Mind the resilience gap - is your organisation ready for disruption?

Capability gap

Many organisations overestimate their ability to deal with disruption, with an outdated risk mindset preoccupied with probability and impact. That approach leads to a focus on short term issues and the hope the worst won’t happen - and the misplaced belief they will be able to find a workaround if it does.

A post-pandemic report by the National Audit Office (NAO), for example, highlighted the UK’s vulnerability to emergencies that affect the whole of government, society and the economy, and the need to strengthen national resilience to prepare for future risks of this scale.

“Although government had plans for a flu pandemic, it was not prepared for a pandemic like COVID-19 and did not learn important lessons from the simulation exercises it carried out,” said Gareth Davies, Comptroller and Auditor General, National Audit Office, in the report. “For whole-system risks, government needs to define the amount and type of risk that it is willing to take to make informed decisions and prepare appropriately.”

Legacy data and technology is the elephant in the room for many organisations. Weaknesses in data combined with the inability of outdated systems and technology to withstand shocks poses significant resilience challenges.

And according to our annual Digital Trust Insights survey, 43% of UK senior executives still focus on isolated risk scenarios and how to address recovery for that specific disruption, instead of an approach that builds a 360-degree view of the risk the organisation faces and how to continue operations across simultaneous, connected risks.

In the research, examining the impact on shareholder value of 45 major corporate crises since the global financial crisis of of 2008, organisations that demonstrated greater resilience lost less than 5% of shareholder value in the immediate aftermath of a crisis, compared to a loss of more than 11% for organisations that didn’t display resilient characteristics and capabilities. Crucially, after 30 days the more resilient organisations started to show sustained recovery in value. And by 250 days, those organisations even add a further 10% in shareholder value, compared to the less resilient organisations, which suffered on average a 15% reduction in shareholder value over that time period.

The research also highlights how the impact of crises on reputation and shareholder value has become more acute since the global financial crisis of 2008 due to factors such as the increase in more damaging cyber threats, as well as the negative amplification of a crisis on social media, a trend that was felt keenly by the UK public in our deliberative sessions with Jigsaw research.

As markets put greater value on the resilience of businesses, it is now starting to be priced into the value of companies. "We are increasingly seeing businesses add a resilience lens to their value creation planning,” says Roberta Carter, Value Creation Lead at PwC UK. “Events of the last three years have shone a light on the need to balance risk taking with resilience. Without some appetite for risk, businesses would not have been able to adapt to the disruption from COVID-19 restrictions, challenges around the access to talent, supply chain pressures and rising costs. Insights and data are at the heart of this type of decision making alongside a clear understanding of business value and what drives it."

By adapting to disruption faster than others and taking advantage of new opportunities, resilience also gives organisations a competitive edge as well as minimising the impact of disruption.

When the Ever Given container ship ran aground and blocked the Suez Canal for six days in 2021, for example, it held up almost $10bn in global trade. One global manufacturer that had invested in its resilience was able to use its operations dashboard to see what products were in transit via the canal and whether other parts of its operations could provide substitute supply. The data allowed senior management to make decisions quickly, reassuring customers, ensuring business continuity and minimising the costs of the incident.

CEOs and their C-suite have many competing priorities to drive growth - ESG and secure technology-driven business and operational transformation among them. In our conversations we heard how resilience by design can be the foundation to underpin sustainable growth allowing organisations to prioritise investment and execute business change and reinvention with confidence.

Investment in sustainability and strong ESG performance are also linked with greater resilience. Investment research company Morningstar found that 24 out of 26 sustainable index funds covering US stocks, non-US developed markets and emerging markets held up better during the initial pandemic outbreak in 2020 and outperformed conventional counterparts. The study found that companies that deal with their environmental challenges, treat stakeholders well and govern themselves ethically are more resilient during a sudden crisis.

Resilience is as key to value creation as it is to value protection because resilient organisations are ready to act with agility and speed to any scenario. Resilience puts organisations on the front foot to change so they can take risk with confidence, using the trust they have built with stakeholders to create sustainable growth. And these confident and better informed leadership actions and decisions in resilient organisations are powered by the technology and data platforms that are now available to them.

Deborah Waterhouse, CEO of ViiV Healthcare, says in our 26th annual CEO Survey: “We have to be bold, try new things and accept some risk. Because if all you do is think about risk then you wouldn't do anything. You wouldn't be audacious, you wouldn't think big, and you wouldn’t believe you can end the HIV epidemic.”