With great risk comes great responsibility...and profitability

Addressing risk proactively has never been more critical. Our Risk Study: 2024 Edition revealed that risk is everywhere, and individual risks are now impacting each other, creating a web of threats. This is especially true in the software and platforms industry, where 49% of respondents say the impact of disruptive technology risks rose most since 2021.

As the industry moves into its next chapter of growth and profitability, with an increased focus on efficiencies, prioritizing a proactive approach to risk management is critical to move forward. The industry faces an unprecedented level of scrutiny and regulation surrounding risk and privacy. Technology continues to advance, so do the potential risks and threats associated with it.

Why now?

Prioritizing risk is more important than ever for many reasons, particularly the evolving regulatory landscape. With the proliferation of data breaches and privacy scandals, we are seeing significant shift in public sentiment towards data privacy. This new sentiment is putting a great deal of scrutiny and skepticism on platforms.

As a result, governments and regulatory bodies worldwide have introduced stricter regulations to protect individuals' information. Notable examples include the European Union's General Data Protection Regulation (GDPR), the California Consumer Privacy Act (CCPA), the Digital Markets Act (DMA), the Digital Operational Resilience Act (DORA) and the Digital Services Act (DSA). These regulations impose stringent requirements on how organizations collect, store, process, and share personal data, empowering individuals with greater control over their information.

The software and platform industry is a prime target for cybercriminals due to the vast amount of sensitive data it handles. As a result, regulatory bodies are stepping in and mandating robust cybersecurity measures to safeguard against cyber threats.

Organizations are now required to implement comprehensive security protocols, conduct regular risk assessments, and establish incident response plans. Regulations such as the New York Department of Financial Services' Cybersecurity Regulation and the Network and Information Security (NIS) Directive in the European Union aim to ensure the resilience of critical infrastructure and essential services.

Additionally, the Cybersecurity and Infrastructure Security Agency (CISA) has published guidance on principals and approaches for secure by design software. Initially published in April 2023, this guidance urges software manufacturers to take urgent steps necessary to ship products that are secure by design and revamp their design and development programs to permit only secure by design products to be shipped to customers.

As AI technologies become more prevalent, concerns surrounding their ethical implications have grown. Regulators are now addressing these concerns by introducing guidelines and regulations to ensure the responsible and ethical use of AI.

In May, the European Council (EC) approved the Artificial Intelligence (AI) Act, saying this law is the first of its kind in the world and may set a global standard for the regulation of AI. The new law aims to harmonize rules on AI; promote the use of “safe and trustworthy” AI systems across the European Union (EU); and ensure respect of the rights of its citizens.

These regulations aim to prevent AI from being used in ways that could infringe upon privacy, discriminate against individuals, or perpetuate biases.

Organizations must adapt and stay ahead of the evolving regulatory landscapes to ensure compliance, protect user data, and maintain trust. By staying informed about the latest regulations and proactively implementing robust risk management and privacy practices, software and platform executives can navigate this changing landscape successfully and build a secure and trustworthy digital ecosystem.

Address risk from day one, not one day

Addressing risk from the outset of product development allows software and platform leaders to identify potential pitfalls and vulnerabilities before they become costly issues. By conducting thorough risk assessments and engaging in proactive risk identification, organizations can uncover potential security vulnerabilities, compliance gaps, user safety and operational risks. This early identification enables leaders to implement appropriate mitigation strategies, reducing the likelihood of costly incidents down the line.

Integrating risk management practices into the development process can improve the overall quality, user engagement and reliability of products. Identifying and addressing potential risks early on allows for robust testing and quality assurance measures. These risks and compliance obligations become product requirements like any other. This reduces the likelihood of product failures, customer dissatisfaction, and costly rework. A reputation for delivering high-quality, reliable products can significantly impact profitability by attracting and retaining customers.

Being proactive about risk means software and platform can avoid severe financial penalties, reputational damage, and even legal consequences. By prioritizing risk management from the beginning, organizations can ensure compliance with relevant regulations. This proactive approach not only mitigates the risk of non-compliance but also demonstrates a commitment to ethical practices, enhancing customer trust and loyalty.

In an increasingly crowded marketplace, software and platform leaders who prioritize risk management gain a competitive advantage. By demonstrating a commitment to risk management, organizations can differentiate themselves from competitors, attract new customers, and retain existing ones.

To effectively manage these risks, it is crucial to recognize their interconnected nature and address them holistically. In future articles of this series, we will explore each of the five pillars of risk in software and platform businesses: operational risk, cybersecurity risk, data privacy, product risk, and responsible AI. By understanding how these pillars are interconnected, we can develop a comprehensive risk management strategy that safeguards our organizations.

Recognizing the interdependencies between these pillars can develop a comprehensive risk management strategy that encompasses people, processes, technology, and ethical considerations. By addressing these risks collectively, organizations can enhance resilience, protect customer trust, and drive sustainable growth in an ever-evolving digital world.

Addressing risk from the beginning of product development is not only an urgent imperative but also a pathway to profitability. Proactive risk management reduces overall development costs and streamlines customer support efforts. Embracing risk management as an integral part of the development process not only protects the organization's bottom line but also fosters a culture of innovation, trust, and customer satisfaction.