From Risk Management to Strategic Resilience

Risk management has been the buzz phrase of the corporate world for a very long time. Companies that could mitigate risk when a crisis occurred were considered to be on top of their game. That is no longer the case.

The events of recent years have laid many bare truths; high among them is the fact that businesses need to become more resilient to market forces, economic forces, and other factors. It is time for companies to incorporate strategic resilience into their thinking, approach, and culture.

What is Strategic Resilience?

Leading companies are already adopting new approaches. They are moving away from traditional defensive risk management to a more hardcore, offensive, prediction-based strategic resilience.

So what does that mean? Strategic resilience refers to the ability of an organization to counter threats by creating opportunities out of them. The key here is that we must be prepared for these threats, and they should not be treated as a crisis.

Strategic resilience isn’t a one department affair - the whole corporate organization must get behind the strategy.

How Important is Strategic Resilience?

A McKinsey study done in collaboration with the Federation of European Risk Management Associations reveals some interesting facts:

• Almost 66% of the respondents revealed that strategic resilience has become a top priority or is very high on their list of importance since the pandemic.
• Foresight capabilities such as scenarios and stress testing are lacking and need more focus.
• The need for a secure technical infrastructure that is also flexible and can leverage digitization has become a necessity.
• Businesses need to create a more effective, efficient governance model that makes decision-making easier.

How does an Organization Move from Risk Management to Strategic Resilience?

This move can only become practical if the entire culture shifts from reactive responses to crises to a more integrated approach to risk. Take it as a constant to deal with rather than a ’when’ or ‘if’ that you may/may not be prepared for.

Companies need to invest time and effort in collecting data, analyzing it, and developing appropriate scenarios to find loopholes in their current preparedness.

These are the core areas that organizations should focus their strategic resilience on:

Financial Resilience

Organizations must align their short, medium, and long-term financial goals. Businesses need to have adequate capital and still be relatively liquid. This will help them prepare for forecasted drops in revenue, sudden cost increases, and balancing their credit lines.

The above report further uncovered that resilient firms should be prepared to drive value-added growth rather than maintain operating margins.

Operational Resilience

Robust yet flexible operational strategies are vital; they need to meet fluctuations in demand and stay relatively flat when supply chain trouble or other operational disruptions occur. This strategic resilience must be able to pre-emptively counter everything from minor disruptions to global catastrophes.

Technological Resilience

Robust yet agile technological infrastructure is more critical than ever. Companies have to handle cybersecurity issues and tech downtime and even be flexible enough to integrate new tech quickly.

High-quality data ways that respect privacy, are accurate, avoid biases, and comply with existing regulatory boundaries are essential. This will significantly contribute to ensuring a sustained supply of goods and services irrespective of the situation.

Organizational Resilience

This refers to an organization’s ability to hire and retain quality talent. While we cannot account for all future talent requirements and hire accordingly, learning and development strategies must be consistent with increasing skills and abilities and agile enough to incorporate new skills quickly. We are witnesses to the significant vacuum created by the requirements for tech professionals. This sort of strategy will help mitigate such risks.

Reputational Resilience

All stakeholders hold firms more accountable for their actions, values, culture, and ethics than ever before. Strong mission statements and a legitimate purpose are not optional anymore. Every organization needs to create such a culture and make every effort to showcase that culture.

Business Model Resilience

Yes, there are tried and tested business models. You are likely using one or a combination of them. The past years have revealed that sticking to your guns can be highly detrimental. Companies have to be able to adjust their business models expediently to cope with sways in consumer demand, competition, tech, and regulations.

The underlying fact is that organizations have to approach every aspect of their entity and their interactions with all their stakeholders with pre-emptive strategies in place.This can only be done if companies start now and are consistently testing their scenarios to continuously improve how they can respond. It is imperative to shift from reactive measures to pre-emptive strategic methods to remain resilient.

For more articles like this, visit the Cogent Infotech website.

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