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:
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:
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:
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:
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.