Bridge to the future

While businesses have their gaze fixed on getting the right digital experts for their future transformations, few understand what talent evolution is likely to mean for their enterprises – and how to get ahead of the game

It’s hard to believe the phrase chief risk officer (CRO) has been around for almost 30 years, since James Lam coined it at GE Capital in 1993. Since then, the role of CRO has become ever more common as regulation has increased (particularly across financial services after the 2008 crisis), and building a second line of defence has become seen as best practice.

As the title has grown in popularity and the talent pool has expanded, so the scope and influence of the role has expanded. CROs now often report directly to the CEO or chair of the risk committee, set risk appetite and form part of a company’s board or executive team – not because they must, but because other executives recognise the support, challenge and safety that having a world-class risk function can bring. A business-savvy CRO who can guide the front line and the senior management of the business to take the correct amount of risk (and as a result, capitalise upon opportunity – rather than managing risk by saying no to business decisions) is worth her weight in gold and can command a financial package of more than £1 million a year.

But what next for the CRO: this critical business shaper, this regulatory expert, this board influencer? What looms on their horizon? What will keep them awake at night in future? How must they evolve themselves and their teams from here, to continue to add value and keep their respective organisations safe?

We’ve witnessed the creation of best-in-class risk functions in recent years: enterprise risk; market, credit, operational, cyber and regulatory risk; and the challenging of the capital model are among those disciplines that define them. Practitioners who have been involved for a decade or two have designed, built and stood up global risk frameworks more than once, and the difficult challenge that once stood in the way of the function becoming influential has – dare we say it? – disappeared. You might speak with some CROs these days and hear that they find the role routine. That the challenge of old is gone.

Talent evolution risk

Could it be that for some risk teams, the focus upon technical excellence in each given discipline perhaps stifles the opportunity for entrepreneurial, innovative and future-focused strategic thinking?

The danger in this situation is palpable. Day-to-day running of the function has become straightforward… but the unseen risk heading down the track to these experienced CROs is possibly the most critical of all, and it’s almost totally unnoticed. You won’t find it on the balance sheet, or in the board papers. It’s not with the regulator, or associated with your reputation, or the customer experience. It’s not connected to the movement of the markets impacting your investment portfolio, or supply chain risk that so many developed countries are challenged with currently.

The risk is people. “Ha! talent risk is something that’s on my mind constantly”, you say to yourself, reading this article. “This is not new! In fact, the risk factors associated with our people strategy, our succession planning and our talent is in every board report we write!”

But this is a very specific type of people risk. It is the risk associated with finding, growing and keeping people who can translate and interact in the intersection between strategy, technology and talent. You might categorise it as talent evolution risk.

The unprecedented pace of digital transformation gives organisations the opportunity to evolve in ways they never dreamt possible. This leads to opportunities and challenges for risk management, with cyber, AI, digital transformation and machine learning at the forefront of every CRO’s mind, as well as part of their toolkit.

It would be easy to think therefore that the challenge is having enough engineers, or developers. Enough product managers. Enough builders – of products, and solutions; of dashboards and databases and data lakes. Or it might be the challenge is the war for talented machine learning specialists: brilliant brains who can program your systems to watch your team as they work, making recommendations based on habits and patterns the team demonstrate, making administrative tasks simple and easy – and eventually redundant – as computers do the thinking for us.

But no. That’s not the talent evolution risk at all. That’s the current fight, creating spirals of technical experts moving round markets at unprecedented rates, and associated increased remuneration. We’ve seen the same before, with regulatory specialists when Basel and Solvency models had to be built and tested on time, with accounting expertise when International Financial Reporting Standards must be implemented. Fighting this current skirmish is hard but simple, in comparison with the future battle.

“So what is coming?” you ask. “What’s my risk that I can’t see that I haven’t planned for?” “What is talent evolution risk?”

Future planning

Picture this: Tesla adds insurance as a cost-effective, add-on service to every autonomous vehicle it sells. What next for motor insurance internationally? Or Amazon implements a Buy Now, Pay Later model across its platform. What next for the credit card industry? Electronic Arts build in-game gyms and workouts that you can attend for free while playing FIFA. What next for the personal training industry?

Yes, you say – all these things are coming, no doubt, and we’ve seen many business model transformation risks over the years – from the way music is bought and shared, to the airline industry. What’s your point? We can’t stop technological progress, and competition will always be present.

The question is: who is planning for the digital future in your organisation? Yes, you may well have a technology team – a CTO, a Head of Digital Transformation, a Head of Information Security and Cyber and Product – focused on what technology can offer your business and how it can be implemented. But who in your organisation is identifying the transformational strategic opportunities that will be enabled by these technological developments? And, even more importantly, who is thinking about the dramatically different skills you will need to realise these?

Are you training your leaders to think strategically, and then translate that to digital outcomes, and coach their teams accordingly?

The fight for data scientists and machine learning developers currently is miniscule, in comparison with the shift in talent requirements we’ll see in future. Every leader will need to be a data specialist. Every leader will need to understand how to design future-focused strategy, and ensure their teams can execute it.

This bridge talent – who effortlessly bridges the gap between your group strategy or value creation plan and how your teams spend their time – will be almost impossible to find, and on every hiring manager’s list.

Coupled with this, we know technology will nip at the heels of your administrators. Repeatable, data-driven tasks will be picked up by machine learning – and huge swathes of certain industries will disappear (think audit, claims, even large parts of software development itself). How can you prepare perhaps as much as half your workforce to be ready to evolve, in order that they won’t be redundant in 10 years’ time? How can they embrace the excitement of their evolving career, rather than sitting frozen in place as their role is cannibalised by the digital solutions their colleagues built?

This change is already trickling into the mainstream. When a CRO is appointed into a start-up business in a regulated sector these days, the regulator will hold senior manager interviews which are significantly stringent around the risk practitioner’s capability to understand digital and cyber risks, as well as the infrastructure and architecture that they will be responsible for in their new role. Sometimes the CRO is so underprepared coming out of the first-round interview that they self-select out of the second.

Tomorrow’s CRO

What does this mean for the risk director of tomorrow?

It means that they must be digitally expert as well as peoplesavvy because the risk of not being able to identify hire, train, develop and retain digitally minded talent is the greatest barrier to the future safety and success of their organisations.

It could allow risk to become the most valuable, insightful and strategic function in all businesses. It could elevate the role of CRO to be the visionary leader whose insight determines the organisation’s future success. There’s no doubt that having a vision of future talent challenges should be the remit of the chief executive officer (CEO), the chief operating officer and others across the executive team – but the CRO is ultimately accountable for visualising and managing the associated risk impact and mitigating this.

We envision that CROs will become bridge talent themselves – being able to visualise and articulate what needs to transform across the business in order to keep pace with competitors and the constantly evolving market. Not only can they coach, mentor and train bridge talent in the risk division, but they can support their colleagues across the organisation to do the same.

But this will only come to pass if we act now. So where do we begin?

The future for risk is a bright, exciting and strategic one, if we focus on how the right people will make all the difference. If risk can be the surveyor of futurefocused risk – and by being so, lessen or remove risk impact on the business, particularly from a talent perspective – so their influence will increase.

From a practical perspective, CROs need to clarify the requirement for bridge talent across the business and then help the leadership team identify, attract, train, develop, retain and promote these experts. Risk teams must be future-focused in risk and talent evolution. They should be vital contributors to talent strategy, recruitment strategy and target operating model decisions, so the business doesn’t fall behind on the journey of digital evolution. Risk frameworks must quantify, monitor and provide insight into the organisation’s talent evolution, allowing business heads to make data-driven decisions when it comes to leadership development, succession planning and talent acquisition. Ultimately, risk practitioners should see themselves as digital business partners: accountably supporting and challenging their stakeholders in terms of people, product and platform innovation.

This strategically aligned, digitally minded, horizonscanning CRO will become a vital navigator for every successful business of the future. In fact, it wouldn’t be a surprise to see CRO as a natural successor for CEO in years to come, due to the breadth and depth of what they influence, and the strategic insight they hold.

The transformation that has happened in risk over the last decade has been astonishing – but the evolutionary challenge ahead is as great, if not greater. Only the most visionary CROs will survive.

Emma Fowler is founder of the executive talent agency Areté Ventures. She is honorary life member of IRM.


Source: Enterprise Risk Magazine Winter 2021; page 16ff;