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PwC Barometer: Growth-Focused Private Companies Rethink Risk Resilience

March 14, 2012, 07:30 AM
Filed Under: Economy

"Black swan” events and other external shocks in 2011, such as the Japanese tsunami, the Arab Spring, and Europe's sovereign debt crisis, exposed vulnerabilities in private companies' risk preparedness.
Among the chief executives surveyed for PwC US's Private Company Trendsetter Barometer, only a minority say they're very confident that their current risk management strategies will prove effective over the next few years, with nearly one-third (29%) citing the need to revisit those strategies - this at a time when 40% of Trendsetter executives say their companies feel pressure to take on greater risk to pursue growth.

Notably, Trendsetter companies that feel a need to revisit their risk strategy are the ones most intent on growth over the next 12 months, with 76% planning to increase operational spending. More than half (52%) also plan to make major capital investments (vs 34% of their Trendsetter peers), 38% plan new expansion outside the United States (vs 17% of their peers), and 35% plan to increase operational spending vis-a-vis new product/service introductions (vs 23% of peers).

The need to revisit risk strategy was also cited by a greater percentage of Trendsetter companies that sell abroad (39%), compared with domestic-only companies (21%). International companies are also more alert to the threat and potential effects of low-probability, high-impact events ("black swans"): 81% of Trendsetter companies that feel a need to revisit risk management specifically in light of last year's "black swans" are selling abroad, with one-quarter of their revenue being derived from international sales.

“Regardless of their size or where they operate, private companies are not insulated from large-scale events that happen halfway across the globe,” says Ken Esch, a partner in PwC’s Private Company Services practice. “While international companies are naturally more alert to the fallout from such events, they need to make sure they couple that awareness with sound methods of dealing with their risk exposure. As it stands, the post-2008 adjustments private companies made to their risk management and resiliency programs don't seem likely to suffice in today's increasingly volatile world. Companies recognize that it's also an increasingly competitive world, where taking on risk is part and parcel of pursuing growth through innovation and expansion. The key is to integrate risk considerations across the company as strategy-setting takes place. Treating risk as an afterthought is no longer a tenable approach.”

Economic Risk Ranks Highest, M&A Lowest

The lion’s share of Trendsetter companies (92%) cite an ongoing weak economy and the threat of recession as the top collective risk they face over the next few years, followed by higher costs (74%), heightened competition (68%), and unstable capital markets (68%). Increased taxation to address the public deficit registers considerable concern as well (64%). Of slightly lesser - but still substantial - concern are talent shortages (47%) and information-security breaches (41%).
To read PwC's Private Company Trendsetter Barometer full press release, click here.

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