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Industry Insight: Technology, Media and Telecom Sector

24 February 2021 Aon South Africa
Zamani Ngidi, Client Manager: Cyber Solutions at Aon South Africa

Zamani Ngidi, Client Manager: Cyber Solutions at Aon South Africa

The Pandemic’s effect on the TMT Sector

Aon’s global COVID-19 Risk Management and Insurance Survey, conducted at the end of 2020, found interesting insights into the Technology, Media and Telecom (TMT) sector’s response to the pandemic. Half of survey respondents in this industry were from North America and EMEA (Europe, Middle-East and Africa).

• Eighty percent of respondents in the TMT industry did not consider pandemic a key risk, and just 30% had a pandemic plan in place prior to COVID-19. This is in line with the overall industry benchmark.
• More than half (53%) of respondents agreed that their business was resilient, and 13% stated their business had thrived because of the pandemic — higher than the overall industry benchmark (6%).
• Forty percent of respondents expect COVID-19 to impact their business for a period of less than a year, and 44% for a period between one and two years.
• Sixty-six percent of respondents experienced supply chain issues, and 34% reported demand issues due to a drop in consumer demand.

Four overarching trends were identified as focal points to the TMT sector as it continues to respond, recover and reshape its business models amidst the ongoing pandemic:

Supply Chain
The TMT industry has a complex and sophisticated set of interdependencies in its supply chain, from security to manufacturing to technology research and development (R&D). It created demand- and supply-led challenges during the pandemic that explains why respondents from this industry expressed an increased desire to review the supply chain.

“A disruption via the supply chain has a domino effect on any business, ranging from technological failures through to business interruption, and can even affect a company’s data privacy. Smaller companies within a supply chain may not have capital backing, making them more susceptible to failure, which in turn creates counterparty risk. Those who had only considered the lower range costs of these risks, were nowhere near ready for the ‘black swan’ exposures that the pandemic presented,” says Zamani Ngidi, Client Manager: Cyber Solutions at Aon South Africa.

Assessing counterparty risk and supply chain vulnerability is bound to be a focal point for the TMT sector in its recovery phase.

Intangible Assets
A misalignment on the value of data, information and intangible assets, such as IP, of a business could have dire consequences. “We currently find ourselves in a business environment where a huge shift is taking place from tangible to intangible assets, making it crucial for companies to re-evaluate its risk asset classes and liability in this space,” says Zamani.

The TMT sector continues to see a considerable level of M&A activity, which is not surprising, given previous economic crises that demonstrated the ability of companies in this industry to attract capital. In fact, it indicates that the monetisation of intangible assets is becoming increasingly relevant to balance sheet performance.

Business model disruption
Respondents in the TMT industry ranked business model disruption as its most significant future shock.

Technology disruption has been pushed to the forefront with increased reliance on technology resulting from the pandemic. Not only does this present a challenge to an organisations’ own operations but it poses new and greater risks as their customers become more reliant on technology. Technology failure or disruption, which could arise from the aggregated exposure from cloud-based technology, could impact across many key risks.

“Technology really is the piece that holds together the entire puzzle going forward and protecting that environment in the new threat landscape is more fundamental than ever before. The fact that 13% of respondents in the TMT industry thrived during the pandemic confirms that technology and digitalisation is a primary player in the field, and it is also capital intensive. Supporting that shift with a robust cybersecurity and cyber risk management programme, is imperative; especially in light of the ongoing ‘working from home’ landscape in which cybercrime flourishes. Employees need to be better trained and informed, while companies need to safeguard their IT security practices in order to ensure business sustainability,” says Zamani.

Revisiting Business Strategy
Respondents in the TMT industry ranked ‘revisiting business strategy’ as a higher priority than most others did. Dynamic and fast-paced change is part and parcel to the industry, which is strongly linked to new product development and capital investment planning. Established telecom businesses face significant risk from competitor activity, especially from businesses that were ‘born digital’. Newer companies often do not have legacy costs that longstanding businesses are faced with, allowing them to be much more agile.

“Business leaders have been confronted with a number of decisions as they steer their workforces, operating models, customers, portfolios and finances through massive uncertainty. Some of the changes they’ve made are likely to last — and some are poised to completely reshape parts of their business,” he adds.

The way forward
82% of respondents to the survey said a pandemic or other major health crisis was not a top 10 risk on their organisation’s risk register, prior to COVID-19. “In the boxing world there is a saying that says, ‘it’s the punch you don’t see coming, that hits the hardest’, and that is exactly the situation that many companies found themselves in,” says Zamani.

The fundamental value of risk management comes to the fore when the contingencies in place are able to alleviate both the known business risks as well as any possible unforeseen circumstances. Identifying the gap and understanding the future shocks and risks associated with these types of losses is where the true value of dealing with an expert broker comes into play. Making sure that you have all your bases covered, means that there are less surprises when the unthinkable happens and you have a roadmap to get you through it,” concludes Zamani.

Quick Polls

QUESTION

Covid-19 may accelerate certain industry trends. What are we likely to see?

ANSWER

Adoption of contactless technologies and digital experiences will likely be accelerating emerging technologies further
The consumer will expect safety and precautionary measures, driving the need for enhanced surveillance policies and technologies, which may pose potential privacy concerns
Rising activism among consumers and employees could drive an increased focus on corporate purpose
Value chain disruption is likely to lead to an increase in creative partnerships, which may in turn cause organisations to further invest in developing the mindset and agility to collaborate across sectors in the ecosystem
Cost management will be a critical priority to ensure business continuity based on cash flow requirements, to manage lower margins and revenues during a downturn
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