operational resilience and restructuring: a bridge too close?
by Thibaud de Barmon Operational resilience is often described by regulators and practitioners as the ability to deliver financial services in both good and bad times. For regulators, bad times are temporary disruptions such as natural events, civil unrests, terrorist attacks, cyber attacks or system outages. In these bad times, delivery is achieved through business continuity management, incident management, information security management, or third-party management. This prevailing consensus excludes disruptions leading to sudden but lasting changes of operational environments such as those incurred by political shifts or international crisis. It also excludes businesscentric capabilities such as change management or restructuring. In light of the most recent developments, and not least of the ongoing pandemic, are such exclusions still for purpose? If not, how should firms adapt both the types of threats and the types of capabilities underpinning their operational resilience?
the new resilience threats The commonly accepted threats to operational resilience (natural events, civil unrests, terrorist attacks, cyber attacks or system outages) lead to disruptions that are abrupt and most likely temporary. Resilience disruptions do not durably change firms’ operational environments; instead, they are followed by a return to business-as-usual. This is supported by the prevailing assumption that structural changes in operational environments are always gradual. In the past few decades, this assumption has held true. Lasting changes in operational environments are typically driven by changes in competition, technology, legislation, and/or geopolitical conditions and in the recent past, these four elements have either remained stable or evolved slowly. Even the 2008 financial crisis didn’t fundamentally change the competitive landscape. As for the regulatory and legislative ones, even the most radical reforms such as Dodd-Frank, UK Ring Fencing, and the clearing of derivatives have been developed and implemented over a period of 5-10 years. Is such relative stability here to stay? Three recent developments indicate that it is not. First, the pandemic has shown that even natural events can lead to sudden and lasting structural changes in firms’ operational environments.
Intelligent Risk - February 2021
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