better able to manage existing and emerging risks and adapt quickly to crises. At the heart of a forward-looking risk management approach is the capability to deliver an in-depth understanding of the potential risks the business faces, and the level of impact they could have.It comprises:
- Past trend analysis
- Future scenario predictions
- Scenario planning and preparation
- Assessment of processes to determine potential risks
- Identification of root causes and drivers of risks
- Risk prioritisation (based on the probability of each risk occurring and impact level if they should)
- Contingency planning.
Succeeding at forward-looking risk management
Business resilience is a discipline, not a process or an initiative, and so is with forward-looking risk management which must be approached as a way of working – inherent in the culture within which every department and every employee operates – and something that becomes part of the fabric of how the organisation works.
Each programme will be unique to each organisation but all should encompass:
- A clear understanding of the breadth of risks facing the organisation
- An understanding of potential threats and opportunities
- The means for effective communication between all stakeholders across all functions.
Before forward-looking risk management can be effective in helping to manage risk, protect the business and support a high-performing organisation, several challenges must be addressed. These include any lack of clarity around the full range of risks the organisation could be vulnerable to, and limited resources – a situation which must be overcome for risk management to be effective.
It’s also likely that siloed data could hold risk management back – a not uncommon situation in financial services organisations which have grown and expanded, adding products and services along the way and possibly even assets from merged enterprises, creating a patchwork of systems which may not ‘talk’ to each other. Such lack of collaboration and interconnectivity within the business can create obstacles in the movement of data and information which could mask existing issues and potential future risks.
It may also be the case that the right tools and techniques to effectively capture data and manage risk and compliance are lacking within the company. Technology can help by enabling a higher level of control over how policies and procedures are applied, with robust reporting for effective risk management.
Lastly, the ‘tone-at-the-top’ needs to be right for forward-looking risk management to function and thrive. This comes back to organisational culture and the right way of working that embodies risk awareness and mitigation. This culture will only develop if senior management creates the right conditions for risk management to succeed.
In today’s financial services environment, where risk evolves and change is the only constant, risk management should be forward-looking and enterprise-wide. With the right tools and capabilities, the way risk is managed can be improved to help the organisation meet business and regulatory requirements. By taking a forward-looking approach, organisations can aim to avoid unexpected issues which could be costly–in both financial and reputation terms – and which could threaten the smooth running of operations.
Peter Bannisteris SVP for Governance, Risk and Compliance at MetricStream
Foxconn chairman says expects “limited impact” from chip shortage on clients
TAIPEI (Reuters) – The chairman of Apple Inc supplier Foxconn said on Saturday he expects his company and its clients will face only “limited impact” from a chip shortage that has rattled the global automotive and semiconductor industries.
“Since most of the customers we serve are large customers, they all have proper precautionary planning,” said Liu Young-way, chairman of the manufacturing conglomerate formally known as Hon Hai Precision Industry Co Ltd
“Therefore, the impact on these large customers is there, but limited,” he told reporters.
Liu said he expected the company to do well in the first half of 2021, “especially as the pandemic is easing and demand is still being sustained.”
The global spread of COVID-19 has increased demand for laptops, gaming consoles, and other electronics. This caused chip manufacturers to reallocate capacity away from the automotive sector, which was expecting a steep downturn.
Now, car manufacturers such as Volkswagen AG, General Motors Co and Ford Motor Co have cut output as chip capacity has shrunk.
Counterpoint Research says the shortage has extended to the smartphone sector, with application processors, display driver chips, and power management chips all facing a crunch.
However, the research firm predicts Apple will face a minimal impact, due to its large size and its suppliers’ tendency to prioritise it. Apple is Foxconn’s largest customer.
Foxconn is looking at other areas for growth, including in electric vehicles (EVs), and Liu said their EV development platform MIH now had 736 partner companies participating.
He expected it would have two or three models to show by the fourth quarter, though did not expect EVs to make an obvious contribution to company earnings until 2023.
Liu also said the company was still looking for semiconductor fab purchase opportunities in Southeast Asia after not winning a bid to take over a stake in Malaysia-based 8-inch foundry house Silterra.
(Reporting by Ben Blanchard and Jeanny Kao; Writing by Josh Horwitz; Editing by William Mallard and Ana Nicolaci da Costa)
EU seeks alliance with U.S. on climate change, tech rules
By Sabine Siebold and Kate Abnett
BERLIN (Reuters) – Europe and the United States should join forces in the fight against climate change and agree on a new framework for the digital market, limiting the power of big tech companies, European Union chief executive Ursula von der Leyen said.
“I am sure: A shared transatlantic commitment to a net-zero emissions pathway by 2050 would make climate neutrality a new global benchmark,” the president of the European Commission said in a speech at the virtual Munich Security Conference on Friday.
“Together, we could create a digital economy rulebook that is valid worldwide: a set of rules based on our values, human rights and pluralism, inclusion and the protection of privacy.”
The EU has pledged to cut its net greenhouse gas emissions to zero by 2050, while President Joe Biden has committed the United States to become a “net zero economy” by 2050.
Scientists say the world must reach net zero emissions by 2050 to limit global temperature increases to 1.5 degrees above pre-industrial times and avert the most catastrophic impacts of climate change.
The hope is that a transatlantic alliance could help persuade large emitters who have yet to commit to this timeline – including China, which is aiming for carbon neutrality by 2060, and India.
“The United States is our natural partner for global leadership on climate change,” von der Leyen said.
She called the Jan. 6 storming of the U.S. Capitol a turning point for the discussion on the impact social media has on democracies.
“Of course, imposing democratic limits on the uncontrolled power of big tech companies alone will not stop political violence,” von der Leyen said. “But it is an important step.”
She was referring to a draft set of rules unveiled in December which aims to rein in tech companies that control troves of data and online platforms relied on by thousands of companies and millions of Europeans for work and social interactions.
They show the European Commission’s frustration with its antitrust cases against the tech giants, notably Alphabet Inc’s Google, which critics say have not addressed the problem.
But they also risk inflaming tensions with Washington, already irked by Brussels’ attempts to tax U.S. tech firms more.
Von der Leyen said Facebook’s decision on a news blackout on Thursday in response to a forthcoming Australian law requiring it and Google to share revenue from news underscored the importance of a global approach to dealing with tech giants.
(Additional reporting by Foo Yun Chee; editing by Robin Emmott and Nick Macfie; editing by Jonathan Oatis)
Packaged food giants push direct online sales to gauge consumer tastes
By Siddharth Cavale and Nivedita Balu
(Reuters) – Packaged food giants including Kraft Heinz, General Mills and Kellogg are pushing sales of their products to consumers directly via their own online channels, in a quest to gather more data about shoppers’ purchasing habits.
Velveeta-cheese maker Kraft Heinz saw its e-commerce sales double in 2020, now representing more than 5% of its global sales, Chief Executive Miguel Patricio said at the virtual Consumer Analyst Group of New York (CAGNY) conference this week.
The company sells Heinz baked beans and tomato soup by subscription or in bundles directly to consumers on a “Heinz To Home” website in the United Kingdom, Australia and Europe.
Sales on the site are “giving us valuable insights into consumer behavior, enabling us to quickly test and learn from innovations,” Kraft’s head of international business, Rafael de Oliveira, said at the conference.
Kraft would continue to use the site as a channel to generate strong sales in developed markets, he said.
The company also counts sales of its products through marketplaces such as on Amazon.com and Walmart.com as part of its e-commerce sales.
U.S. shoppers spent on average $1,271 buying groceries online last year, 45% more than they did in 2019 as the pandemic spurred shopping online, according to market research firm Earnest Research. In contrast, the average dollars spent in stores rose only about 7% to $3,849.
PepsiCo sells products including Doritos, Quaker oats and Gatorade directly to consumers through two websites, pantryshop.com and snacks.com, both launched in 2020.
Chief Financial Officer Hugh Johnston said that more than 45% of the company’s capital investments over the next few years would be dedicated toward manufacturing capacity, automation, and a “ramping up of investments in our e-commerce channel.”
As major online retailers including Amazon.com and Walmart.com continue to gather valuable data on shoppers, many packaged food manufacturers are keen to gather their own data on shoppers, too.
“COVID (has) simply accelerated our digital growth and has provided us with yet another source of data and insight,” Monica McGurk, chief growth officer at breakfast cereal maker Kellogg Co., told the conference.
Kellogg, producer of Corn Flakes as well as Pringles chips, said on Wednesday it had launched a direct-to-consumer website focused on digestive wellness. The group plans to sell its new Mwell Microbiome Powder for gut health via the site to gather data on customer interest before it launches the product more widely.
E-commerce sales have doubled in the past year and now represent about 8.5% of the group’s $13.77 billion in annual sales, Kellogg said.
Pillsbury dough-maker General Mills also sees the benefits of tracking consumer habits more closely.
“We’re aggressively investing in data and analytics. We are gathering unparalleled insights from the first-party data we collect through our brand websites,” General Mills’ Chief Executive Jeffrey Harmening said at the conference.
On its Bettycrocker.com website, General Mills provides hundreds of recipes using Betty Crocker cake mixes and frosting. The site leads people to the closest store or an online retailer where they can purchase the products, thereby generating data for General Mills on what a particular customer from a certain zip code is buying. The company does not sell the food products directly on its website.
Consumers, however, may have to shell out more if they shop directly from brand websites.
Prices on the two PepsiCo sites, for example, were generally higher than those on Walmart.com or Amazon.com, Reuters checks show. On Walmart.com, for example, a 10 oz pack of Doritos Nacho Cheese was on sale for $2.50 compared to $4.29 on Pepsico’s website.
Kraft Heinz offers tins of soup, beans, pasta and baby food bundled into packs ranging from six to 25 items and costing between 10 and 20 pounds ($14.01-$28.03) on its UK website. It told Reuters the relatively higher prices of items and bundling of packs than on some other online marketplaces was to be able to eke out a margin after including delivery costs.
“Longer term, we see real value in this channel to be an insight and data channel for us,” Jean-Philippe Nier, head of e-commerce for Kraft Heinz’s business in the UK and Ireland, told Reuters. People are more prepared to order directly from manufacturers than they were before. The time is now.”
Graphic: Direct online sales to cross $20 billion in 2021 – https://graphics.reuters.com/PACKAGEDFOODS-ECOMMERCE/rlgpdexngvo/chart.png
($1 = 0.7137 pounds)
(Reporting by Siddharth Cavale and Nivedita Balu in Bengaluru; Editing by Vanessa O’Connell and Susan Fenton)
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