Rethinking resilience in business

London/Geneva—COVID-19 is the biggest public-health crisis in a century and has caused the deepest economic recession of the modern era. The pandemic has revealed vulnerabilities in public-health systems and social safety nets around the world, brought vast inequalities to the surface, and demonstrated how major disruptions can snowball through interconnected systems. Clearly, our societies and economies are not nearly as resilient as we had believed.

One reason we have found it so difficult to react to COVID-19 is that we have vigorously removed “slack” from our systems. Businesses have become disciples of the gospel of efficiency and just-in-time production, fiscally stretched governments struggle to provide even basic services, and we have pushed natural systems to their limits. Now that a crisis has arrived, we see that what was perceived as excessive slack was necessary redundancy.

More crises await, from domino effects stemming from COVID-19, to the full impact of climate change and other disruptions of the natural systems on which we rely. Some crises will inevitably arrive as “black swans,” without warning, but many others will be what Michele Wucker calls “gray rhinos”: highly probable, high-impact threats that we know about but tend to ignore.

All chief executives should anticipate at least one major shock during their tenure, and prepare and lead accordingly. Although there is a growing body of analysis concerning the impact of COVID-19 on business, most of it is still focused on the immediate response. In a recent issue brief, therefore, our organizations explore how companies can improve their long-term thinking and planning, and better prepare for similar future events.

Our work builds on discussions with members of the World Business Council for Sustainable Development and a series of interviews with firms headquartered in Asia, Europe, and the Americas. It also incorporates insights regarding the pandemic’s impact from the 2020 GlobeScan/Sustain-Ability Leaders Survey, and further draws on a broader review of long-term resilience and business responses to COVID-19.

The brief highlights three key lessons for business. First, we cannot hide from gray rhinos or black swans. Companies must prepare better for both known and unknown threats—in part by returning slack to our systems. To withstand future shocks, businesses must change and extend their view of long-term resilience. Critically, they must accept that a company’s resilience is determined not only by what’s inside its four walls, but also by ecosystems, communities, economic conditions, the rule of law, effective governance, and more.

Second, businesses need to embed resilience, once established, more deeply in their language and especially their practice, to prevent it from atrophying. Firms that do so will be able to anticipate and prepare for all future scenarios, minimize the impact of the shocks that do hit, and recover more quickly from them. We found that companies whose values and purpose are deeply embedded and widely understood at all levels can be more agile and decisive during crises. Cultural alignment on purpose and vision within an organization helps to build trust and openness, which are essential for effective and authentic internal and external communication, as well as collaboration.

Third, companies can build greater long-term resilience through improved approaches to corporate risk management, human and social capital, and environmental, social, and governance (ESG) information. In each case, firms need to emphasize certain steps.

True resilience is not about withstanding difficult conditions, but rather embracing what it takes to thrive at the organizational and systems level. Resilience stems not only from reliable access to raw materials and operational efficiency, but also from recognizing and protecting the enormous investments and value found in skilled and healthy workforces and vibrant communities. It requires protecting and enhancing vital ecosystems, and ensuring strong institutions, transparent rule of law, and healthy national and local budgets. And it means recognizing the central role of innovation in creating value in the face of challenges and disruptions. Project Syndicate

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Keryn James is group chief executive at Environmental Resources Management. Peter Bakker is president and CEO of the World Business Council for Sustainable Development.