The term resilience refers to the ability to deal with significant adversity, tragedy, or threat, and continuously adapt as those adverse moments arise in order to move forward. Meanwhile, a disruption is understood as an abrupt interruption or fracture that changes the way things are done. In the technological and business fields, it is used to refer to the introduction of new processes, methods or products that change the way something was traditionally done, adding value to the sector to which they are directed, usually as a result of a significant innovation or as a response to new circumstances. In this writing, we are going to consider a disruption as a fracture caused by unforeseen circumstances or events that directly impact the organization, and therefore an alternative must be found to how to do things to get ahead.
Nowadays the world is going through different crises of global importance. In addition to the consequences of COVID-19, there is the Russian invasion of Ukraine, which has increased the already existing refugee crisis, has caused a rise in energy and food costs, among other goods, as well as other effects; all this in a context of constant climate change. It seems that more complex disruptions from diverse origins keep emerging, with long-term consequences, and organizations are not sufficiently prepared to face them, reacting separately to each disruption. Faced with this reality, Risk Management must evolve towards resilience, not only as the ability to react and recover quickly, but also to anticipate disruption, learning and correcting constantly; understanding that crises are not usually isolated, that they cover different areas, have effects at various levels, and can evolve into new events. This is why organizations must respond with sets of correlated solutions that can be adjusted according to how conditions develop.
In a study cited by the World Economic Forum, it was revealed that out of 1,500 companies during the financial crisis of 2007-09, 20% in each sector emerged from the recession with a slight advantage over the rest, which then morphed into a markedly superior performance for the next decade. These resilient companies had not been leaders before the disruption, nor did they have other businesses than those affected by the disruption. What that 20% had was an internal advantage gained by moving fast, early and firmly in the face of disruption. Similarly, during the COVID-19 pandemic, resilient companies in general outperformed their peers, generating a 10% higher return during the 2020 recession, a difference that increased to 50% during the economic recovery of 2021. These resilient companies adapted and moved quickly to meet the resurgence in demand, adopting digitized business models, organizational flexibility, and necessary changes to their business portfolios.
How to build Resilience
Usually, when faced with a risk, companies adopt defensive solutions focused on avoiding it, and measures that cushion its effect on costs, which tends to limit rather than support growth. The new approach to resilience focuses on creating a flexible system that is oriented and adapts more quickly to environmental changes and disruptions, accompanied by suitable Change Management.
Three key actions recognized to strengthen Resilience:
It means investing in advance in strategies and measures to reduce the magnitude and speed of the impact, before the great disruptions occur. Three types of actions can be taken: • Design flexible products and processes, investing in viable alternatives, such as having multiple suppliers in different regions.
• Design measures to reduce the negative effects, by having more and not just enough, such as increasing safety factors in products or maintaining higher inventory levels for key resources.
• Strengthen connections, both in computing and in business, to be able to share information and to develop tools and skills to deal with threats, such as constantly investing in improving cybersecurity protocols.
It means to be alert in order to be able to detect a present disruption quickly, discover its extent and implications, and define an appropriate response.
• An appropriate response involves neither jumping to a response too quickly nor too late.
• Have an effective planning team that uses different scenarios to cover uncertainty, and to reduce the list of risks to one in which they can be categorized in order to act accordingly.
• Carry out tests of the different scenarios and act on the results.
• Apply planning to supply chains.
It means moving fast, ensuring an early and effective response to the disruption in order to accelerate the exit from the situation before competitors.
• Create multifunctional teams that can work in extreme uncertainty, with clear rules and regulations that guarantee the continuity of the decisions made and their execution.
• Involve the different areas of the company.
• Move quickly.
Digital economy nowadays makes up 15% of global GDP, and could increase to 26% by 2040; therefore, digital inclusion is imperative. More innovations are expected in the next 10 years than at any other time in history. Accelerated developments in technologies such as cloud computing, robotics, process automation and the Internet of Things (IOT) are already affecting production activity. More and better cybersecurity measures will be needed to minimize risks and improve resilience. This means having plans and mechanisms in place to ensure business continuity in the event of a cyber incident.
Crises and disruptions expose the weaknesses of organizations, and it is in these that we can differentiate the resilient ones from the unprepared ones. Being prepared is more than having financial reserves and measures to cushion damage; it is necessary to have the capacity to give active responses, which allow companies to quickly adapt to new conditions and move towards new opportunities. In crisis, half of the impact arises from the crisis itself, while the other half, good or bad, is determined by the response.