Reframing our approach to risk and high-impact events

When unpredictable crises happen, an agile response is key to resilience. Over the past year, as many organisations were pushed into accelerated change, they have learned that they could be nimble, build resilience and thrive. These positives shouldn't make companies complacent. Rather, companies should use the experience to learn what went well and what they could do better to ensure that they continue to prosper.

A new category of risk

According to our 24th Annual Global CEO Survey, 76% of CEOs are optimistic that global economic growth will improve. And yet, the pandemic has left lingering anxiety: 52% of CEOs globally are extremely concerned about the future threat of pandemics and health crises to their organisation’s growth prospects. Persistent anxiety is logical. The pandemic introduced a new category of risk: sudden high-impact events that hit everywhere at virtually the same time for a sustained period.

Traditionally, studies of high-impact risk events have assumed a short- to medium-term duration and have centred on whether an organisation would be resilient enough to sustain the blow. Akin to the human immune system, if the organisation can sustain the impact without terminal consequences, will it become more resilient and be less impacted the next time an attack occurs?

In other words, are organisations, like humans, building adequate immunity? Are they building a corporate memory bank of the lessons learned in the past year, and will they have a longer-term perspective to ensure that they can endure a future high-impact risk event and emerge stronger?

Resilience through agility

Corporate response to the pandemic has been varied, but successful organisations (relative to others) seem to fall into three broad categories: those that have strong balance sheets and that are sitting on significant reserves and thus are able to sustain the pain for longer than their peers; those that were operating in a critical niche with spikes in demand, such as online grocery delivery; and those that, without any natural advantages, were sufficiently agile and innovative to make accelerated changes to their strategy and operating model.

Several board members said the crisis forced them into an accelerated pace of critical decision making that was positive for the business. It almost feels like an era of profound liberation:  “When we want to, and we need to, we can…” “I guess if you told me I wouldn’t be able to socialise for 15 months, I would have said it was not possible…”

The most common successes in innovation were around acceleration to ecommerce as a primary channel to customers, coupled with the pleasantly surprising ease with which full remote and digital ways of working were made possible. These changes are lasting and have triggered a surge in the appetite for real transformation.

The journey to thrive

As we move gradually through the impact of the pandemic, a simple, four-stage framework can help put in context and possibly assure progression. Clearly, each organisation will move through this journey at a different pace based on its unique business model, maturity and risk appetite.

• React: Protect the safety of people and assets, then turn attention to the preservation of cash and working capital. It’s critical at this stage to have effective flows of risk data to make informed decisions using fact-based modeling.
• Stabilise: Rapidly adjust to the new economic reality to ensure the continuity of operations. At this stage it’s key to consider the impact of disruption on underlying risks, such as fraud, IT and cybersecurity, and to realise potential cost savings.
• Rebound: Once the worst of the disruption has passed, pivot rapidly from crisis mode to recovery. At the same time, it’s key not to let the event define the entire focus of limited resources. Don’t lose sight of other strategic and emerging risks by continuing to stress-test and monitor risk. To emerge stronger than the competition, organisations might consider rebuilding capital or facilitating a deal-oriented recovery through mergers and acquisitions. PwC’s Global Crisis Survey found that capturing lessons learned from the crisis by institutionalising innovations or remediating gaps is critical to rebounding effectively.
• Thrive: Leverage the experience of disruption by seizing the opportunities it presents. This requires the ability to re-evaluate strategy and risk appetite. Build human resilience and purpose alongside organisational resilience by proactively promoting personal recovery and well-being. As Nigel Wilson, CEO of Legal & General, said in an interview for the Global CEO Survey, “There is enlightened self-interest in having a highly motivated, healthy, happy workforce.” It will ensure the organisation is ready to take on new challenges and make bold, proactive decisions.

We all should take time out to reflect, from a corporate and personal perspective, on the lessons learned along the pandemic recovery journey and seize the chance to rethink our approach to risk and resilience. Have our immune systems improved to deal with the next big event?

We have an opportunity to ensure that our organisations build their immune systems through institutional memory, so we can respond quickly to the next high-impact event and take confident decisions that allow us to thrive.