Resilience is the key to companies thriving – not just surviving

In business, as in life, resilience can confer significant competitive advantage – and not only during periods of volatility. Recent analysis produced for the World Economic Forum by McKinsey found that while resilient businesses generated 10 per cent more total return than non-resilient competitors during the Covid-19 crisis, the lead has widened to 50 per cent during the recovery since the pandemic.

It’s a crucial point. While many organisations see resilience as important in helping them to cope during periods of volatility, they don’t necessarily recognise the potential to drive a competitive edge that lasts for years to come. However, organisations that demonstrate what the World Economic Forum describes as “resilience muscle” will tend to outperform others. If entire economies were able to build such muscle – the ability to anticipate and respond to multiple challenges – global GDP growth could be 5 percentage points higher, the WEF suggests.

“Most companies perform well during periods of stability, but lose those gains when times become more unstable,” says Martin Reeves, a Senior Partner at the BCG Henderson Institute, a strategy think tank run by Boston Consulting Group. “That’s where the opportunity lies for the most resilient organisations.” He points to recent Boston Consulting Group research suggesting that 30 per cent of companies’ long-run relative total returns are driven by their performance during a crisis; the most resilient companies in a given sector outpace their rivals by an average of 2 percentage points a year.

Resilience as a growth engine

One reason for this outperformance is that resilient businesses are less likely to be thrown into chaos when a crisis strikes, enabling them to weather the storm with less damage, but also to bounce back more quickly and with greater confidence as the turbulence subsides. They are able to maintain and strengthen their relationships with customers, employees and suppliers, and continue to build on these bonds. “Think of resilience as the ability to prosper under dynamic conditions – to adapt to change,” adds Reeves. “That is also what a business needs to thrive at other times.”

How, then, do businesses become more resilient in order to secure such advantage? Anna Mazzone, Head of Risk & ESG Business EMEA at  ServiceNow, the intelligent platform for digital transformation, says the first step is a cultural one. “In the first instance, this is about people, rather than technology,” she says. “The business has to recognise that their way of working needs to adapt and change – that it needs to move to resilience by design in its target operating model. The organisation needs to move from a reactive mindset to a proactive mindset with the right level of data analytics; problems can then be identified faster and managed through the event with confidence.”

The practical way to do that is to focus on a specific product or processes, Mazzone suggests. Start by mapping out the journey involved, from the point of designing or selling the product/service to the point of delivery and on-going support. Organisations will then begin to understand with more transparency who is responsible for which processes and where vulnerabilities lie in the value chain – this will typically cover key people, technology, third parties, facilities, third parties and suppliers, and data, in order to improve and deliver enterprise resilience.

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However, there’s a problem. ServiceNow’s research suggests that companies are much better at the mapping work than they are at making improvements. Its study revealed that while 55 per cent of companies recognise that understanding resilience is a first step towards generating value, only 23 per cent are actually deploying new tools as a response to what they have learned.

One problem may be that, during the digital age, many organisations struggle to join the dots; they have invested in disparate technologies for different purposes, making holistic improvements more difficult. “The aim should be to digitise the different processes in the business, embedding control mechanisms into the process workflow design. This will guide employees to execute based on defined actions, and when a control breaks, the organisation can identify, in real-time, the operational risks and impact to the business,” says Mazzone. “An enterprise platform can operate as the golden thread (or workflow) that pulls this activity together, crossing the silos that exist in most businesses today.”

It's a point that Boston Consulting Group’s Reeves makes, too. “Resilience is a property of your whole system, not just one part of it,” he says. “You are only as resilient as the weakest link in the chain.” Identifying a strategy for assessing the entire organisation is therefore crucial. But it’s an imperative that many organisations find challenging. One recent study by the consultant EY found that 47 per cent of businesses felt they were only able to respond to disruption passively. By contrast, where senior business leaders seize the initiative, the opportunity to drive value creation through improved resilience is less likely to be missed.

Mazzone suggests close collaboration between the CFO, COO, CRO, and CIO is absolutely crucial in this regard. “Resilience isn’t simply a matter for the risk function; all employees are responsible for risk management in an organisation,” she argues. “In today’s changing and volatile environment organisations must have the data in real-time to make decisions far more quickly. When the C-suite and their teams work seamlessly together, the organisation can adapt at speed.”

The goal should be to build attributes and systems that enable more rapid adaptation and greater flexibility. This will simultaneously protect the organisation from immediate disruption and enable it to pursue growth with greater vigour. It’s a hugely valuable prize: not just the capacity to weather a crisis, but also an opportunity to steal a march on competitors.