Digital transformation, or the reimagining of business processes and customer engagement to adapt to evolving technology, has taken on heightened importance in the wake of the coronavirus pandemic.
With digital interaction becoming the primary mode of customer experience, businesses across a range of industries plan to increase their digital investment. According to a 2021 Board of Directors Survey by Gartner Group, 61% of directors are accelerating digital business initiatives due to COVID-19. As digital interactions rise so does the potential impact and likelihood of digital risks.
What Is Digital Risk?
Digital transformation goes beyond the migration of existing business practices to online platforms. It entails envisioning new business models and processes enabled by evolving technology. With this transformation, however, comes new, and sometimes unanticipated, challenges and exposure to digital risks. Digital risks, according to Gartner, are the “risks inherent in digital products, services and supporting processes.”
As companies choose to adopt new technologies or deploy digitally-enabled products or services, they must actively manage the risks that are introduced as a result of these decisions.
Many of these risks may fall under existing risk frameworks, such as third-party risk, cybersecurity risk, operational risk, data privacy, or business continuity, but their origins will be triggered by digital transformation efforts. Digital risk management considers the portfolio of risks faced by companies as they introduce digital processes, products, or services.
Examples of Digital Risk
As businesses accelerate their usage of cloud, mobile, social media, and big data platforms, they face potentially new avenues for risk. As an example of digital risk, a company that consciously adopts social media as part of their marketing efforts will face digital risk around their reputation and brand value specifically due to their usage of this strategy. In another example, healthcare companies or medical professionals migrating medical records online or adopting virtual visits as part of their operating strategy will face enhanced digital risk around cybersecurity and data privacy.
Whenever businesses seek to enhance customer experience, offer new products, or increase efficiency by embracing new technology, they will face previously unanticipated risks. As cars and appliances become increasingly connected, attack surfaces and network perimeters expand, resulting in greater threats to those devices and increased vulnerability to those businesses. For companies that adopt the Internet of Things (IoT) as part of their operational strategy, IoT security and protection of IoT-enabled goods, services, or processes becomes an additional element of digital risk that companies need to anticipate, assess, measure, and mitigate.
Managing Digital Risk
Digital risk encompasses elements of existing risks, such as cybersecurity risks, information security risks, third-party risks, and data privacy concerns, in ways that are specific to digital transformation efforts. Capturing and managing digital risk must be an organizational effort, rather than an IT, security, or operational mandate. As digital transformation introduces risks from unanticipated avenues, identifying potential sources of digital risk should be a collaborative, enterprise-wide effort that thoroughly evaluates the potential impact of any digital initiative across the organization. Failure to anticipate or prepare for digital risk could have adverse financial consequences, sour your customer relationships, diminish your brand, or reduce your competitive position.
Digital transformation expands and alters the risk profile of organizations. As technological advances allow a re-envisioning of business objectives and operations, awareness of digital risk will help your organization avoid strategic and financial missteps.
With this change, risk managers will need to use their voices and influence to ensure that organizations are embracing the opportunities unlocked through digital transformation—better customer experiences, new ways to communicate, access to new datasets—with a proactive and strategic approach. Want to get started? See how to transform your risk strategy with a more proactive approach and learn why organizations should be shifting their mindsets to prioritize and drive a more risk-aware culture.