Globalization poses major risks to enterprises: IBM study

Globalization is posing major risks that enterprises simply aren't prepared to handle. More than 60 percent of enterprises with at least US$5 billion in revenue suffered from a major risk event in the past three years, and a large number were not prepared to deal with the consequences, according to an IBM study.

"A surprising number of enterprises are not well prepared to handle the impact of a major risk event to their organization," IBM stated, after completing the study with help from the Wharton School of the University of Pennsylvania. "Globalization opens up significant opportunities for companies but exposes more risks for the enterprise."

More than 1,200 chief financial officers and senior finance executives from 79 countries participated in face-to-face interviews or an online survey about major risk events, be they strategic, operational or geopolitical.

About 62 percent of enterprises with US$5 billion in revenue suffered a major risk event in the past three years -- and 42 percent of those suffering a major risk event were not well prepared, the study found.

Strategic risks were the most commonly reported, but major risk events also fell under the categories of geopolitical, environmental and health, financial, operational, and legal and compliance.

CFOs have the task of leading risk management more often than any other executives, but too many finance organization don't have an optimal organizational structure, IBM says. Only 52 percent have a formalized risk-management program, and fewer than half do historic comparisons to avoid risk.

"The world is shifting toward a new definition of globalization, but a majority of companies are still maintaining the old worldview," Stephen Lukens, Global Financial Management Leader, IBM Global Business Services, said in a press release. "Enterprises need to transform their financial-management models. They need to integrate their finance operations to take advantage of this new perspective on globalization."

IBM recommends forming what it calls an Integrated Finance Organization, which requires enterprisewide standards with a chart of accounts, common data definitions and standard common processes.

Fewer than one in seven enterprises take this approach, even though it would make them more likely to proactively manage risk, IBM says.