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May 21, 2021 | 3-minute read (570 words)
The importance of resilience for companies has been called into stark relief by the COVID-19 pandemic, and it will become even more urgent as globally disruptive events begin to unfold more quickly and in less predictable ways, according to a new McKinsey & Co. analysis.
Geopolitics, global warming and the digital revolution will compound the global uncertainty that has proliferated since 2000, but many are not preparing accordingly, the report’s authors write.
The majority of businesses continue to stay focused on short- to medium-term earnings and rudimentary organizational health under the assumption that business conditions ahead will remain relatively smooth. But focusing too much on growth or financials is a risk that jeopardizes long-term success, because it doesn't recognize that the global landscape is changing so fast and in more pronounced and chaotic ways.
Six types of resilience your business needs:
In order to withstand an increasingly unpredictable future with more disruptive events, companies must embed resilience into the way they work. This will not only help them work better in normal times, but it will also prove indispensable in times of turbulence. Resilience for a business encompasses six facets, per McKinsey.
Financial: Financially resilient companies balance their short- and long-term financial goals to protect themselves from abrupt drops in revenue or spikes in costs and from sudden limited access to capital and equity.
Technological: Technologically resilient businesses have a strong infrastructure that can manage cyberthreats, protect data and handle IT demands flexibly. They have disaster recovery mechanisms in place.
Organizational: Organizationally resilient businesses cultivate a diverse staff and focus on recruiting top talent and maintaining processes that are bias-free and that develop employees’ skills equitably. Employees are well-suited to their position and feel they are valued contributors.
Operational: Operationally resilient businesses are flexible enough to adapt quickly to changing demand and to remain stable amid disruption. Their supply chains are managed with an eye toward managing capacity under multiple types of potential threats.
Business model: Companies with a resilient business model are able to adjust to quickly changing marketplace conditions by continually fostering innovation.
Reputational: Businesses with reputational resilience are accountable to multiple stakeholders and act in a way consistent with their values and mission.
Three ways to embed resilience in your firm (and one clear winner)
1. Add-ons: Equipment that decreases the risk of failure, such as backup servers, emergency generators and network redundancy achieved by adding more network devices and lines of communication.
2. Trade-offs: Buffering the business to build resilience in ways that present an explicit trade-off to another part of the system, such as productivity. Examples include establishing a capital bumper, overstaffing your call center or overstocking products.
3. Baked-in: This is the “sweet spot” approach that strikes the optimal balance. Resilience is baked-in throughout the organization in a way that aligns with what’s also best for your other business aims. Characteristics such as staff with diverse skills and experience and an environment that fosters innovation will serve companies well in good times and prove crucial when times necessitate nimble adaptation.
Takeaway: This McKinsey & Co. analysis' “resilience imperative” calls for businesses to prioritize resilience to succeed in uncertain times. Businesses that imbue resilience throughout their organization are much better positioned to withstand continued uncertainty and emerge stronger afterward. Those that don’t prioritize resilience are unlikely to succeed in the rapidly changing circumstances implicit to the world today.