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Winning through change: Our perspective

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By Carl Hess | February 07, 2022

Focusing on three imperatives – connecting current and future risks, acting on ESG and sustainability, and building organizational resilience – will enable your business to thrive.

Since commerce began, adapting in an uncertain and varying environment has been fundamental to business success. Today’s challenges are fueled by the frequency and complexity of threats across risk categories, including geopolitics, economic volatility, population health, climate change, supply chain, talent and technology. The time to act — by engaging people and activating purpose to combat these threats and create opportunity — is now.

We see three critical imperatives to thrive in the changing landscape:

  1. 01

    Connect current and future risks

    The contemporary environment illustrates the impact of multiple low-frequency, high-impact risks arising nearly simultaneously: a global pandemic, financial shocks, a series of “hundred year” weather events, social disruption and significant labor shortages. While the frequency and concurrence of these events may appear unlikely, WTW’s predictive analysis across 10 risk categories calculates a 63% probability of one or more hundred-year events in any given decade, and a 26% chance that multiple such events will occur in the same decade. The likelihood is even higher when events are interdependent.

    The best way to prepare for such risks (as well as others, such as war, terrorism or cyber threats) is to view risks through a common lens at the enterprise level. By considering a portfolio of risks cohesively, organizations can achieve better outcomes than by managing them independently. Data, analytics and statistical models addressing connected vulnerabilities lead to improved foresight and judgment, as well as avoiding a potential downward performance spiral created by multiple factors.

    For instance, investment risk has become more systemic, difficult to diversify or hedge, and highly uncertain. Long-term value creation and effective decision making cannot rely on basic analysis of historical return patterns and require understanding how new risks from ecology, technology and demographic shifts can trigger changes to value.

    Connecting risks to drive superior results means constantly identifying and anticipating threats, preparing for the unexpected and being ready to act decisively when needed. Here are three examples where we see meaningful opportunity:

    • Mitigating risks that are not well covered (or well known): Many severe risks are under-insured and not well understood, including geopolitical, cyber, supply chain and reputational risks. Unmitigated, they leave organizations open to potentially irreversible damage to crucial assets and systems. Better understanding these risks and ways to manage them will enable organizations to generate sustainable returns over the long term.
    • Matching risk and capital: Managing complex risk portfolios requires investments and capital sourcing that provide funds aligning with an organization’s obligations. Organizations can mitigate systemic portfolio risks by adopting alternative solutions that diversify capital among various sources and risk categories.
    • Addressing work risk: As work practices transform around the world, so do their associated risks. For example, remote work may increase cyber breaches, performance issues and employee retention risks. No matter how organizations adopt new ways of working, managing risks associated with employee performance and preferences, cost increases and skill shortages in a way that connects with other risk categories is critical.
  2. 02

    Act on ESG and sustainability

    As investors place greater focus on intrinsic value and long-term economic health through stakeholder capitalism, their expectations regarding environmental, social and governance (ESG) and sustainability commitments rise. To be effective, ESG goals must be linked directly to managing long-term risks:

    • Environmental: Many organizations have taken initial steps to understand and quantify their environmental impact. Few have reflected the multi-dimensional and multi-temporal aspects of climate risks in their strategies. Examples include physical and liability risks to people and property arising from extreme weather events as well as transition risks emerging from the impact of changing strategies and operations during migration to a low-carbon economy. It is vital for leaders to understand the impact of these increasing risks to people, production, distribution, financing, capital allocation and overall enterprise value, and to mitigate them.
    • Social: Significant value exists in creating an environment where all employees can flourish. Additionally, people are critical enablers of both sustainability and risk management efforts. Success requires creating cultures and programs for employees that align with organizational purpose, support skill development and drive wellbeing. It also means ensuring that diversity, equity and inclusion (DEI) policies result in ample representation of under-represented groups in key roles and management levels and that capital allocation decisions advance equitable long-term opportunities for all stakeholders.
    • Governance: The role of governance has expanded beyond avoiding failure, fraud or scandal. Key governance components include appropriate decision frameworks and processes for boards and senior management as well as enterprise-level measurement, analytics, and protocols that drive risk and threat assessment, regulatory conformance, accountability and sustainable performance.
  3. 03

    Build organizational resilience

    Organizational resilience is the ability to bounce back from adverse events, ideally accomplished by understanding their lessons, to emerge better positioned against similar occurrences. Building resilience requires a broad array of capabilities that are best addressed on three fronts:

    • Financial: Building greater optionality into capital allocation decisions improves the diversity and sources of return under uncertain conditions. Experimenting and quickly learning from various risk mitigation and investment opportunities helps enterprises become more adaptable to unpredictable events and achieve more sustainable returns.
    • Operational: Developing new ways to serve customers and protect employees during unforeseen events leads to improved risk management and more favorable business outcomes. Doing so requires emergency response planning, crisis management, workforce flexibility and technologies that ensure that business can be done regardless of circumstances.
    • Human: Meeting employees’ individual physical, emotional, financial and social wellbeing needs and creating a common, enterprise-wide sense of purpose enables employees and organizations to thrive under the most trying conditions.

Looking ahead

While recent events have challenged us, leadership actions demonstrate it is possible in business today to manage successfully through uncertainty. They also show what is most important – people and purpose. By focusing on the three imperatives we’ve outlined, organizations can be stronger and better prepared for the future.

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