Weekly Business Insights from Top Ten Business Magazines | Week 303 | Strategy & Business Model | 1

Extractive summaries and key takeaways from the articles curated from TOP TEN BUSINESS MAGAZINES to promote informed business decision-making | Week 303 | June 30 – July 6, 2023.

Risk Intelligence and the Resilient Company

By Ananya Sheth and Joseph V. Sinfield | MIT Sloan Management Review Magazine | Summer 2023 Issue

Listen to the Extractive Summary of the Article

Building the resilience of large, complex enterprises is critical in today’s uncertain and interconnected world. At a time when a container ship grounded in the Suez Canal can bottle up 12% of the world’s trade, or a virus can disrupt the global flow of commodities, components, and talent, a corporation’s ability to quickly adapt in the face of unfolding events is essential to its survival and prosperity.

Business resilience is a dynamic property that is retrospectively measured by the stability and longevity of corporate value across changing contexts. In real time, it manifests in an enterprise’s timely adaptation to both immediate and gradual changes in the business environment.

The authors’ work, which employs a complex adaptive systems view of businesses, shows that resilience derives from three fundamental adaptive capacities: sensing and monitoring, to recognize emerging changes in the business environment; business model portfolio development, to build and test capabilities across operating contexts; and fundamental capability development, to drive growth with longevity and avoid corporate stall.   Moreover, each of these capacities hinges on the development of a capability for risk intelligence.

The authors define risk intelligence as the honed ability to rigorously interpret risks and the consequences or opportunities they pose for a company.  It allows leaders to see through environmental complexity and systematically identify, categorize, and interpret risks. This enables them to look beyond known risk factors and intentionally explore yet-to-be-known risks, thereby embracing rather than avoiding uncertainty.

Importantly, risk intelligence brings recognition that individual risks or the forms in which they manifest matter far less than the often-shared consequences they have on a company’s value exchange system — that is, the manner in which it manages, identifies, creates, conveys, delivers, captures, protects, and sustains value.  And finally, it provides leaders with a network view of risks that enables more effective allocation of risk mitigation resources by illuminating not just the direct consequences of risks but the manner in which they could cascade across the company’s value exchange system.

Next, leaders should characterize and group risk events by their scope of impact, the permanence of the changes they induce, and the frequency of event occurrence. Leaders can then interpret the linkages between each group of risk events and the components of the company’s value exchange system. Leaders should then seek to convert risks with higher levels of impact uncertainty to lower levels by discovering unknowns through data, simulation modeling, and logical analyses.

3 key takeaways from the article

1. Building the resilience of large, complex enterprises is critical in today’s uncertain and interconnected world.  Business resilience is a dynamic property that is retrospectively measured by the stability and longevity of corporate value across changing contexts. In real time, it manifests in an enterprise’s timely adaptation to both immediate and gradual changes in the business environment.
2. Resilience derives from three fundamental adaptive capacities: sensing and monitoring,  business model portfolio development, and fundamental capability development.  Moreover, each of these capacities hinges on the development of a capability for risk intelligence.
3. Leaders should characterize and group risk events by their scope of impact, the permanence of the changes they induce, and the frequency of event occurrence.   Leaders should then seek to convert risks with higher levels of impact uncertainty to lower levels by discovering unknowns through data, simulation modeling, and logical analyses.

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Topics:  Strategy, Decision-making, Risk, Uncertainty