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The nature of risk is that it cannot be fully predicted. Fortunately, many of the risks facing organizations can be planned for and assessed.  Sometimes organizations can protect themselves with proper insurance coverage; however, one of the more complex and uninsurable risks facing modern organizations is obsolescence risk, or the potential for a product, service, or technology to become irrelevant in the marketplace due to a competing innovation.

To put this risk into a modern example, look to the energy industry. Solar, wind, and battery-storage technology are decreasing in costs, and they are forecasted to continue to decrease each year. These new energy sources are better than fossil fuels, including natural gas, for the environment. The combination of these two facts—decreasing costs and increased environmental benefits—will accelerate the market’s transition away from fossil fuels and towards sustainable energy generation.

This shift in the demand and market consumption will cause violent disruptions in the energy industry. At scale, renewable energy will cause existing fossil fuel energy companies to become obsolete in many of their applications as it will be cheaper to produce and distribute energy than it will be to maintain the existing fossil fuels infrastructure.

While the energy industry is a modern example, the risk of obsolescence has been around for as long as humans have been inventing new technologies and processes. For example, literal horse power—when horses pulled wagons—was deemed obsolete in the general market with the invention of internal combustion engines. Lanterns were replaced by the electric light bulb. Smartphones took the place of flip phones. Netflix eliminated the need for Blockbuster.

The fact is that certain products and services will serve an important and essential step in creative innovation—as a society, we cannot skip stages of development, just as we cannot stop the continuous desire to enhance and improve through innovation. The risk of obsolescence is real, and while it cannot always be predicted, it most certainly should be considered for the majority of organizations. We will continue to see technologies and products enter the market that we never predicted could exist. Organizations need to be aware of the risk they face when they are considered unnecessary for the modern marketplace.

While obsolescence is an uninsurable risk, RiskVersity works with our clients to identify the risks and embrace its impact on their organization. To talk with a risk management professional about your organization’s obsolescence risk, contact RiskVersity today.

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