“Over the last few years, business leaders have been reminded repeatedly of the interconnectedness and unpredictability of businesses, economies, and societies. Humanitarian disasters, from the pandemic to the war in Ukraine, have created shockwaves affecting geopolitics, economics, trade, energy, and financial markets. Business reputations, markets, supply chains, and employees have been impacted in unpredicted ways.
It’s not surprising then that resilience — the ability to thrive under change — has risen to the top of many leaders’ agenda. As we saw with Covid-19, more resilient businesses had better outcomes, and some even emerged as new winners.
Yet, history tells us that companies often lose interest in resilience as crises fade. Few companies have systematically codified lessons learned and baked resilience into their organizations.
This is because too many organizations hold a narrow view of resilience as mainly ensuring short-term, operational continuity during crises. True resilience is more expansive: It’s a company’s capacity to absorb stress, recover critical functionality, and thrive in new circumstances. Resilience is not merely an operational consideration — it’s a potential strategic advantage that enables companies to capitalize on opportunities when competitors are least prepared.
In order to build truly resilient organizations, leaders first must understand five myths that may be holding them back.
Reality: Resilience is essential in all key organizational functions.
Disrupted supply chains and shipment delays are conspicuous and immediate, but a sole focus on acute crisis management skews the narrative. When resilience is baked into all key functions — from finance, to IT, to customer service — companies can restore functionality and performance much more rapidly and effectively.
Reality: Resilience is as much about enabling of upside as protecting against downside risks.
Resilience reduces the immediate impact of crises by enabling companies to anticipate, prepare for, and cushion against shocks. However, resilience also enables companies to respond to crisis in opportunistic ways, thrive in new circumstances, and shape the competitive environment to their advantage.
Reality: Resilience is strategic.
Many leaders today undervalue resilience, believing it to be only valuable in a limited and non-recurring set of circumstances. Resilience provides value not only during but also long after a crisis has receded. It can create competitive advantage in several ways, such as:
Reality: Resilience is a driver of value.
Resilience provides substantial future benefit if invested preemptively. Building the required operational redundancy, modularity, diversity, and adaptive capability requires embracing a tradeoff against near-term efficiency. Challenges in measuring the long-term value of resilience with traditional metrics lead many leaders to make myopic decisions that effectively over-value short-run efficiency.
However, analysis of the impact of resilience over a 25-year period shows that it delivers differentiated long-term performance value. Although crises occurred in only 11% of quarters, relative total shareholder return (TSR) during those times accounted for 30% of a company’s long-run relative TSR. In other words, performance during crisis periods has almost three times the impact of performance during stable periods.
Reality: Companies need resilience to navigate an increasingly volatile world.
Resilience can enable companies to prepare for and respond better to future shocks, whether those be pandemics, geopolitical conflicts, effects of climate change, cybersecurity threats, industry-specific disruptions, or other unpredicted challenges.
In our increasingly volatile world, exogenous crises may become more frequent, but damage and disadvantage is not inevitable. Leaders must prepare to effectively lead their organization through both stable and unstable periods alike.
In order to build systematic resilience into their organizations, leaders must take seven critical actions.
Consider resilience both a strategic opportunity and an operational imperative. Build resilience into each business function by assessing the impact of lost or reduced functionality and adopting a tailored approach to address it.
Under-investing in efficiency can cause a crippling lack of competitiveness, while under-investing in resilience can cause corporate failure or long-term competitive disadvantage. Leaders cannot justify and calibrate resilience efforts until they address this challenge head on.
View crises as inevitable disruptions to be prepared for, managed, and leveraged for competitive opportunity, rather than infrequent one-off events to be defended against ad hoc. Such a shift will help the organization to make proactive and future-oriented decisions during crisis that allow it to thrive in and shape the post-crisis landscape.
Introduce business metrics that measure flexibility and responsiveness (such as recovery rates relative to competitors, share of upswing captured, portfolio fluidity, and speed of mobilization) to shift the focus beyond short-term performance optimization and reorient to long-term growth potential.
Build resilience across multiple timescales by applying six key principles:
Systematically adopting resilience requires a cultural shift. The over-fixation on short-run efficiency, engrained through business education, workplace culture, backward-looking metrics, and misaligned incentives, can be hard to overcome. Leaders must reinforce the change by being a vocal champion for resilience and institutionalizing the learnings from recent crises.
As the Covid-19 pandemic made all too clear, leaders and their organizations do not operate in a vacuum. They both influence and are influenced by the societies in which they are embedded. Businesses can’t succeed as society fails. Resilience is a property of integrated systems, not parts of systems like individual companies or business units. Business therefore needs to play a role in larger issues beyond traditional corporate boundaries. Leaders should look to reduce the volatility and fragility of the systems and societies on which they depend, reinforcing the social fabric through efforts like reducing polarization, optimizing for both societal and business value, and reimagining business models for sustainability.
The Covid-19 pandemic was not the first test of businesses resilience and the Ukraine crisis will not be the last. Businesses must act now to institutionalize resilience before the lessons of these crises fade, leaving them unprepared for the next ones.”