'The Digital Wild West': Managing the Risks of Digital Disruption

Digital transformation requires entire organizations to change their traditional 'modus operandi' - reinvent their business models and business processes, rethink skill sets and investment strategy, and continuously learn from business ecosystem interactions. While these changes afford organizations significant value realization potential, the positioning of digital technology as central to the business and how it operates and generates revenue, proliferates the risks organizations may face. Digital risks encompass traditional IT risk categories (e.g. strategic, operational, financial) and an expanded set that are more specific to the transformational changes brought about by new and emerging technologies (e.g. industry displacement as a result of adopting a digital laggard stance). As distinct from a traditional mind-set where organizations are more risk averse, in the digital landscape digital leaders typically exemplify a higher tolerance and appetite for risk. However, despite the existence of multiple risk categories and a more 'risk on' attitude to technology, 43% of organizations in a recent survey did not recognise the risks of digital disruption or had not effectively addressed them. Organizational investments in, and approaches to, risk management are not keeping pace with digital transformation risks. However, given the changes brought about by digital transformation, it is recognized that organizations need to reconceptualise how they approach the management of risk. An organizational culture that embraces more entrepreneurial and active risk-taking behaviour in digital programmes must be balanced with the use of proactive risk management approaches that minimize the potential downside of risk exposure. This paper presents a review of pertinent literature, and discusses core learnings in relation to managing the risks of digital transformation. Based on literature analysis and insights gained from engaging with industry and academic thought leaders, it conceptualises a model that may be used to develop a digital risk management capability and support effective digital risk management. This model aims to serve as a basis for testing and further development in a future industry/academia collaborative research project and serves to provide practical guidance to organizations in managing digital risk.