Southeast Asian companies have faced a lot of obstacles over the past few years. First, there was the pandemic. Now, geopolitical conflicts are creating new challenges. These are on top of local issues, such as the coup in Myanmar, that can upend operations entirely.
According to Prakash Arikrishnan, Head of Treasury, Controllership and Digital Control Advisory at Deloitte Southeast Asia’s Risk Advisory, Southeast Asian companies must balance financial risk management with innovation.
“Striking a balance between financial risk management and innovation is a critical challenge for businesses today. An effective approach to this involves establishing a ‘dual operating system’. One part focuses on core business operations for stable revenue and risk management, whilst the other fosters innovation and explores long-term opportunities,” Arikrishnan noted.
He adds that resource allocation in Southeast Asia should be dynamic with funds being directed to where they can generate the most value. In some cases, this will be core operations. During other times, innovation projects should take the lead. Scenario planning is one way companies can prepare for a range of outcomes. This can be of assistance when quick pivots are required.
“Moreover, the role of culture and talent should not be underestimated. A strong organizational culture that values both innovation and financial discipline can act as a catalyst for achieving this balance,” Arikrishnan said. “Digital capabilities, like data analytics and AI, can further bolster risk assessment and decision-making in real time.”
Beyond that, firms should revisit their existing ‘Risk Appetite Framework’ so it best aligns the risk-taking levels across different business units. Arikrishnan believes this allows everyone to be on the same page when it comes to balancing financial risks and innovation.
“A multifaceted approach involving strategic alignment, agile resource allocation, and a strong culture can help organizations maintain a delicate equilibrium between financial risk and innovation,” Arikrishnan concluded.
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