The Resilient Economy: Integrating Competitiveness and Security

Globalization, technological complexity, interdependence, terrorism, climate and energy volatility, and pandemic potential are increasing the level of risk that societies and organizations now face. Risks also are increasingly interrelated; disruptions in one area can cascade in multiple directions. The ability to manage emerging risks, anticipate the interactions between different types of risk, and bounce back from disruption will be a competitive differentiator for companies and countries alike in the 21st century. What Policymakers Should Know The national objective is not just homeland protection, but economic resilience: the ability to mitigate and recover quickly from disruption. Businesses must root the case for investment in resilience strategies to manage a spectrum of risks, not just catastrophic ones. Making a business case for investment in defenses against low-probability events (even those with high impact) is difficult. However, making a business case for investments that assure business continuity and shareholder value is not a heavy lift. There are an infinite number of disruption scenarios, but only a finite number of outcomes. Leading organizations do not manage specific scenarios, rather they create the agility and flexibility to cope with turbulent situations. The investments and contingency plans these leading companies make to manage a spectrum of risk create a capability to respond to high-impact disasters as well. Government regulations tend to stovepipe different types of risk, which impedes companies abilities to manage risk in an integrated way. Policies to strengthen risk management capabilities would serve both security and competitiveness goals. What CEOs and Boards Should Know Operational risks are growing rapidly and outpacing many companies abilities to manage them. Corporate leadership has historically viewed operational risk management as a back office control function. But managing operational risks increasingly affects real-time financial performance. The 835 companies that announced a supply chain disruption between 1989 and 2000 experienced 33 percent to 40 percent lower stock returns than their industry peers. Twenty-five percent of companies that experienced an IT outage of two to six days went bankrupt immediately. Ninety-three percent of companies that lost their data center for 10 days or more filed for bankruptcy within a year.