Why companies should move from risk management to strategic resilience


The definition of risk management is to ensure the survival of an organization and the delivery of its services regardless of the circumstances. But, in a world where crises are increasingly frequent and serious, disruptions are increasingly difficult to predict.

Businesses today face environmental and public health pressures, geopolitical tensions, social disruptions, cyber threats, business challenges, macroeconomic crises, regulatory changes, and more.

The impact of unforeseen events is harsher for small and medium-sized businesses, primarily due to the possibility of losing physical inventory and damaged infrastructure. At a time, large companies must not only ensure their own survival, but also that of their supply chains.

Companies must therefore move from a risk management approach to a strategic resilience approach. In the past, risk management was mainly defined by financial risks. However, as our operating environment becomes more dynamic, companies need to look for more holistic and long-term strategies. Maintaining financial stability during a crisis is not enough if stakeholder confidence is lost along the way.

How has the Covid-19 pandemic changed companies’ approach to risk and resilience?

The pandemic crisis has revealed the true value of resilience management for business leaders. The severity of demand shocks and supply chain disruptions has brought businesses around the world to the brink of disaster. When Covid-19 hit, many companies still had a defensive approach to risk management, as it was reactive rather than proactive.

The public health crisis has had the effect of broadening the view of leaders on one or two risks that they previously considered worth preparing for. For example, many companies had never considered focusing on workplace safety and being ready to deploy the infrastructure to enable remote working. They also had to watch out for cybersecurity loopholes allowed by work-from-home security vulnerabilities. In short, the global pandemic has made risk and resilience much more critical and complex for organizations.

Reactive versus proactive resilience

Risk management needs to move from a reactive to a proactive mode, and it needs to be integrated into a broader business strategy. This is how companies can get closer to business resilience.

While the pandemic has left a lasting impact on how businesses manage risk, many have yet to take a broader perspective. Fundamentally, they have not embraced the reality of our crisis-defined environment.

The next crisis is fast approaching and many risk being dragged down again. For instance, asset tax reform currently being debated in Colombia has the potential to destroy its growing ecosystem of tech startups.

A transversal and holistic approach

A fragmented and siled approach to resilience will never really work. Companies tend to fall back on this defensive approach to risk, which will only prove to be a bad decision in the long run. In place, companies should strive to integrate risk into other core functions on a more permanent basis.

As systems become more interconnected and catastrophic events become more frequent, risks also become more complex and unpredictable. But it is the interconnected nature of businesses around the world that makes it essential for businesses to develop cross-functional capabilities and building resilience in strategic areas.

During the pandemic, Toyota was the only automaker equipped to deal with the chip shortage. But how did they succeed? The tragic earthquake and tsunami that hit Japan in 2011 severely affected Toyota’s production and supply. Following this event, the company embarked on an improvement strategy and a business continuity plan with its main suppliers. The plan required vendors to stock between two and six months worth of chips. This measure ultimately put the company in an advantageous position during the next crisis.

The company didn’t just fix what was broken, but used it as an opportunity to build a strong foundation. It’s a great example of how embracing and embedding business resilience into a long-term strategy becomes a competitive advantage in times of disruption.

A wider range of resilience capacities

There are as many types of resilience capabilities as there are core functions in a business. Each strategic node will result in a particular type of resilience.

Financial resilience is most evident: when revenues fall, credit issues arise, or costs rise, companies with ample cash and a strong capital position will be able to weather the storm.

Operational resilience has been particularly affected during the pandemic, as it refers to how stable production capacity remains during operational disruptions. When companies fail in this case, we see product shortages or reduced quality products.

Technological resilience means avoiding cyber threats and technological failures, and organizational resilience refers to a company’s ability to attract and retain talent in strategic areas.

Reputation resilience is sometimes overlooked. This happens when companies that don’t align their values ​​with their actions and words are held accountable by their stakeholders, and it’s very difficult to win back their trust.

Foresight capabilities encompass all of these types of resilience, and that means crisis scenario test. Organizations can study relevant data to develop these crisis scenarios and uncover resilience gaps accordingly. It is one of the most effective methods for anticipating and preparing for future crises.

The pandemic has certainly transformed the mindset of businesses on how to handle disruptions and crises. Many have developed tools that have helped them recover, but most companies have not adopted strategies to navigate the continuously dynamic and uncertain environment in which we live.

In the future, disruptions will be different and increasingly unpredictable, especially as environmental disasters become more frequent and extreme. Embedding strategic resilience will be critical for companies to resist not only the primary impact of shocks but also their second and third order effects.


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