Hi, enjoy this weeks curated risk and business updates.
Layoffs in the tech industry continue to be a top story, driven by global uncertainties, recession fears and strategic shifts including the refocusing of technology companies on AI. Technology industry layoffs in 2023 exceeded 240,000, 50% higher than in 2022. 2024 has been on pace with 2023, with 10,000 layoffs to date. One area of exception where companies have been hiring has been in AI expertise. While Meta named 2023 the “Year of Efficiency” to refocus its business, it made targeted investments in higher paid AI engineers and staff, and many other technology companies are following similar strategies. Companies have been rewarded by the Street for investments in AI related capital expenditures and staff.
These changes are creating strategic risks and opportunities for companies whose market positions in the past have seemed almost unassailable. “The shift to cloud and AI is having a massive effect on tech, including the reallocation of jobs and a lot of changes to Apple and Google[…]AI monetisation is going to start with Nvidia and Microsoft, and we believe we’re seeing the beginning of a new tech bull market that began in the summer of 2023.” Microsoft briefly exceeded Apple’s market cap for the first time since 2021 as it has built OpenAi’s technology into its product suite, and now has an opportunity to challenge Google’s search business in a significant way.
AI challenges and issues will continue to be key risk factors facing technology companies and a top risk discussion in the C-Suite and Board room. In next week’s newsletter, we will provide an update of the AI risk section of DelCreo's Risk Universe and will include additional analysis of AI related 10k risk disclosures.
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
Some international players will see lessened economic growth as seen in China while others, like Germany, fear wage increase demands could push increased inflation in the region
Improved cloud, data, and AI capabilities come with a tradeoff: increased scope of risk profile and more audit and compliance actions required to remain balanced between the rewards and risks associated with new technology and practices
EV manufacturers should continue to monitor the progress of Apple as they look to produce a semi-autonomous EV by 2028
Risk Universe Weekly Updates
External Risk
China’s economic growth is set to slow in 2024.
Despite notable growth in 2023, China’s predicted 2024 economic growth has fallen to an average wall street analyst estimate of 4.6%
Managers should continue to monitor avenues where their business could be affected by China’s slowed economic growth
While important to track, China’s economic growth is still beating many developed economies
Strategic Risk
Traditional strategic practices such as M&A opportunities may not be the answer for Hollywood heavyweight studios as they look to make up ground with tech company competitors and streaming services
Television industry regulations could prevent leading studios from acquiring major news outlets
Strategic growth may not always come in the form of previously successful methods
Apple Dials Back Car’s Self-Driving Features and Delays Launch to 2028
Apple’s effort to enter into yet another consumer space with its electric semi-autonomous vehicle hits a roadblock as the company downgrades the initial vehicles level of autonomous driving capabilities
Apple joins other well known EV manufacturers that failed to deliver on self driving capabilities after spending large sums on R&D; a harsh reminder of the perils of overpromising to consumers
While Apple predicts the car will be available by 2028 the EV market is still volatile, competitors should be wary of the effects of Apple’s brand loyalty when they finally enter the EV space
Business Operations Risk
Businesses remain worried about disruption amid geopolitical, sourcing risks:
Uncertainty remains surrounding global supply chains as CEOs monitor supply chains following COVID-19 disruptions
Armed conflicts around the world will continue to disrupt supply chains, key executives are now more likely to revamp their “sourcing, manufacturing, distribution, and retail” operations
German union pay demand of 21% raises inflation fears
Global union activity is hot with German construction labor unions looking to increase wages by 20%
Economists are wary of the effects the potential wage change with the European Central Bank noting wage growth could continue to increase
Legal & Compliance Risk
Amazon Fined in France Over Alleged Employee Surveillance
French privacy regulator, CNIL, fined Amazon after examining a performance measurement system and leaked reports about the system’s parameters and employee complaints
Managers should exercise caution with programs that might violate strict EU data privacy protections
Google Cloud Eliminates a Switching Cost as Regulators Step Up Industry Oversight
Google recently cut “egress costs”, Google Cloud users no longer need to pay to migrate their data to other cloud providers
Ironically, this measure will likely increase satisfaction with Google’s product and thereby potentially help to maintain market share