Source: EY Release: EY-transforming-your-third-party-risk-into-a-competitive-advantage
At an annual innovation retreat hosted by EY, panel participants discussed the ingredients necessary for disruptive innovation. Specifically, they argued that the status quo was not only obsolete, it was a recipe for disaster.
Organizations have to design ecosystems that bring the outside in while maintaining trust and confidence with key stakeholders. More recently, in EY’s latest semi-annual Capital Confidence Barometer, nearly one in five organizations surveyed indicate that they are looking at joint ventures and alliances to provide both
immediate tailwinds and the tools to achieve long-term strategic growth.
These trends suggest that thirdparty collaboration is not only here to stay, it’s set to accelerate with the speed of digital evolution. The pace of change in today’s environment will mandate risk communities and ecosystem sharing to stay current and embrace disruption to achieve a competitive advantage in the market.
Suppliers, contractors, joint ventures, service providers, brokers, agents and consultants are some of the third parties with whom organizations are forming relationships and building consortiums.
As the need for third-party partnerships grow, so too do the risks.
However, the risks lie not only in the relationships themselves, but also in the contracts that bind them together. And organizations are responsible for managing them.
In today’s connected, digital and highly competitive world, third-party partnerships offer companies the opportunity for greater agility by reducing production or delivery time, while also lowering costs. And companies are seizing that opportunity.
However, while these ecosystems offer incredible opportunities for organizations to provide exceptional customer experiences and drive profitable growth, they also open the door to a host of new risks.
Organizations that will be successful in this new, transformative age are ones that successfully create value from risk across their business and value chain – upside, downside and outside risks.
Third-party partnerships are an example of taking an upside risk to deliver strategic value while also being responsible for protecting against downside risks and monitoring outside risks introduced by a related entity.
In the last several years, media headlines have been filled with revelations of cyber attacks and security breaches, regulatory fines, legal actions against top-level executives and reputational damage caused by third-party vulnerabilities.
These revelations have shocked senior executives and consumers alike. And they’ve prompted boards and audit committees to pay closer attention. Members of the Audit Committee Leadership Network (ACLN) met in New York to discuss the current state of third-party risk management (TPRM). Their conversation,
captured in an ACLN Viewpoints article, underscores the escalating importance of thirdparty risk and the need to manage it.
Organizations may be able to outsource responsibilities for various functions, but not the accountability. The C-suite is ultimately accountable for the actions of third parties.
Further, the expectation from shareholders and regulators is that boards must know exactly what the company is doing across the globe, which third parties are acting on its behalf and what they are authorized to do. Organizations are increasingly exposed should any inappropriateor criminal behavior take place that jeopardizes the interests of the organization and its stakeholders.
Given its highly regulated environment, the financial services industry has been at the forefront of TPRM. The results of EY’s global organizations surveyed suggest that many organizations are taking meaningful steps to get ahead of third-party threats. Yet, for the most part, TPRM remains in its infancy for these organizations.
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