By its very nature, disruption risk - the failure to keep pace with new technological developments, competitor activity, customer demand or market shifts - challenges the status quo. These risks can hit fast or be a â€˜slow burnâ€™, where firms are too slow to recognise that customer wants are changing, and then fail to change when it becomes clear that their strategy isnâ€™t working.
So, it should be no surprise that disruption is ranked second overall in the technology category of risks behind cyber. However, it edges into the top spot for UK participants who appear to feel this risk more acutely than their US counterparts.
How fast can businesses respond?
Whether disruption is instant or slow burn, it can reconfigure the value chain and be difficult to recognise and respond to, particularly if businesses have extensive bureaucracy to wade through, or a poor track record of ensuring their tech firepower cannot be outgunned by others with a sharper vision or deeper pockets. Disruption risks can also materialise if businesses fail to change, even when it is clear that their strategy isnâ€™t working.
On both sides of the Atlantic, the potential for disruptive technology to impact sectors where there is real innovative capability includes health, life science, manufacturing, financial services and real estate. Over a third (36%) of real estate companies rank disruption risk their top concern. In the US the industry which ranks disruption risk highest is healthcare and life science, in the UK this honour is won hands down by manufacturing, where 44% of business leaders rank disruption risk top.
The real dilemma for businesses is often not whether they need to change, but how fast without destabilising existing business models and revenue streams.
Governments are keen to understand transformative technologies and to identify which have the potential to profoundly disintermediate established ways of doing business - be that 5G, low orbit satellites, CRISPR gene editing, genomics, quantum computing, AI, or machine learning. They are thinking how to hedge their economies against profound disruption plays.Alex Creswell, OBEStrategic Adviser, Beazley
TMT needs a closer look
We are surprised that technology, media and telecoms (TMT) executives do not rate the threat of disruption more highly, particularly in the US, where only 19% rank it top compared with 38% in the UK. This significant difference may reflect the broad spread of businesses within this category and their representation within our sample data, or the difficulty in anticipating the risks of disruptive technologies, business model, and external market factors. While media companies may feel less exposed to disruption, for example, telecoms businesses are at undoubted high risk both due to the rollout of new technology (5G) and uncertainty over key players.
Political rhetoric on both sides of the Atlantic indicates that governments will be more proactive in defending critical national infrastructure - including the commercial elements of this such as 5G mobile internet infrastructure. It is still unclear which companies will dominate provision of 5G. It is possible that large internet companies such as Facebook and Amazon will build dominant roles as 5G carriers.Alex Creswell, OBE Strategic Adviser, Beazley
A sense of resilience in regulated sectors
Real estate is clearly a sector where business leaders feel they have weathered the storm and are now well positioned for growth post-pandemic. 44% of real estate leaders across the US and UK feel â€˜very preparedâ€™ to anticipate and respond to disruption risk, with comfort levels 12 percentage points higher than in the UK.
Another sector where executives feel more resilient to this risk is energy and utilities, where businesses have become adept at dealing with disruption more generally - for example from new energy sources, new producers, new models of distribution and not least from the regulators. Business leaders in the UK are notably positive in this regard - 51% feeling â€˜very preparedâ€™ to manage disruption compared to 39% in the US.
In general, highly regulated businesses have to be good at risk management, which may also help explain the relatively strong resilience scores by TMT, financial and professional services firms and from public sector and education.
Disruption risk set to stay second fiddle to cyber
When asked to look ahead to 2022, business leaders continue to rank disruption risk as the second most significant risk in the technology category. Overall, 29% of business leaders ranked it as their top risk in 12 monthsâ€™ time, a single percentage point lower than in 2021.