Enterprise Risk Management, 2nd Edition

CHAPTER 14Incorporating Risk Acumen and Enterprise Risk Management into Innovation Approaches

 

PAUL L. WALKER, PhD, CPA

James J. Schiro and Zurich Chair of Enterprise Risk Management Executive Director, Center for Excellence in Enterprise Risk Management, St. John's University, Tobin College of Business

 

INTRODUCTION

There is a lot of evidence to suggest that change and disruption are happening on a regular basis. For example, in 2015, when all major large luxury vehicles had a decrease in sales from 2014, the Tesla Model S actually had an increase in sales. We also saw, after Uber and Lyft came along, a dramatic drop in the medallion price for NYC taxis, going from well over $1,000,000 in 2013 and 2014 to less than $500,000 in 2017.

Other data show shareholder value losses for hundreds of companies from the years 2001 through 2012 (Deloitte 2014). Most of those losses can be traced to risk that these companies failed to manage. These value-killer risk events were caused by strategic risks, operational risks, financial risks, and external risks. In about 15 percent of the cases it took the companies three years or more to recover from these risky events. In 18 percent of the cases the companies never recovered.

The former CEO of Cisco, John Chambers, even predicted that up to 40 percent of companies could disappear within 10 years (Waldman 2016). Finally, almost 50 years ago, the average life of a Fortune 500 company was 75 years. Today, it is below 15 years (Perry 2014