Telecommunications companies are not doing enough to address cyberthreats

As the telecommunications industry continues its shift to a digital business model, organisations are recasting themselves as technology companies that offer a broad array of digital communications, connectivity, and content services.

They are racing to deliver not only high-quality and reliable communications services, but also to provide fresh content across a range of computing platforms to an expanding range of customers. Digitisation also has led to new products and services that are created and delivered in innovative ways, resulting in a raft of new collaborations, joint ventures, and strategic alliances across industries. At the same time, a slew of big deals are in the works, including mergers of telecommunications companies, multi-system operators, satellite television providers, and mobile communications networks. Some telecoms are acquiring businesses outside of their traditional scope to gain intellectual property and broaden their services.

Many of these changes are compounding network traffic and demanding that telecoms deliver enhanced capacity and quality of services – without raising fees to customers. That represents a formidable challenge as new entrants to the telecom market and lower pricing structures intensify competition and, in some cases, erode revenues.

Making matters more difficult: The frequency and scope of cybersecurity and privacy risks continue to mount. While breaches have typically targeted customer data, there is growing concern that ultra-sophisticated adversaries like nation-states, organised crime, and hacktivists will initiate attacks that disrupt services and even cause physical damage. A recent attack on a French television network provides an example that is uncomfortably close to home: In April, politically motivated hackers infiltrated a major television broadcaster, knocking 11 channels off the air and compromising websites and social media accounts.

As telecoms pivot toward a more digital future, they will very likely encounter entirely new types of cybersecurity risks to data, applications, and networks. Yet according to findings from The Global State of Information Security® Survey 2015 (GSISS),many telecommunications companies are not doing enough to address cyberthreats for today – or the future.

A year after the global economic system nearly collapsed (II)

McKinsey received responses from 1,677 executives, representing all regions, industries, company sizes, and functional specialties for their last Global Economic Conditions Survey, dated September 2009:

• Executives in China are no likelier than others to say that an upturn has already begun, but they are particularly hopeful about their own country’s prospects: 82% expect its GDP to increase in 2009, and 30% expect its GDP to regain pre-crisis levels in 2010.
• As has been true throughout the crisis, large public companies are much likelier to decrease the size of their workforce than small private ones – although these two kinds of companies don’t have different expectations for customer demand or profits.
• Fears that countries will restrict international trade seem to have receded in the past six months: 42% of respondents now expect it to rise in the long term, compared with just 16% half a year ago.
• Although just under half of all respondents expect tighter credit at the national level over the next five years, less than 10% expect sales to fall because consumers or businesses can’t get credit.

What’s next?

• Most companies are managing in a new normal, with an enlarged role for government and lower long-term growth expectations.
• Innovation is more important than ever; the companies that have the highest hopes for their own futures are likeliest to be focusing on it.
• January was the month when executives expressed the direst views about the economy. They now look forward to economic growth, but few expect a quick, full recovery.
• Executives indicate that the past year has slowed but not stopped globalization – and that skepticism about the value of free markets will continue as well.

For more details, you may find the full report at:
http://www.mckinseyquarterly.com

A year after the global economic system nearly collapsed (I)

BBC launched a series of TV programmes offering an account of what happened to create the greatest financial crisis for eighty years.

They explain how the attitude towards risk has been changed during the last decades, and, above all, how governments stepped back from regulating any of it. Moreover, the programmes capture a glimpse of the boom years before the global crash, with testimonies from key decision makers.

Part of the series may be viewed online at:
http://www.bbc.co.uk/programmes/b00mqmjs

Economic Forecast, spring 2009: the widespread economic downturn may trigger trade-distorting protectionist measures

The European Commission issued on 4 May 2009 its spring economic forecast. Beside its optimistic press release, the analysis show that the risk of a worse-than-expected outlook for economic activity relates, in particular, to the impact of the financial crisis and the strength of the negative feedback loop between different sectors of the economy. For instance, a sharper deterioration of the real economy may aggravate the housing-market correction in some countries and may also reinforce the banking deleveraging process, pushing the projected recovery further into the future. Some economies with substantial (external) financing needs also face the risk of sudden shifts in investors’ risk preferences and difficulties in securing the necessary financing as recently illustrated by developments in some Central and Eastern European economies. Moreover, it cannot be excluded that the widespread economic downturn may trigger trade-distorting protectionist measures.

Turning to inflation, risks partly relate to future commodity price trends, where weaker demand poses a downside risk, while the possibility of further supply restrictions points in the opposite direction. The disinflationary impact of a severe recession on wage and price setting may also prove more pronounced. However, the risk of a deflationary scenario at the EU or euro-area level, i.e. a persistent and self-reinforcing decline in a broad set of prices, appears limited at the current juncture. Inflation expectations remain anchored at levels consistent with price stability; wage growth is expected to remain positive, while both fiscal and monetary policies have turned expansionary.

World GDP is expected to contract by some 1.5% in 2009, with the downturn being especially pronounced in advanced economies. GDP is projected to fall by about 3% in the US and by a stark 5.25% in Japan in 2009. Moreover, the economic downturn has increasingly spilled over to emerging and developing economies. Although China seems to be in a relatively good position to counter the global recession in view of the arsenal of policy instruments still available, growth is expected to slow sharply this year (to some 6%).

Among the five largest EU economies, real GDP is expected to contract this year by about 5.5% in Germany, some 4-4½% in Italy and the United Kingdom and by about 3% in France and Spain. Activity is expected to broadly stabilise in all of the larger economies in 2010, except Spain where a further contraction of close to 1% is predicted. Moreover, population growth continues to play a positive role in the case of Spain, where GDP per capita growth, at -4.5%, is in line with the euro-area average this year and is expected at close to -2% in 2010.

Although the economic downswing has become more broad based in recent quarters, differences across EU countries persist. Strongly export-oriented economies have been particularly affected by the collapse in global manufacturing. Some countries remain subject to a deeper and more protracted downturn due to their direct exposure to the financial crisis or a substantial housing-market correction. Some countries also face deterioration in external financing conditions following the build-up of imbalances and vulnerabilities, which fuel financial markets’ concern.

The downturn is also expected to be widespread across demand components, with the exception of government consumption and public investment as these are supported by budgetary stimulus proposed in the European Economic Recovery Plan. Exports and investment are set to contract particularly sharply this year (by 12.75% and 10.5%, respectively).

You may find more details on economic forecasts for the EU Member States at:
http://ec.europa.eu/economy_finance/thematic_articles/article14927_en.htm

Economic Conditions Snapshot, April 2009: international interests and government actions

McKinsey recently published its periodical survey results. They show that strong majorities support international coordination of responses to the crisis and say protectionism would harm their nations’ economies.

Respondents see value in international trade, even in the face of a crisis. Strong majorities of executives in all regions believe regulations to restrict imports and exports would damage their countries’ economies; the global average is 73%. Far fewer, only 37%, see harm to their companies’ financial positions from such regulations, while only 4% say they think trade restrictions would improve their companies’ financial positions.

Executives at manufacturers and high-tech and telecom companies are the likeliest to see harm to their companies from protectionist regulation, at 51% and 44%, respectively.

Further, executives see value in maintaining international ties in response to the crisis: 70% say that governments should coordinate it with their trading partners or other relevant countries.

Executives’ enthusiasm for governments bolstering industries through the crisis is cooling. Though most respondents still think governments should support at least some industries through the crisis, a fifth now say no industries should receive government support — a significant increase from the 14% who said the same in January in response to a similar question.

For more details see:
http://www.mckinseyquarterly.com

Internal Audit changing expectations: from a controls-focused approach to a risk-centric mindset

Rapid change is quickly transforming the practice of internal audit raising significant issues for audit leaders and their chief stakeholders. As I highlighted in the article “Internal Audit Changing Expectations,” written for the “Financial Audit” Journal (published in April 2009), there is a clear gap between the current focus of many internal audit functions and where they need to set their sights in order to deliver greater value to their stakeholders.

Since the passage of the Sarbanes-Oxley Act (2002), internal audit groups have been concentrating on financial and compliance risks, traditional areas of focus where their confidence levels are typically high. Consequently, to address the rising expectations of their chief stakeholders, internal audit groups tend to sharpen their focus on strategic, operational, and business risks.

Within the article I concluded that, throughout the next years, the value of controls-focused approach is expected to diminish as internal audit tends to adopt a risk-centric mindset. Study results indicate that five identifiable trends – globalization, changes in risk management, advances in technology, talent and organizational issues and changing internal audit roles – will have the greatest impact on internal audit in the coming years.

You may find bellow a PDF copy of the article (Romanian version with English abstract):
“Internal Audit Changing Expectations,” Financial Audit Magazine No.4(52), Chamber of Financial Auditors of Romania, Bucharest, April 2009, 26-34

Managing operations during crisis

Ever since the financial crisis started to spread around the world, organisations heavily focused on business efficiency – reducing costs, improving operations and making the best use of assets.

Nowadays, of a more stringent nature than before, many companies realised that they should know how their costs compare to other companies on the market, how operations could maintain efficiency and what opportunities there are to maintain profit.

Here are a few tips on how companies could manage operations during crisis:

• Assess the pros and cons for your business and consider outsourcing if this lets you focus on your core business efficiency;
• Reduce costs through the use of shared service centres;
• Eliminate the activities that do not add value to company business;
• Optimise the supply chain (if applicable) to reduce the procurement cost as well as the cost of supply to customers;
• Analyse the benefits and risks of your optimizing decisions, in both internal processes and external relationships with customers and suppliers.

If you haven’t done it already within your own company culture, now is the perfect time for organisational redesign and working capital reduction. Moreover, as a „lesson learned”, consider maintaining a culture of continuous cost containment, even after the financial crises fades away, rather than damaging the business through periodic cost-cutting intercession.

As a result of the actions above, you may gain a clear picture of your company’s cost drivers and address cost efficient and sustainable improvements. Your focus on people and cultural issues, as well as on processes, structures and technology, could ensure that performance is managed during crisis.

Profit and liquidity management

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The collapse of Northern Rock proves that profitability is no defence against liquidity risk: the company made profits in the quarter before it disappeared. Following a significant fall in market liquidity, Northern Rock was unable to meet its payment obligations.

Only a few voices raised liquidity risk issues until now and, even if the regulators did monitor banks’ liquidity management, they rarely raised serious challenges. During this financial crisis, risks tended to repeatedly transform from one type to another and companies face the challenge of placing greater emphasis on developing an integrated view of risk management across all types of risk.

The new economic perspectives bring significant challenges: while funding can still be found, it is only available for short periods and at high costs. Therefore, this is a good time for any company to perform a liquidity stress test such as the following 3 steps approach:

1) Identify liquidity risk drivers:
• erosion in value of liquid assets,
• additional collateral requirements,
• evaporation of funding,
• withdrawal of deposits (if the case);

2) Design stress scenarios (and probabilities):
• emerging markets crisis,
• systemic shock in main centres of business,
• market risk,
• operational risk,
• ratings downgrade,
• country / industry specific scenarios;

3) Model stress tests:
• quantify liquidity outflows in all scenarios for each risk driver,
• identify cash inflows to mitigate liquidity shortfalls identified,
• determine net liquidity position under each scenario.

Times of crisis are perfect opportunities to refocus on fundamentals: you can show that you truly understand your businesses and its potential risks with an integrated risk management perspective.