Organizational Resilience to Disruption Risks: Developing Metrics and Testing Effectiveness of Operational Strategies

Abstract

This study draws from the system resilience literature to propose three different metrics for evaluating the resilience performance of organizations against disruptions: the initial loss due to the disruption, the maximum loss, and the total loss over time. In order to show the usefulness of the developed metrics in practice, we deploy these metrics to study the effectiveness of two resilience strategies: maintaining operational slack and broadening operational scope, by empirically analyzing the performance of manufacturing firms that experienced a disruption during the period from 2005 to the end of 2014. The results show that maintaining certain aspects of operational slack and broadening business scope and geographic scope can affect these different metrics in different ways. Our results help decisionmakers in risk management to gain a better understanding of the conditions under which the recommended strategies actually improve organizations' resilience, as well as the ways in which they may do so.

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