Embracing Risk, There is no Back to Normal
“You cannot overtake 15 cars in sunny weather... but you can when it’s raining”
- Ayrton Senna
Over the past two years the world has taken a turn when it comes to the definition of the steady state. We can see the pandemic as a catalyst that exposed the fragility of multiple ecosystems across the global economies, and particularly highlighted the dependence on supply chains for business continuity. Now the world is divided between those who wait for the return to normal and those who envision a continuous state of disruption.
All indications are that the latter is the new reality - that businesses need to embrace and prepare for. Taking past behaviors and trends as a good estimation of the future is outdated, as well as counting on the stability in markets and regulations. Regardless of industry or scale there are three main disruptors that will shape businesses: (1) consumer sentiment, (2) confidence in capital markets and (3) the Race to Net Zero.
Firms can choose to either react to these trends as they develop or proactively adapt their business model. Taking control of the transformation will set apart the winners. Success will depend on migrating from a “risk management” mindset to truly building resilience by investing in agility and responsiveness and not as a defensive strategy, but as a forward approach to elevate the value proposition of the business.
In the conservative path of protecting profit in the short-term or of narrowing investments, there is a substantial risk of dampening growth. Rather, with a mindset to drive profitable growth in the long-term, firms should focus on:
Assessing potential scenarios in their landscape that will drive different business strategies.
Define strategies to win in the most likely scenarios.
Focus first on the capabilities that will allow agility to respond to either outcome.
Invest smartly in preparing for several scenarios.
Repurpose buffers, such as safety stock and operational redundancies, as a key to responsiveness instead of a sunk cost.
Resilience therefore requires conscious investment. Capital flow has dried up, disposable incomes are shrinking and pressures in accelerating sustainability agendas have never been higher. Doing business in such conditions requires an understanding of disruption and potential risk as much as it does knowing your customer and competition.