A new study by CFO Research, sponsored by Travelers (NYSE: TRV), finds that the financial performance of a technology company is inextricably linked to how well it manages the entire range of risks to its business execution. Analysis of survey results reveals “red zone” risks, critical nonfinancial risks where respondents say their companies must take action to become adequately prepared. The full report on this study, titled The Finance View of Nonfinancial Risk for Technology Companies, is available for download at www.travelers.com/techcforeport and www.cfo.com/research.
Nonfinancial risks are broadly defined as events or actions, other than financial transactions, that can negatively impact the operations or assets of a company. Using this definition, 62 percent of survey respondents agree that nonfinancial risk has become more of a concern in recent years. According to survey results, the top six critical nonfinancial risks faced by technology companies include:
- Business decline due to economic conditions
- Ability to hire and retain quality employees
- Performance failure of vendors and suppliers
- Breach of company’s electronic or online data
- Failure to meet targets for business/customer growth
- U.S. regulatory compliance
Four of these are “red zone” risks – those that finance executives say are critical, but for which they believe their companies are less prepared. These nonfinancial risks include economic conditions, hiring and retaining employees, supplier performance, and failure to meet growth targets. “Clearly, any of these directly impact a company’s success,” said David Owens, Director of Research for CFO Research. “They are top of mind for many finance executives at technology companies.”
To illustrate this point, many technology companies are increasingly relying on an extended and exposed supply chain. With 74 percent of respondents agreeing that their companies must now “get to market with upgrades or new products faster than ever,” ensuring the smooth functioning of the supply chain becomes even more important.