Operational Resilience: An Inside-Out and Outside-In Perspective

Operational resilience is a topic of concern for bank boards. Unfortunately, many operational resilience initiatives focus primarily on upgrading internal systems and processes to respond to potentially disruptive events. This internally focused approach can cause banks to pursue reactive, disconnected and short-term projects that are difficult to sustain and detached from overall strategy.

Recognizing this problem, a growing number of banks are refocusing their operational resilience efforts, approaching potential disruptions from an external, customer-centric perspective that seeks opportunities to create and protect value. Such an approach can enable more proactive and effective operational resilience initiatives for institutions of all sizes.

The phrase “operational resilience” typically refers to a business’s ability to overcome adverse circumstances that might cause financial loss or disrupt operations. Under this definition, topics such as disaster recovery, business continuity, cybersecurity threats, fraud and other conventional risk management issues are central to most banks’ operational resilience efforts.

Yet some of the most potentially disruptive forces banks face stem from other factors, many of which lie outside the scope of conventional risk management programs. Examples include rapidly changing technology, evolving customer expectations and unconventional competitors encroaching on banks’ traditional service models.

In this environment, an often overlooked aspect of operational resilience is relevance – a bank’s ability to remain relevant to its customers’ financial services needs and ultimately become more relevant in the future. Perhaps the conventional definition of operational resilience should be replaced with one that acknowledges the importance of resilience, such as: “The ability of a company to build confidence and trust in its capability to adapt to changing circumstances.”

This shift in understanding could have significant implications for executives. For example:

  • In addition to internal mechanisms and systems that protect the value of the organization, operational resilience must also address external factors that could affect the bank’s value.
  • Rather than focusing solely on the downside risks of changing circumstances, an effective operational resilience approach also should recognize potential upside opportunities, particularly those stemming from customers’ evolving concerns and expectations.
  • In addition to responding to identified risks, operational resilience initiatives should proactively study, anticipate and prepare for potentially disruptive events and trends.
  • To remain resilient and relevant, banks must actively seek customer input and be ready to respond quickly with new service models and products if they align with the bank’s long-term strategy.

Connecting External Forces to Broader Threads
Banks face many pressures including continued digitization, cybersecurity threats, migration from legacy information systems, nontraditional competitors, interest rate volatility and a slowing economy, to name a few. Responding to each disruptor in isolation can create a reactive, internally focused approach that produces disconnected and uncoordinated projects that have little relevance to an institution’s overall strategy.

A more proactive approach to resilience requires leadership to consider potential disruptions within the context of the broader external issues and forces that can influence a bank’s business direction. For example, rather than reacting to a slowdown in a large commercial customer’s business, it is more effective to develop a business strategy that addresses the underlying economic trends that could lead to such a disruption and provides a set of potential offerings that might better enable that customer to navigate specific challenges ahead.

Broadly speaking, most disruptive events can be considered within the context of several general trends, including:

  • Demographic shifts.
  • Regulatory trends.
  • Economic and environmental issues.
  • Competitive issues.
  • Changing technology.
  • Evolving customer needs and expectations.

By developing proactive strategies to address these broader trends, risk managers can provide a foundation for more consistent and coordinated responses to specific events. More importantly, such an approach can help management prioritize trends that are most likely to have a direct impact – either positive or negative.

Question Your Operational Resilience, Strategy Frequently
A more strategic approach to operational resilience begins with strategy itself. In today’s environment, annual strategy sessions are simply inadequate. The most successful organizations conduct quarterly or monthly strategy reviews, fine-tuning priorities to stay ahead of developments.

Risk management and operational resilience questions must figure prominently in these discussions. Management should remain customer focused, seeking to understand how their customer would experience the same risks and potential disruptions.

Management also must recognize that an effective operational resilience effort is a dynamic and iterative process that requires continuing investment in data technology to integrate information and perspectives across the organization. With a new perspective, staying resilient and relevant is possible.


John Epperson