| This week, how risk management can evolve to better protect businesses’ information, finances, and reputations. Plus, how Europe can achieve its goal of a climate-neutral future by 2050, and Nextdoor’s CEO on why you should always say hi to your neighbors. |
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| Risk management for risky times. After a number of large-scale hacks in recent years, business leaders hardly need to be reminded to reassess their risk-management strategies. The world is more interconnected than ever before, from supply chains to travel to the flow of information. But those ties are under threat, and most companies have not designed cybersecurity and related plans that would allow them to keep functioning smoothly if connections were abruptly cut. |
| A dynamic model. The fact is, too many institutions still hold a static, formulaic, and purely financial view of risk. It is difficult to manage the middle ground between preparing for everything, which is too costly and impossible to achieve, and deciding that existential risks are unknowable and therefore not worth preparing for. Instead, companies should put into place dynamic and flexible policies that address changing competitive landscapes. They can start by identifying the most important risks and controlling weaknesses, conducting a “premortem” for risk events, and avoiding bias in their risk grid, among other measures. |
| A strong foundation. It’s also crucial to strengthen a company’s risk and integrity culture—the mindsets and norms that determine how risks are identified and dealt with. We’ve delved into ten dimensions of risk culture as a starting point for defining and measuring desired behaviors. Our research shows that organizations that have developed strong risk-management cultures are more fleet-footed than their peers, outperforming them through economic cycles while also having more engaged employees and customers. They are also less likely to suffer from self-inflicted wounds, in the form of operational mistakes or reputational difficulties. |
| Linking to the business. For a company to tune up its risk culture, a few things are essential. For one, behavioral norms and mindsets must be connected to day-to-day business activities. In addition, leaders need to make a compelling case for change, backed by data. This means a clear-eyed assessment of how strong underlying operating models are, or creating new ones that give managers the flexibility to respond to challenges quickly. |
| Circling back to resilience. Having an objective measure of resilience helps company leaders better understand their business’s core strengths and weaknesses. Our analysis of 1,500 companies in Europe and North America used one such assessment, the Altman Z-score, to test corporate resilience. The more resilient a company, the better prepared it is to outlast the slings and arrows of outrageous fortune. |
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| OFF THE CHARTS |
| Europe’s path to a climate-neutral future |
| As greenhouse gases trap heat in the earth’s atmosphere, rising temperatures have been linked to increasing sea levels, severe heat waves, and other hazards that threaten the stability of our existence. In Europe, dramatically reducing emissions is crucial to reaching the region’s ambitious goal to reach climate neutrality by 2050. Our analysis of 600-plus business cases reveals how the five sectors that emit the most greenhouse gases could cut emissions by 55 percent over the next decade. Under the cost-optimal pathway we’ve identified, the power sector would be the fastest to decarbonize, since renewable power generation is already available in the form of wind and solar power. |
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| INTERVIEW |
| Nextdoor’s CEO on why your neighbors matter |
| People are hungry for connection, perhaps even more so during times of crisis. Sarah Friar, CEO of Nextdoor, an app that connects real-life neighbors, recently spoke with McKinsey about the explosion of user engagement at the onset of the COVID-19 pandemic, current business trends, and why you should always say hi to your neighbors. “Most people have a friend network. They have a colleague network ... but a lot of people need the people who live closest to them, particularly in times of emergency,” Friar said. |
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| THREE QUESTIONS FOR |
| Elham Al Qasim |
| Last fall, we launched our Women in STEM video series to inspire future generations of tech leaders. Elham Al Qasim, CEO of Digital14, a software company based in Abu Dhabi, shares her advice with McKinsey senior partner Rima Assi on leading through COVID-19, getting the most out of mentorship, and creating a culture where women can thrive. |
| How did COVID-19 shape your role as a CEO, and what is it teaching you on a day-to-day basis? |
| For a CEO, a crisis such as COVID-19 puts sharply into context what is most valuable within their mandate and their organization, what is critical to protect and uphold. In my context, that was talent, talent, and talent. We put people at the heart of our process. For me, it was all about how to pull that talent together and focus on what is most valuable within the organization. |
| I also believe that any crisis brings out the true colors of a leader. Under pressure, people [turn] to what they believe and what matters most to them. [For me], it was an unexpected opportunity to grow closer to how I’d like to run the organization going forward, and [it gave me the chance to send] a clear message to employees about our identity—what shapes us and what we are saying to the world about what kind of organization we are. |
| What is your advice on creating a workplace where female STEM leaders are valued and can be successful? |
| At the end of the day, what we’re after is not numbers. What we’re after is high-quality impact, where we’ve created a culture where there is space for women to thrive. Even with what we’ve seen with COVID-19 and the future of work, the workplace will never be the same. The greater role of remote work will inherently level the playing field for women to participate in a way that maybe even my generation hasn’t experienced. And the skills that are being developed, even in STEM, [are] capabilities that won’t be replaced by machine learning. |
| How do you think about mentorship? |
| My mentors are more important to me than ever. As a CEO, I have mentors that play different roles. My advice is to make sure to find a leader or a sponsor who you truly believe will invest in you, especially at the pivot points that matter most to your career. |
| You’re looking for someone who believes in your full potential. It’s not just someone who will be happy to have you on their team when you’re already at your best. What about when you have a development need that you’re struggling to overcome? Will they have the courage to come and help you and take you through those journeys as well? In any situation, you need to have that. |
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| BACKTALK |
| Have feedback or other ideas? We’d love to hear from you. |
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Copyright © 2021 | McKinsey & Company, 3 World Trade Center, 175 Greenwich Street, New York, NY 10007
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