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Hi, enjoy this weeks curated risk and business updates.
For many years Google was the company creating innovation that disrupted other industries. However, it is very challenging to continue as the disruptor. Over time most innovative companies go from being the disruptor to being disrupted. Google’s recent challenges with its Gemini AI tool provide an interesting case study. Google co-founder Sergey Brin recently admitted that the company “messed up” with Gemini over its product rollout and public backlash over “historically inaccurate” images generated by Gemini, and now this feature has been placed on hold. OpenAI and other companies continue to move forward with their image generation features, capturing market share while Google is delayed.
Many companies have unrealistic expectations of being the disruptor. In fact, a recent research report from the MIT Technology Review indicated that 62% of executives polled believed that “generative AI technology will substantially disrupt our industry over the next five years” and 78% believe that their company will benefit from generative AI instead of being at risk.
In reality, most companies will be disrupted instead of being the disruptor.
Request more information on DelCreo’s Risk Universe and risk assessment services.
As a reminder, here are our Risk Universe categories that we leverage to tackle and understand risk which include:
External Risk
Governance Risk
Strategic Risk
Product Risk
Business Operations Risk
Legal & Compliance Risk
Financial Risk
Technology Risk
These high-level risks are fairly consistent between different companies and risk profiles.
We leverage our understanding of risk maps and risk universes to better advise our clients in strategic business decisions and to optimize the management of risk throughout the enterprise.
Weighing the Risks
Weekly Highlights
The booming AI chip market, led by companies like Nvidia, and its potential impact on the semiconductor industry and job creation in the US.
The expectation that AI will remain unregulated, driving stock market gains despite potential risks associated with AI's impact on society and governance.
The significance of smart manufacturing and generative AI in transforming business operations and competitiveness across various industries.
Capitalize on the surge in demand for AI chips by investing in research and development within the semiconductor sector. This strategic focus can create job opportunities and foster growth in the industry, positioning your company as a key player in the evolving technology landscape.
Formulate a comprehensive AI governance strategy that addresses the ethical, regulatory, and societal implications of AI. Proactively engage with stakeholders and policymakers to influence the development of AI regulations and ensure your company's AI initiatives are aligned with broader societal values.
Risk Universe Weekly Updates
External Risk
Nvidia's AI chips boom could help the Biden administration bring semiconductor jobs to the US
The surging demand for high-end AI chips, such as Nvidia's H100 GPUs, is driving job growth in chip designers, manufacturers, and suppliers across the semiconductor industry, potentially benefiting companies like TSMC, Amazon, Meta, Intel, and AMD.=
The US semiconductor industry could see significant expansion in employment due to the rising demand for AI chips, with companies like Lam Research, Applied Materials, and KLA Corporation likely to hire more employees to meet the demand for chip design and semiconductor capital equipment.
The current stock-market rally is driven by the expectation that AI will remain unregulated, despite concerns about its impact on jobs, political instability, and public discourse.
Leading firms are racing to develop AI offerings, and investors are betting on AI to drive economic growth, with the top tech companies leading the stock market gains. However, concerns about AI's potential risks have not dampened enthusiasm, and regulatory efforts to manage these risks are seen as insufficient.
Governance Risk
Apple investors reject call for ethics transparency on company’s AI use
Apple shareholders rejected a proposal for an AI transparency report, indicating a potential governance risk regarding the company's approach to ethical AI use and transparency.
The rejection also highlights potential culture risk factors, as Apple's workforce, represented by employee Michael Forsythe, expressed concerns about the company's expansion into artificial intelligence, suggesting internal apprehensions about the company's direction in this area.
Internal Buy-In Will Make or Break Your Growth Strategy
The failure of a growth strategy at a telecommunications software company exemplifies the risks associated with not involving internal stakeholders in the strategy development process, leading to implementation challenges and ultimately a decrease in revenues.
Engaging a broad segment of the organization in strategy development, as exemplified by Payoneer's approach, can lead to a more successful strategy execution, fostering motivation, skills development, and resource allocation aligned with the company's growth goals.
Strategic Risk
TMT: Thoughtful M&A strategies are key to growth
TMT companies heavily rely on mergers and acquisitions (M&A) to offset investment costs and expand revenues, with TMT contributing 17% of the global M&A activity in 2023. However, while M&A is a key growth driver, it can also lead to regulatory scrutiny and challenges in integrating acquired businesses.
Successful TMT players employ programmatic M&A strategies, focusing on smaller deals to support specific business cases or themes, which have been shown to generate the most value compared to other strategies. This approach allows companies to acquire technology and talent, avoid lengthy in-house development cycles, and navigate the complex and evolving landscape of the TMT sectors.
Business Operations Risk
Future-Proof Your Business With Smart Manufacturing
The Fourth Industrial Revolution, characterized by data-driven technologies and automation, has led to the rise of smart manufacturing, where technologies such as IoT, AI, and machine learning are used to improve efficiency and reduce costs in manufacturing processes.
Implementing smart manufacturing is no longer optional for manufacturing companies; it's a necessity to stay competitive. However, managing the vast amounts of data generated by these technologies and ensuring it's unified, accessible, and accurate remains a significant challenge for many businesses.
Legal & Compliance Risk
US regulators investigate whether OpenAI investors were misled, say reports
US regulators are investigating internal communications from OpenAI's former CEO, Sam Altman, to determine if investors were misled, following his reinstatement after being accused of lack of candor by the board.
The Securities and Exchange Commission (SEC) issued a subpoena and is reviewing emails and internal records of directors and officials at OpenAI, although the investigation has not yet pointed to any specific misleading statements or communications by Altman.
Financial Risk
Tech companies cash in on ‘frothy’ stock rally with convertible bond sales
Risky technology groups are raising substantial amounts of cheap cash through convertible bonds amid investor enthusiasm for artificial intelligence, with US companies raising roughly $7.4 billion in February, the highest monthly figure since August, primarily from tech and fintech groups.
The Federal Reserve's benchmark interest rate has been at a 22-year high since July, but borrowers in the convertible bond market can raise funds at lower interest rates, leading to a surge in issuance. Convertible bonds offer companies the opportunity to borrow at lower rates with the possibility of converting debt to stock if share prices rise, attracting high demand despite concerns about market frothiness.
Technology Risk
Generative AI: Differentiating disruptors from the disrupted
Generative AI, notably exemplified by OpenAI's ChatGPT, has rapidly evolved beyond basic chat functions, showing potential in content creation, translation, image processing, and code writing. It is expected to reshape business operations and competitiveness across industries, with early adopters already seeing positive ROI.
Despite high expectations, most companies have only experimented with or adopted generative AI in limited areas. To achieve broader adoption, companies need to address IT deficiencies and non-IT factors such as regulatory risk, budgets, and skills gaps.
How generative AI can help banks manage risk and compliance
Generative AI (gen AI) is seen as a key driver of productivity gains across industries, including financial services, by automating tasks, enhancing analytics, and synthesizing content. It is transforming how banking functions operate, including risk management and regulatory compliance.
While gen AI offers significant opportunities, organizations must implement proper controls and governance to mitigate risks. Banks can use gen AI to improve efficiency in risk and compliance functions, allowing professionals to focus on strategic risk prevention and business advisory roles.
AI investments aren't boosting Salesforce yet
Salesforce's outlook for annual sales fell short of analysts' expectations, indicating that its increased investments in artificial intelligence (AI) have not yet paid off.
Despite posting strong revenue and net income figures for the fourth quarter of 2023, Salesforce's stock initially dropped by as much as 6% after the announcement, highlighting investor concern over the company's AI investments and future growth prospects.