Eighty-seven percent of executives rate reputation risk as more important than other strategic risks. Forty-one percent of companies with an event that lowered their reputation have reported loss of brand value and loss of revenue. Compliance programs have a lot of room for improvement. Here are several types of risks that can affect businesses.
- Operational risks stem from an organization's people and processes. It includes human errors, fraudulent activity and legal risks. It can also originate from factors outside of a business's control like a storm, a power outage, or problems with a website's hosting service. Operational risks are costly. They will include the cost of fixing the problem, the loss of customers during the situation, and a possible loss in credibility.
- Reputational risks affect all kinds of businesses. They can take the form of a major lawsuit, negative media coverage, or negative publicity about a company's product or its staff. But these risks can also be more silent like negative online reviews or tweets. A damaged reputation leads to a loss of revenue as customers, and even employees, question their loyalty to the business. Also, advertising companies, sponsors, and partners, may want to distance themselves from the problem, and suppliers may offer a forsaken company less favorable deals.
- Strategic risks are factors that can affect your business plan to the point that it struggles to attain results. These risks include new competitors, technological disruption, changes in customer's tastes, a sudden rise in the costs of raw materials, and other large-scale shifts. When laser printing came out, Xerox faced a difficult challenge in its industry. However, Xerox was adaptable to the new technology and adjusted its business. In the end, laser printing became a multi-billion-dollar business division for Xerox.
- Compliance risk occurs to companies when laws and regulations change. It can also occur due to expansion into a new region or industry. This can mean investing in safer equipment for factories or better cyber-security for websites. For the food industry, a new region might have different safety and labeling rules. Complying to all these is costly. In the worst case scenario, a compliance risk can also become a strategic risk. For example the music-sharing sites of the late 1900s were unable to stay in business after judges ruled against them on the basis of copyright infringement. It is important to note that many of these different types of risks overlap during a business's lifespan.
To manage risks, marketers need to take a smart and strategic approach when communicating with their customer. If your business needs help navigating the communication landscape, please contact us. We are here to help turn your challenges into opportunities.