The power of resilience
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The power of resilience

How Asian business leaders can prepare for a volatile future

A group of business executives address business issues. Teams need to have a clear strategic direction in order to succeed.
A group of business executives address business issues. Teams need to have a clear strategic direction in order to succeed.

During the pandemic, many Asian companies reinvented the way they operated. Those who embrace this moment to strengthen their resilience could position their companies to succeed.

The economic outlook has been more buoyant in much of Asia than in North America or Europe this year. Even so, the post-Covid rebound is flattening as inflation rises in many countries, and consumer and investor confidence falls. In conversations with executives from all over Asia, there is a common theme: they are uncertain about the future and worried about economic and geopolitical volatility.

Of course, they have been living with uncertainty for years. Indeed, one of the many lessons of Covid-19 is the power of resilience: companies that were resilient survived and even prospered. Those that weren't found themselves weaker.

Resilience matters in times good, bad and indifferent -- but it really shows up during times of crisis. Consider the financial crisis that began in 2008. McKinsey research based on more than 1,000 publicly traded companies in North America and Europe found that the most resilient companies shared a common factor: they moved quickly.

One of the many lessons of Covid-19 is the power of resilience: companies that were resilient survived and even prospered.

The best CEOs focused on beating the odds by making bold moves early, ahead of the downturn. During it, their results dipped less. And as conditions improved, they bounced back faster.

Will the current business cycle in Asia turn for the worse? The answer to that question will undoubtedly vary across the region; countries like India, Indonesia and Vietnam are still seeing relatively good growth while the economy has slowed in countries like South Korea.

But senior executives need to be ready. A turn in the business cycle demands leadership. It is a time when companies can strengthen their trajectory for the next several years. Here are five things Asian companies can do to become more resilient and build long-term growth:

Look in the mirror. What sets resilient companies apart is that even in the face of uncertainty, they don't dither. They act. They are able to act because they are ready to. And that starts with self-knowledge -- that is, identifying the critical risks and disruptions facing them, both now and in the next few years.

Clean up balance sheets. Before the 2008 crisis, resilient companies had already cleaned up their balance sheets, cutting their operating costs and reducing their debt by an average of $1.20 for every $1 of book capital. In contrast, their less resilient peers added more than $3 of debt.

This made a difference: resilient companies were in a much stronger position when conditions deteriorated. The same held true during the pandemic. In both cases, what mattered is that in large part, they were in a solid financial position. They had room to manoeuvre, whether that meant making acquisitions or simply riding things out.

Looking back at the financial crisis, three of the characteristics of resilient companies were programmatic merger and acquisition activity, divesting more than other companies during the downturn (2009-11) and acquiring more during the recovery (2010-11). Clean balance sheets enabled that.

Develop an inflation management playbook. The last time global inflation was this high was in the early 1980s, so even many seasoned leaders haven't been through this kind of environment. Every business would do well to develop an inflation strategy.

That could involve rethinking products and service delivery to increase efficiency; mobilising procurement to solve supply constraints and suggest ways to cut costs and, of course, pricing strategy.

Raising prices is sometimes necessary, but almost always unpleasant. That said, it may be possible to make repricing an opportunity to connect with customers. For example, a number of distribution companies are resisting raising prices across the board, in favour of imposing fees for special services, such as rushed deliveries. Tailoring inflation-driven price increases this way can ease the pain.

Promote operational flexibility. When Covid hit, the most resilient companies established small and empowered cross-functional teams. They also invested more in collaboration technologies, team building and leadership training. Companies did this out of necessity, and now they are doubling down on these practices for one simple reason: they worked.

To succeed, teams need to have a clear strategic direction and get good coaching and meaningful recognition. The essential principle is to focus on results, not inputs or processes.

Reimagine the recruitment and cultivation of talent. Executives know how difficult it is to attract and retain talent these days. If growth slows or reverses, some talent pools -- especially those for digital skills -- might open up. Resilient companies are well placed to capture talent that may become available.

To do so, companies need to look at their employee value proposition and ensure that what they are offering matches what candidates want. Money and advancement are important, but not enough. McKinsey research has found that employees increasingly value factors like growth, engagement and well-being.

A turn in the business cycle demands leadership. But the best business leaders don't wait for the change to become apparent to everyone; they act.

Gautam Kumra is chairman of McKinsey's offices in Asia

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