Digital technologies: three major categories of risks

Companies spending on digital transformation is expected to reach two trillion dollars in 2022.

Lamiae Benhayoun, Institut Mines-Télécom Business School and Imed Boughzala, Institut Mines-Télécom Business School

To respond to an environment of technological disruption, companies are increasingly taking steps toward digital transformation or digitalization, with spending on such efforts expected to be USD 2 trillion in 2022.

Digitalization reflects a profound, intentional restructuring of companies’ capabilities, resources and value-creating activities in order to benefit from the advantages of digital technology. This transformation, driven by the advent of  SMAC technologies (social, mobile, analytics, cloud), has intensified with the development of DARQ technologies (distributed ledger, artificial intelligence, extended reality, quantum calculation), which are pushing companies toward a post-digital era.

DARQ New Emerging Technologies (Accenture, February 2019).

 

There are clear benefits to the use of these technologies – they help companies improve the user experience, streamline business processes and even revolutionize their business models. Being a digital-first business has become a prerequisite for survival in an ever-changing marketplace.

But the adoption of these digital technologies gives rise to risks that must be managed to ensure a successful digital transformation. As such, the TIM department (technology, information and management) at Institut Mines-Télécom Business School is conducting a series of research studies on digital transformation, which has brought to light three categories of risks related to the use of digital technologies.

This characterization of risks draws on a critical review of research studies on this topic over the past decade and on insights from a number of digital transformation professionals in sectors with varying degrees of technological intensity.

Risks related to data governance

Mobile digital technologies and social media lead to the generation of data without individuals’ knowledge. Collecting, sharing and analyzing this data represents a risk for companies, especially when medical, financial or other sensitive data is involved. To cite one example, a company in the building industry uses drones to inspect the facades of buildings.

Drones for Construction (Bouygues Construction, February 2015).

 

It has noted that these connected objects can be intrusive for citizens and present risks of non-compliance for the company in terms of data protection. In addition, our exploration of the healthcare industry found that this confidentially problem may even hinder collaboration between care providers and developers of specialized technologies.

Furthermore, many companies are confronted with an overwhelming amount of data, due to poor management of generation channels and dissemination flow. This is especially a problem in the banking and insurance industry. A multinational leader in this sector has pointed out that cloud technology can be useful for managing this data mining cycle, but at the same time, it poses challenges in terms of data sovereignty.

Risks related to relationships with third parties

Digital technologies open companies up to other stakeholders (customers, suppliers, partners etc.), and therefore to more risks in terms of managing these relationships. A maritime logistics company, for example, said that its use of blockchain technology to establish smart contracts has led to a high degree of formality and rigidity in its customer-supplier relationships.

In addition, social media technologies must be used with caution, because they can lead to problems in terms of overexposure and lack of visibility. This was the case for a company in the agri-food industry,  which found itself facing viral social media sharing of bad reviews by customers. And a fashion industry professional emphasized that mobile technologies present risks when it comes to establishing an effective customer relationship because it is difficult for the company to stand out in relation to mobile applications and e-commerce sites, which can even confuse customers and make them skeptical.

Furthermore, many companies in the telecommunications and banking-insurance sectors interviewed by the researchers are increasingly aware of the risks related to the advent of blockchain technology for their business models and their roles across the socio-economic landscape.

Risks related to managing digital technologies

The recent nature of digital technologies presents challenges for the majority of companies. Chief information officers (CIO) must master these technologies quickly to respond to fast-changing business needs, or they will find themselves facing shadow IT problems (systems implemented without approval from the CIO), as occurred at an academic institution we studied. In this case, several departments implemented readily available solutions to meet their transformation needs, which created a problem in terms of IT infrastructure governance.

It is not always easy to master digital technologies quickly, especially since the development of digital skills can be slowed down when there is a shortage of experts, as was the case for a company in the logistics sector. Developing these skills requires significant investments in terms of time, efforts and costs, which may prove to be useless in just a short time, due to the quick pace at which digital technologies evolve and become obsolete. This risk is especially present in the military sector, where digital technologies are tailor-made and must ensure a minimum longevity to amortize the development costs,  as well as in agriculture, given the great vulnerability of the connected objects used  in the sector.

Furthermore, some management problems are associated with digital technologies in particular. We have identified the recurrent risk of loss of assets in cases where companies use a cloud provider, and the risk of irresponsible innovation following a banking-insurance firm’s adoption of artificial intelligence technology. Lastly, a number of professionals underscored the potential risks of mimicry and oversizing that may emerge with the imminent arrival of quantum technologies.

These three categories of risks highlight the issues related to digital technologies in particular, as well as the challenges of the interconnected nature of these technologies and their simultaneous use.  It is crucial that those who work with such technologies are made aware of these risks to be anticipated in order to benefit from their investments in digital transformation. For this transformation goes beyond operational considerations and presents opportunities, but also risks associated with change.

Lamiae Benhayoun, Assistant Professor at Institut Mines Telecom Business School (IMT BS), Institut Mines-Télécom Business School and Imed Boughzala, Dean of the Faculty and Professor, Institut Mines-Télécom Business School

This article has been republished from the The Conversation under a Creative Commons license. Read the original article (in French).

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