McKinsey Quarterly

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

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A confluence of crises and disruptions has darkened European skies. The energy crisis is already dire and could get worse. The war in Ukraine continues, an unabated humanitarian tragedy. The cost of life’s essentials has gone through the roof—prices in some countries have risen eightfold. Business signs are weakening. In July and August, purchasing managers’ indexes indicated contraction for the first time since early 2021. China, a key supplier and customer, is wrestling with its own economic problems. The effects of climate change are pronounced across the continent, with drought and extreme heat curtailing hydropower and even putting industrial production at risk. The energy crisis threatens to derail the net-zero transition. Semiconductor shortages, technological shortfalls, and labor shortages remain. The latest McKinsey scenarios, undertaken in partnership with Oxford Economics, suggest that European GDP will most likely contract overall in 2023 (Exhibit 1).

Economic scenarios plot potential impact of disruptions on the eurozone GDP growth path 2022–25.

How will Europe’s business leaders respond? This is a defining moment for a generation of executives who have never been tested in quite this way. Yes, today’s leaders have faced down the global financial crisis, the euro crisis, Brexit, and the COVID-19 pandemic. All were challenging in their way; each crisis called for ingenuity, grit, and determination. Many business leaders met these challenges exceptionally well. But today they face a unique confluence of crises that is of another magnitude. The playbooks of the past will be only moderately helpful.

Businesses need new approaches to build the resilience required in these decisive times, through a perceptive response to current challenges, foresight to anticipate the next round of disruptions, and capability for adaptation that will set the business on a foundation for successful growth.

A defining leadership moment

No crisis is ever the same as the previous one; neither can it be managed in the same way. Likewise, no industry is affected the same way in different crises (Exhibit 2). With the exception of pharma, no sector showed positive returns throughout the pandemic and the more recent period of geopolitical turmoil. Moreover, in the current confluence of crises the vast majority of companies have produced negative returns.

Executives have reacted to each disruption separately but with all-consuming responses; they’re fighting fires. But before they can recover from one, the next crisis is at the door. This approach is not sustainable in a context of continuous disruptions. Leaders are now discussing resilience as the essential condition. How can organizations arrive at a resilient stance, alert to what is over the horizon and ready to withstand shocks and accelerate into the next reality?

Some think of resilience as the ability to recover quickly, but it is more than that. Resilience is the ability to deal with adversity and shocks and to continuously adapt and accelerate for growth. Consequently, truly resilient organizations bounce back better than before and go on to thrive in a hostile environment. They play defense well, and they also go on offense.

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:

  1. 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 organization by embedding a crisis-resistant DNA over time.
  2. Prepare for the recession, but at the same time, prepare to exit it. Recessions may be shallow and brief; companies can accelerate through the downturn. 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.
  3. 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.
  4. Develop a resilience agenda that addresses burning short-term issues (for example, financial flows, supply chain disruptions) as well as longer-term challenges (for example, geopolitical shifts or the speed of organizational adaptations). Ensure that resilience is measured, so progress can be tracked and return on resilience investments can be maximized.
  5. Focus on resilient growth by reviewing your competitive position and finding strategic opportunities in the current environment (such as acquisitions or new business-building ideas).

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 reconfiguring the supplier network, the company reduced the higher-risk spending by more than 40 percent.
  • Decarbonizing core assets. A global mining company with dozens of mines worldwide sought to embed ESG along its value chain into the core business. The company defined targets and adopted strategic initiatives to create a pathway to net-zero emissions across the enterprise. Detailed decarbonization plans were developed for each site, with steps to reduce greenhouse-gas emissions by 30 percent by 2030. Once implemented, the plan will lead to large reductions in both operating and capital expenditures.
  • Derisking manufacturing analytics. A global agriculture products leader wanted to deploy advanced analytics within its supply chain and manufacturing operations. Aware of the potential data and analytics risks this entailed, the company made derisking and safeguarding critical data and analytics through data governance and model risk management an integral part of the effort. The move built enterprise-wide confidence in analytics resilience and allowed the company to capture the full potential of the effort.
  • Next-generation scenario planning. A leading automotive company created two hypothetical scenarios (a technological disruption and market breakdown), then assessed the potential impact on the business and the resilience levers that would best mitigate that impact. The analysis suggested that up to 60 percent of sales losses could be mitigated. This led to a decision to diversify geographically and reduce the risk of dependence on single sites, set up some anticipatory information mechanisms, and reduce the fixed-costs intensity in some production locations.
  • Anticipating the future. A utility with annual costs of $5 billion was facing rising prices from suppliers, in particular for basic materials. To address cost pressures strategically, the utility created an “inflation nerve center,” using tech-enabled analytics. The center identified spending priorities, anticipated and quantified inflationary risks, created live dashboards showing inflationary impact, and established a proactive process and set of levers to manage inflationary pressures. This helped the company understand the magnitude of inflationary risks across its cost base using an analytics-driven approach.
  • Turning a crisis into a growth opportunity. A global pharma company addressed the recent disruptions in healthcare supply chains, services, and access to healthcare professionals. The company designed a home-delivery system to help patients with rare diseases continue receiving treatment in the safety of their own homes. They further created a partnership with a start-up company to provide patients with physical therapy programs through virtual channels. These innovations allocate and deploy resources more effectively; they also inspired the company to undertake a groupwide agile and lean organizational transformation.

Why resilience matters: What still works and what doesn’t

Companies cannot effectively respond to the current economic crisis in precisely the same way as they did in earlier crises. But some basic lessons can be drawn from past experience. McKinsey research on the financial crisis of 2007–08 shows that resilient companies not only perform better than their peers through a downturn and recovery—they also accelerate into the new reality, leaving peers further behind (Exhibit 3).

Resilient companies play defense and offense simultaneously.

The research indicated that companies that win through resilience do three things well in a disrupted environment:

  1. They make faster and harder moves in productivity, preserving growth capacity.
  2. They create more operational and financial optionality in their balance sheets, adjusting leverage or cleaning legacies.
  3. They act swiftly on divestments in the downturn phase of disruption and on acquisitions at the inflection point of recovery.

Not only do leading companies do these three things well, they also do them at the most decisive time for their future well-being. They react in the downturn when it matters most and are therefore able to open an early lead in comparison with peers, which can be widened significantly during the recovery and growth period. Recovery and growth periods following downturns are often longer than the actual downturn, so leading companies are well positioned to outperform the others in the long run. A turn in the cycle is a moment that requires true leadership to embark on either offense or defense. But the best-performing companies don’t wait for that turn to finally reveal itself—or not: they act with intentionality and courage in the face of profound uncertainty about the macroeconomy.

The next frontier of resilience

Faced with overlapping disruptions and a complex European situation, executives need to decide where to concentrate their forces now, over the next six months, and beyond. The key questions to answer are about response, foresight, and adaptation:

  1. Response: Do I have the right capabilities and am I acting on all resilience levers to respond adequately to the current situation?
  2. Foresight: Can I anticipate what is going to happen next?
  3. Adaptation: Am I able to adapt fast to a new situation?

To answer these questions, leaders must take a step back and apply a comprehensive resilience lens. Forward-looking companies have begun to structure their resilience agenda across the three activities—response, foresight, and adaptation. They are further differentiating their response, targeting actions in the six dimensions of the enterprise. Whether moving to defend or advance, companies may pull from a large range of resilience levers that are tailored to their specific profile, industry, and starting position. With fast adaptation, companies can meet their longer-term goals of sustainable and inclusive growth for customers, employees, investors, and the larger community.

Let’s take a closer look at response, foresight, and adaptation.


First things first. With severe challenges pressing, companies may have to address immediate gaps in their resilience profiles. They may face financial challenges such as liquidity constraints, or they may have to resolve disruptions in their supply chain, such as missing key inputs for their products. Before jumping into action mode, companies may take a step back and consider an initial resilience assessment to gain the needed perspectives on the six dimensions of institutional resilience (Exhibit 4).

The key levers of a resilient response lie across six enterprise dimensions.

How prepared is the company to withstand repeated shocks and disruptions? What short-term growth opportunities are within reach, and what will it take to capture them? What changes will enable the company to make that crucial pivot to accelerate into new realities? In domain after domain, and capability by capability, the assessment will discover where investment in resilience is needed and identify the actions that will close the gaps, defend value, and advance to new growth.

As illustrated in the exhibit, each of the six resilience dimensions will have its own specific set of levers that allow a company to play offense or defense. For example, in digital resilience, a robust digital, analytics and cyber risk framework may on the defense help to safeguard the company against digital failures or cyberattacks while on the offense it may pay dividends in at-scale digital transformation by ensuring robust and scalable business application of data and analytics.

It is essential that companies understand the levers available to them across the dimensions, the offensive or defensive capabilities, and the time horizon for creating impact. The specific nature of resilience levers and their relative importance is also a function of the industry a company is operating in.

Foresight: Moving beyond targeted responses

As companies weather the storms of today, they must also anticipate and prepare for larger and possibly stranger events to come. To anticipate and respond to crises and opportunities, scenario analysis has proven to be the most effective tool, as long as it is supported by the required data and state-of-the-art analytics. Scenario narratives should be accordingly developed, stress-tested in analytics-based simulations, and connected to early-warning systems based on key indicators.

Crucial variables must be factored into the scenarios, including, for example, the evolution of semiconductor prices, energy costs, and the availability of critical raw materials. Management decisions have to be based on more than purely qualitative discussions. To understand the impact of hypothesized scenario inputs on financial outcomes (such as EBITDA, for example), an analytics-based approach can produce a reasonably accurate data-driven fact base in a timely manner.

That is the approach taken by financial institutions in response to the stringent regulation (such as stress-testing requirements) triggered by the financial crisis of the early 2000s. Companies can take the approach as a starting point, widening the scope of the scenarios, thinking outside the box on possible inputs, and increasing the depth of analytics engines across a large number of industries.

It is crucial to embed such an approach—data and analytics–based scenario and stress-testing—into the ongoing strategic-planning process and management dialogue. This process must also be revisited regularly and assumptions and scenarios adjusted to the changing environment. This will ensure that appropriate mitigation and management actions will be derived on a regular basis. A one-time analysis will simply not suffice.

Adaptation: Not just surviving but thriving

Foresight may help a company anticipate potential future outcomes through simulation and early-warning indicators. Only so much can be predicted and prepared for in advance, however. This is where adaptation, the third key activity of resilience, comes in. The resilient organization is flexible, able not only to react but capable also of adapting to new situations, especially the unforeseen ones.

Adaptation to the new environment requires deep investment in resilience. Adaptive companies are able to capture growth opportunities under adverse conditions. To confront the toughest times, leaders must possess a strong, resilient mindset, acting as role models, communicating an entrepreneurial spirit, and encouraging free thinking across an agile organization. Leaders send the right messages, providing strategic clarity and acting based on early-warning and foresight analytics. They are creating institutional resilience in the following five areas:

  • Speed of response. The organizational structure and operating model is set up in an agile and flexible way, to facilitate collaboration across teams, with a bias toward action over bureaucracy. Decision-making and escalation processes are fast, roles are clear, and decisions are effectively executed once made.
  • “Owners” mindset. A strong sense of ownership pervades the organization. Curiosity and humility prevail; learning and adaptation are continual. Rather than avoiding challenges, people strive to innovate and explore new opportunities. The company pushes its own boundaries and questions the status quo and long-held beliefs. Individuals are empowered to think and develop in an entrepreneurial spirit, reskilling and upskilling as the business environment changes. Knowledge-sharing across the organization is encouraged, through cross-functional collaboration, mentorship, and open communication. Empowerment and decentralization are fostered, with only the most strategic decisions going to the senior leadership team.
  • Workforce planning and skill set of the future. To execute new, adaptive strategies, the company will need to do some resource planning. Find the best people with the right skill sets and give them the resources they need to cope with present and future needs. Resilience strength resides in an organization’s people. Hear what they have to say and value their experience. Let them adapt to new realities, so that talent can be strategically reallocated as needs change. The positive feedback this creates will attract more top talent to the company.
  • Capital redeployment. Resilient organizations can make investment decisions and reallocate capital quickly, based on changing scenarios. These decisions can be taken with a forward-looking perspective on expected scenarios; the decisions are then effectively communicated across the organization.
  • Crisis response. Clear and effective responses need to be activated in crises. Resilient companies have a well defined and understood response tool kit; roles and responsibility are set. An effective, timely response is ensured by a fast-mobilizing organization. Leadership accountability is clearly defined and communicated, ensuring full alignment on delegation of authority and escalation mechanisms in the event of disruptions. Leaders ensure that risks are assessed at all stages of the value chain, and they instill resilience throughout business operations.

From adaptation to growth

A company’s own resilience assessment will help identify areas of strong resilience, which typically will serve as the catalyst for a growth initiative. Resilience has to be measured, so that progress can be tracked to ensure return on resilience investments. For example, companies may act from a position of strong financial resilience with strong balance sheet and liquidity positions to create room for inorganic growth moves, particularly when target valuations are low in their industry. Or in sustainability, they may leverage an above-peer ESG position to double down on new growth opportunities. This could involve deeper transition to greener asset and product portfolios, which protect them against customer attrition as standards continue to tighten. The result for such a company will be still greater differentiation—and better position to gain market share and seek price premiums. In another situation, a strong, resilient digital backbone can help elevate companies’ ambitions to adopt an aggressive digital agenda to raise their operating model and ways of working to new, more competitive levels.

The resilient company, beyond operating under “business as usual” scenarios, shows its mettle in crises and disruptions, using foresight to shift gears fast, swerve from danger, and then accelerate into new opportunity through adaptation. The enabling mechanisms are its agile organization design and decision-making structure—with clearly defined roles and responsibilities. Everyone should know what to do when storms come. Whether this moment leads to a turn in the business cycle or to a continuation of recent inflationary trends, it is a time when companies can make the kind of pivot through their resilience that strengthens their growth trajectory for the next several years.

European business leaders face a deeply unsettled economy, with potentially existential risks for those companies that enter the crisis with weaknesses in their balance sheet and business model. We’ve found that most senior executives are highly capable of playing defense in volatile and uncertain environments. Protection is a must, but opportunities for growth are also emerging. The exceptional leader finds the path to the next frontier of resilience, answering essential questions of where to shore up defenses and where to place bets on the future. The resilience framework we’ve outlined can help leaders see and understand gaps and identify growth opportunities even in the heaviest of seas.

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