• Longer and more damaging chain reaction of supplier disruption in sectors including financial services and manufacturing.
• It’s more than just bouncing back: businesses must start adapting early rather than just responding to shocks
• Poor horizon scanning will severely damage unprepared businesses
• Flexible culture is essential if companies are to counter shocks in markets which are suffering high levels of volatility
• Investors may take a dim view of companies ruthlessly exploiting supply chains

Businesses could face an investor backlash if they are not resilient to the looming storms brewing in the current financial climate, says a new PwC paper.

Prospering in an era of uncertainty – the case for resilience encourages organisations to accept that they must take a radical new stance and start to adapt early rather than scrambling to action stations once the alarm bells have sounded.

Traditional risk management focuses on removing uncertainty, which is almost impossible in the current treacherous financial climate. Resilience accepts that shocks will occur and gives as much prominence to an organisation’s power of response as to its power of control.

In the current conditions, resilience will be especially relevant for high-risk sectors such as manufacturing and financial services, where the global footprint of organisations could see supply chain disruptions extend across their entire operations.

Martin Caddick, PwC business continuity leader, said:

“In this environment of heightened turbulence, faster change and greater connectivity, new forms of risk – global, systemic, and emergent – are contagious rather than containable.

“Embracing the concept of resilience allows boards and executives to bring the benefits of risk thinking to exploit opportunities and also manage risks. More than ever, acknowledging uncertainties is an essential part of creating sustainable value in any business.”

Mark Dawson, PwC governance, risk and compliance partner, said:

“Highly leveraged balance sheets and the ruthless exploitation of supply chains may increase short term profits but this kind of behaviour reduces buffers to a point where they cannot withstand a shock.

“Boards need to regularly review their operational performance and short term efficiency goals to understand the trade-off between resilience and efficiency. In the boom years where most growth constraints were absent, some balance sheets became so over-leveraged that resilience buffers were completely absent, but the cost was deferred until a subsequent shock destroyed all shareholder value.”

The paper, produced by PwC in association with the University of Oxford was published following a series of workshops with FTSE100 companies. It explores two elements of resilience: buffers and ‘adaptive capacity’ which provides the catalyst for companies to exploit opportunities rapidly. As predictability wanes, the need for buffers and adaptive capacity increases. But to exploit adaptive capacity, organisations need to have qualitative measures in place to assess performance across supply chain boundaries and organisational divisions and seek evidence of learning from near misses.

PwC warned that investors could take a dim view of companies that failed to prepare adequately.

Mark Dawson, PwC governance, risk and compliance partner said:

“Investors have always paid a premium over net book value for companies whose brands create longstanding relationships with their customers. Firms with a resilient reputation have a stronger buffer to withstand a crisis; those that don’t take this into account are limiting their potential value.”

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