How the See-Through Economy Will Change Your Business by 2023
Steven Minsky | Jan. 4, 2019
There’s an undeniable shift occurring in the business world right now. In fact, it’s been forming since 2007. I’ve coined the phrase the See-Through Economy to encapsulate the shift towards transparency and accountability brought on by new technology and social media.
Since the invention of the smartphone in 2007, consumers have started to exercise their sharing power. Pocket-sized computers alongside world-wide social websites have empowered the everyday customer to influence the integrity of a company’s brand. Within moments, the good, the bad, and the ugly are disseminated far and wide for all to see. This includes accelerating the visibility of available evidence of negligence so often resulting in class-action lawsuits and regulatory actions. The threat of liabilities and the benefits for good actors will multiply as the See-Through Economy strengthens.
The See-Through Economy, kind of like fire, is not inherently bad; it can be used for good, as well. Ultimately companies must adapt to the See-Through Economy. It’s a rapidly changing world, and organizations must be able to keep up with the changes, instead of running from them.
Enterprise risk management is the best way to adapt to such change. Foreseeing risk and preventing distracting mishaps is the only way to stay ahead of the curve as this trend continues to gain speed.
We saw how this trend affected businesses like PG&E, United Airlines, Wells Fargo, Uber, and countless others so far. But how will this trend continue to change the landscape your business operates in over the next five years?
Here are my predictions for how the See-Through Economy will affect your business by 2023.
Earned Reputation: The New Intangible Asset
What comprises your company’s worth? In searching for the answer, most people will turn to tangible assets – inventory, land, buildings, machinery. Here’s the thing. A study by Ocean Tomo revealed that the value of tangible and intangible assets has completely reversed over the last 40 years.
In 1975, tangible assets comprised 83% of the S&P 500 market value. Today, intangible assets account for 87% of the index’s market value.
Brand recognition and customer relationships are extremely important intangible assets which stand to either create or destroy the value of your company. And this is exactly where the See-Through Economy comes into play. When consumers share a negative experience with your brand, they post it online for everyone to see, and it starts to create a chain reaction in which others, who haven’t even had the same experience, will shy away from supporting your brand.
By 2023, earned reputation will certainly account for the same, if not greater, proportion of market value. Technology will only continue to advance at an even more rapid pace, and as a result, PR will be a thing of the past. You cannot rely on a PR team anymore to cover up corporate scandals. There are too many ways to share information to stop the flow of it, and in many instances the reality of poor risk management will overtake the perception of good risk management.
Enterprise risk management affords you the agility to not only prevent and avoid bad press, but to actually make decisions that will earn a reputation your consumers are on board with and are eager to support and recommend.
Millennials Will Strengthen The See-Through Economy
The See-Through Economy of course resonates most strongly with the millennial generation, as they are the ones most familiar with and adept at using smartphones and social media. A recent survey found that 81% of millennial consumers expect brands to practice business sustainably and ethically. If they find one brand does not, they will switch to another brand that does.
Investors are following customers, so when millennials switch brands, investors move their money accordingly, causing the stock dips we’ve seen at Facebook and so many others. This same trend will spread to all industries and geographies in the next five years at an exponentially accelerated pace.
In this way, the See-Through Economy will drive revenue gains and losses at your company. As millennials grow older, increase their spending power, and become a target customer for more businesses, they will have a larger and larger effect on a company’s bottom line.
While this may sound like a B2C concern, over time it will actually become a B2B concern as well, as millennials climb the workplace ladder and gain the power to effect change within their business. When it comes time for this generation to decide which software and services purchase, which companies to acquire and which partnerships to create, they will weigh an organization’s social, ethical, and environmental integrity more than any previous generation.
ERM not only helps businesses protect their tangible assets, but the intangible as well. With a centralized governance system in place, you can weigh the risk-reward tradeoff of every decision based on how it will impact your brand and consumer loyalty. It’s also the only way to prove your business is acting with integrity and therefore deserves the trust of generations to come.
Innovation will Require Risk Management to Succeed
Innovation is a beautiful and required thing. It’s how new technology is born, world-changing ideas take wind, and progress is made. However, it’s also how risk crops up.
We’ve seen innovation gone wrong time and time again. Chipotle tried to innovate with fresh, locally sourced food, and ended up poisoning hundreds of customers. Uber was one of the first ride-sharing companies, and is now embattled by sexual harassment lawsuits and other misdeeds while its competitor Lyft has materially benefited from Uber’s stumbles.
There are of course many companies who have caught on to this trend and have successfully integrated risk management into their innovation processes. But we have a long way to go before risk management and innovation are inextricably linked. I believe by 2023, those who innovate without involving subject matter experts in risk assessments will be the minority, and businesses will come to understand the importance and the benefits of risk management in regard to innovation.
The Right to Privacy: A New Business Model
One reason why innovation requires risk management to succeed is because companies are innovating faster than state and federal governments can regulate change. That’s the thing about the See-Through Economy, though. Consumers don’t care whether or not you’ve violated some law they’ve never heard of. They care about being treated fairly.
So it goes with data privacy. For so long, selling customer data was not strictly regulated. So when Facebook sold our data to Cambridge Analytica, it wasn’t so much a matter of what laws they broke, but the consumer trust they broke.
Nevertheless, law makers and regulators have a part to play in the See-Through Economy. They hear consumers loud and clear thanks to social media. As a result, they’ve moved as fast as they can to protect citizens’ privacy. For instance, even if there hasn’t been major privacy regulation changes on the federal level, there sure have been on the state level.
Take the upcoming California Consumer Privacy Act (CCPA). This regulation actually calls out Cambridge Analytica in its preface! This is historic: a state regulation specifically citing a corporate scandal as the catalyst for a new law to protect its citizens’ rights to privacy.
Furthermore, I believe that by 2023, business models that include selling customer data will become obsolete as executives start to realize the steeply unbalanced risk-reward tradeoff such a model presents.
Crowdsourcing Will Necessitate Risk Management Across Departments
One result of the See-Through Economy is more frequent crowdsourcing. Information we used to seek from established committees and regulatory bodies can now be sought from everyday professionals.
Social media empowers practitioners and consumers alike to share their insights, and therefore encourage companies to crowdsource the data they’re looking for. For instance, NIST and ISO are some of the leading frameworks companies turn to for cybersecurity compliance. However, the Cloud Security Alliance (CSA) is a crowdsourced committee of nearly 100,000 cybersecurity practitioners and volunteer moderators dedicated to sharing best practices across industries via platforms like LinkedIn.
In this example, the See-Through Economy has fueled the crowdsourcing of practical information aimed at improving business performance, security, and success. Additionally, there are examples of crowdsourcing designed to give organizations feedback on how they’re performing in consumers’ eyes, like TrustPilot and Glassdoor.
Ultimately, the See-Through Economy has applied the concept of crowdsourcing to more than just Google searches out of curiosity, and has applied to the business world.
So how will increased crowdsourcing affect your business by 2023? I believe “crowdsourcing” is just another way of saying risk-based approach, in which governance, risk, and compliance teams reach out to subject matter experts to get the most accurate risk portfolio they can. Using a risk-based approach across departments to seek subject matter expertise is the trajectory I envisioned for risk management since 2005. It began with collecting information from front-line employees, then moved to organization’s third parties, and will soon expand to parties outside of the organization like customers and industry groups.
As crowdsourcing subject matter expertise becomes more commonplace in the business world, departments other than the risk team will understand the value of a risk-based approach. For instance, marketing and HR teams will need to depend on crowdsourced data to understand their external brand perception, as well as work cross-functionally with security teams to get GDPR and CCPA compliant, and so forth.
The See-Through Economy has already dealt some incredible changes to risk management and businesses across industries. Over the next five years, I believe we’ll see this trend continue to unfold, and accelerate the role risk management will play in helping organizations succeed or blunder in adapting to the See-Through Economy.