McKinsey · Ideas & Institutions
TIER 4 Sat, 19 Apr 2025 16:38:00 +0000
Prepare for second-order effects
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| | | April 2025
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| | Today’s organizations face no shortage of risks. But companies that think their problems are limited to the most immediate threats should think again. Indeed, risk managers often fail to anticipate how acute, obvious threats can multiply across the entire value chain and wreak even greater havoc.
Consider the global financial crisis of 2008, whose lessons, underscored in this 2009 McKinsey Quarterly classic, can be instructive for global companies today. In the wake of the 2008 crisis, Canada’s currency appreciated 30 percent in value versus the US dollar. Manufacturers in Canada knew the currency change would affect their cost competitiveness in US markets. But what they didn’t plan for was the flurry of cross-border shopping from Canadian consumers, who started purchasing big-ticket items in the United States, which forced Canadian companies to lower their prices at home. The combined effects of profit compression in both Canada and the United States did far more damage than these companies had initially anticipated.
| | Read our latest thinking on this classic topic
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Anticipating and preparing for risks—especially hidden ones—is only part of implementing a successful risk assessment plan. To effectively embed future-ready resilience into the organization, risk leaders can follow the habits of successful chief risk officers, including relentlessly pursuing a guiding principle for risk and resilience and investing in the next generation of risk leaders. Read our latest insights on the topic from Ida Kristensen, Marc Chiapolino, María del Mar Martínez, and Ritesh Jain.
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| | —Edited by Drew Holzfeind, editor, Chicago
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