McKinsey Quarterly 2023 Number 1

This is indeed a defining leadership moment. The last remotely comparable moment was the energy crisis of the early 1970s, an event that no CEO of today experienced as a leader. Here are a few of the practices that we’ve seen leading executives use recently: • Don’t follow the old rules. Setting up a crisis task force, for example, the go-to move in past years, is a waste of time; it will be outmoded before it is up and running. Leaders need to find a more flexible and consequently durable stance, engaging the whole organi zation by embedding a crisis-resistant DNA over time. - • Prepare for the recession, but at the same time, prepare to exit it. Recessions may be shallow and brief; companies can accelerate through downturns. This is essential: resilient organizations open an early lead, however small, in comparison with peers. This lead can be significantly widened during the following recovery and growth period. The early advantage can help companies succeed in the long run. • Use scenarios rather than forecasting. Forecasting has failed to adequately capture many key events of recent decades, including slowing globalization, the COVID-19 pandemic, the supply chain disruption, and the return of inflation. Learn to plan with scenarios and triggers, regularly revisiting and adjusting them. • Develop a resilience agenda. It should address burning short-term issues (for example, financial flows and supply chain disruptions) as well as longer-term challenges (for example, geopolitical shifts and the speed of organizational adaptations). Ensure that resilience is measured, so progress can be tracked and return on resilience investments can be maximized. • Focus on resilient growth. Review your competitive position and finding strategic opportunities in the current environment (such as acquisitions and ideas for building new businesses). Exemplary moves Leading companies are already making resilience a reality, defending their franchise while also accelerating growth through the disrupted environment. Here’s what they’ve done in the recent past: • Restructuring the balance sheet. An automotive supplier wanted to achieve a particular credit rating, a target that required an increase in the amount of debt it could service under stress. Presenting the new capital structure to investors, equity analysts, and the rating agencies, the company was able to make an additional €3 billion in investable assets available to implement a five-year strategy. • Reconfiguring the supply chain. To achieve operational resilience, a global electronics manufacturer with a global production footprint (more than ten plants) and a large multitier supply base assessed the relative vulnerability of 5,000 unique supplier and plant combinations. The company identified around 100 high-risk suppliers and then discovered that 25 percent of its spending was concentrated in this segment. By recon figuring the supplier network, the company reduced the higher-risk spending by more - than 40 percent.

A defining moment: How Europe’s CEOs can build resilience to grow in today’s economic maelstrom

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