#10things on building resilience to withstand shocks
Organisations have to evolve current risk management practices and build resilient organisations that can survive global shocks - and also thrive despite them. McKinsey and WEF have developed a resilience framework.
“Resilience should be seen as the ability to deal with adversity, withstand shocks, and continuously adapt and accelerate as disruptions and crises arise over time,” reports McKinsey in its latest paper, produced with the World Economic Forum, on ‘Building resilience amid crises and disruption’.
Disruption is not new – wars, plagues, radical societal change and recession are a feature of our human world. But, many disruptions have overlapping consequences that can be long-lived, McKinsey says, creating impacts and changing the world in ways that are not always anticipated. “Today, the world is beset by several crises of global importance. Russia’s invasion of Ukraine has precipitated a humanitarian tragedy with far-reaching social and economic consequences. The refugee crisis stemming from this war amplifies attention on a wider refugee crisis involving tens of millions of people around the globe. The economic and humanitarian repercussions of rising costs of energy and food are likewise intensifying.
“The war in Ukraine has also shocked a world weary and damaged by the COVID-19 pandemic. The virus has taken more than six million lives, and in April 2022, it is still causing thousands of deaths each day. The context within which these disruptions occur, furthermore, is an ever-present climate crisis, whose effective mitigation will require a global transition to a low-carbon economy. The human displacement and economic cost this entails could become disruptors of historic proportions in their own right,” McKinsey reports.
What does this mean for organisations? They have to evolve current risk management practices and build resilient organisations that can survive such shocks, and also thrive despite them. But how do you do that? McKinsey and WEF have developed a resilience framework of sorts – these are the highlights:
1. Lessons from past crises should inform innovative, adaptable solutions to future disruptions: Disruptions are focal points that reveal where capabilities are strong and where investment is needed. The experience of past crises and disruptions teaches essential lessons on how to proceed. These lessons will contribute to the architecture of the common resilience framework across the public and private sectors.
2. Managing disruptions defines sustainable growth more than managing continuity: Crises damage institutions and communities, but the process of rebuilding can create stronger foundations for future growth. Changes introduced during the COVID-19 pandemic can provide new impetus for accelerated growth: the shift toward digitalisation, new hybrid working models, the rethinking of supply chains, and the acceleration of public investments toward climate change. These are the kinds of structural shifts that crises often force on otherwise recalcitrant institutions. Resilience is thus more than protective measures; it is also the ability to reinvent and innovate in response to disruptions.
3. Lack of preparation and inadequate responses can magnify the damage of crises: Decisions made under pressure and at speed can entail unintended consequences. The resilience framework will necessarily provide space for thoughtful decision making. Organisations will need to create the means for deciding when to move quickly and when to slow down, and test decisions in a given crisis with people outside of the core network.
4. Crises disproportionately affect the most vulnerable: Crises and disruptions cut deeper in poorer countries, among more marginalised and vulnerable population segments and particularly in fragile and conflict-affected states. Disruptions should be seized upon as opportunities to ramp up collective efforts to improve habitats, food and water security, public health, and social and technical infrastructure where these are most needed. A resilience muscle must ultimately serve the broader goal of sustainable, inclusive growth.
5. Strategies across sectors must be coordinated to ensure that disruptions do not diminish growth: The World Economic Forum Resilience Consortium endorses the strategic view of resilience and emphasises the long-term ability of organisations and economies to create the capabilities needed to deal with disruptions, withstand the shocks, and continuously adapt as disruptions and crises arise over time. It is the strategic prerequisite for long-term, sustainable, and inclusive growth.
6. The resilience framework will, by design, foster the cooperation of public- and private-sector organisations in supporting sustainability and inclusiveness across societies: For companies, resilience will translate into sustainable business growth; for societies, resilience both enables and depends on meaningful economic growth, emphasising improved quality of life, equality, and inclusiveness.
7. Invest ahead, sense early, respond immediately, and pivot to accelerate out of disruption: The new approach to resilience goes beyond the defensive stance toward growth-oriented strategies. An active strategy is based on flexibility and speed, allowing organisations to take on more risk rather than less.
8. Prepare by investing ahead of large disruptions to reduce the magnitude and speed of the impact: Three types of actions can usually be taken: designing flexibility in products and processes, building buffers, and strengthening networks.
9. Unite risk and crisis management within a business resilience framework: This will aid organisations in detecting disruption; quickly discovering its extent and implications, and defining the appropriate response.
10. Create cross-functional teams: A structure that can function in extreme uncertainty is a critical component of a successful response. Public- and private-sector leaders taking an appropriately broad view of resilience encounter risks and challenges addressed in isolation – whether labour shortages, digital risks, supply chain disruptions, inflation, or inequality. Yet this approach cannot discover the many interdependencies, nor the system-wide, longer-term trends driven by climate change, societal developments, and geopolitical dynamics.
*Download the full Resilience Framework report from McKinsey, here.
Main image credit: Pixabay.
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