Amidst the challenges brought about by the COVID-19 crisis, we have gained a keen understanding of the vulnerability of supply chains, healthcare systems, and other essential infrastructures. Numerous leaders have expressed their commitment to enhancing the resilience of their businesses. However, there is a lack of practical knowledge on how to achieve this goal. Resilience is not a common subject in business education, and the tools typically used by managers predominantly revolve around financial performance management. Consequently, only a limited number of companies possess the capability to proactively plan for, assess, and oversee resilience in their operations.
Why is Resilience Important?
Resilience in the corporate context can be aptly described as a company’s ability to effectively endure stress, swiftly regain essential functionality, and not only adapt but flourish in changed conditions. The significance of resilience has grown in today’s business landscape due to its increasing dynamism and unpredictability. This is attributable to several enduring factors that continuously challenge and extend corporate systems. These factors encompass the rapid advancement of technology, the heightened interconnectivity of the global economy, and overarching concerns like increasing inequality, biodiversity loss, and the impact of climate change.
The coronavirus crisis serves as a compelling illustration of systemic strain. Human activities impacting the natural environment have heightened the vulnerability to cross-species infections. Concentrated urban populations have expedited the disease’s swift onset. Global travel has enabled its widespread dissemination. Elongated global supply chains have experienced disruptions. Economic operations have encountered significant disturbances, leading to exacerbated disparities and heightened social tensions.
Measuring and Nurturing Resilience: An Ongoing Struggle
Traditional business management methods come with significant limitations when it comes to assessing and achieving resilience:
- Shareholder Focus: Most companies are structured to primarily enhance shareholder value through dividends and stock growth. Few go beyond disclosing significant risks when it comes to measuring resilience.
- Short-Term Orientation: Companies and shareholders often prioritize short-term gains, while resilience demands a long-term perspective. It means sacrificing some immediate efficiency for sustained future performance.
- Predictable vs. Unpredictable: Traditional management is effective in stable and predictable conditions. Resilience deals with the unknown, ever-changing, and unlikely events that can have a substantial impact.
- Isolated Company Perspective: In the current corporate model, each company is treated as a separate entity, making it easier to manage and assign accountability. However, this approach hides the intricate economic and social connections between stakeholders. Resilience is a property of systems, and an individual company’s resilience doesn’t matter much if the entire ecosystem it depends on is disrupted.
To manage for resilience, ACIInfotech manage businesses need more than just adding new tools or ideas to their existing methods. It calls for a complete shift in the way we think about business—a mindset that embraces complexity, uncertainty, interconnectedness, systems thinking, and a focus on both short and long-term perspectives.
While many companies already engage in risk management, it usually revolves around known risks. Resilience, on the other hand, goes beyond this by addressing unknown risks and considering how a company can adapt and transform to not only withstand environmental stress but also turn it into an advantage.
Creating Resilient Businesses
Businesses can fortify their organizational structures and decision-making processes for resilience by adopting six key principles for long-term sustainability:
- Redundancy: Implementing backup systems and components to safeguard against unforeseen disruptions, even if it means sacrificing short-term efficiency. This can involve duplicating production facilities or employing diverse methods to achieve the same results (functional redundancy).
- Diversity: Ensuring that a company’s response to new challenges is multifaceted, preventing catastrophic failures, even if it means deviating from standardized practices. This entails hiring individuals from various backgrounds and cognitive profiles and fostering an environment that encourages diverse approaches and thinking.
- Modularity: Allowing individual elements within the organization to fail without causing the entire system to collapse, while sacrificing the efficiency of tightly integrated structures. A modular organization can be divided into manageable units with well-defined interfaces, making it more adaptable and quickly reconfigurable during crises.
- Adaptability: Fostering the ability to evolve through trial and error, which demands a certain degree of variability or diversity achieved through natural or planned experimentation. This approach, combined with an iterative selection process, enables scaling up the most successful ideas. Adaptive organizations design their processes and structures for flexibility and learning rather than focusing on stability and minimal variance.
- Prudence: Operating under the assumption that if something is plausible, it will eventually happen. This entails developing contingency plans and conducting stress tests for potential risks with significant consequences. Companies can prepare for such risks through scenario planning, war games, early warning signal monitoring, vulnerability analysis, and other proactive techniques.
- Embeddedness: Aligning a company’s objectives and actions with broader systems and ecosystems, recognizing that businesses are an integral part of supply chains, business ecosystems, economies, societies, and natural ecosystems. Articulating a clear corporate purpose, which demonstrates how the company serves essential societal needs, is a powerful way to ensure that the company remains in harmony with society and avoids resistance, restrictions, and sanctions.
In the realm of business, companies have the option to implement migration strategies that involve reconfiguring their mix of products, distribution channels, global presence, or even their fundamental business models. The main driver for executing these strategies is capital allocation. Often, companies tend to distribute their resources quite evenly across different business areas and units. However, in exceptional situations, a more decisive reshuffling of resources is necessary. This requires a combination of sharp business acumen and the ability to adapt quickly to recognize new risks and opportunities before they are apparent to competitors.
A critical idea to grasp here is the notion of “sufficiency.” Many companies will explore and test new business models in response to changing circumstances, but only those that allocate an adequate amount of capital with the necessary swiftness will successfully shift the focal point of their business operations.
The Merits of Cultivating Resilience
When a company employs resilience principles and is confronted with unanticipated stress, it gains several advantages that play out sequentially in the following business context:
- Adaptive Capacity: The first advantage is an enhanced adaptive capacity. Resilient organizations have the ability to quickly assess the situation and adapt their strategies. This means they can respond more effectively to unforeseen challenges, such as economic downturns or unexpected market shifts.
- Risk Mitigation: Resilience principles allow companies to proactively identify and mitigate risks. By conducting thorough risk assessments and scenario planning, they can reduce the potential impact of stressors and better protect their operations, assets, and supply chains.
- Robust Supply Chain Management: Resilient companies often have more robust supply chain management practices in place. This ensures that they can maintain the flow of goods and services even during disruptions, minimizing downtime and maintaining customer satisfaction.
- Employee Well-being: Resilience principles also encompass the well-being of employees. By promoting a culture of well-being and providing support during challenging times, companies can retain skilled employees and maintain productivity even under stress.
- Financial Resilience: Resilient organizations tend to have stronger financial positions. This allows them to weather financial storms, access capital when needed, and invest in innovation or expansion opportunities when others might be struggling.
- Reputation Management: Resilience principles include reputation management strategies. Companies can leverage their established reputation to rebuild trust and credibility if it is ever compromised due to a crisis or unforeseen event.
- Innovation and Continuous Improvement: Resilient companies see stressors as opportunities for innovation and continuous improvement. They use these events as catalysts for change, which can lead to long-term competitive advantages.
- Strategic Growth: Ultimately, resilient organizations are better positioned for long-term strategic growth. By learning from stressful situations and adapting to changing market conditions, they can take advantage of new opportunities and position themselves as industry leaders.
In conclusion, the prevailing emphasis on managing performance in both business education and managerial practice has made resilience a critical factor in the success and longevity of enterprises. As Andy Warhol’s prediction of everyone having their “15 minutes of fame” becomes a reality in today’s fast-paced business landscape, transient high performance has become the norm. However, it is the sustained performance exhibited by resilient companies that truly sets them apart.
Resilience not only serves as a buffer against risks and uncertainties but also offers a unique opportunity for competitive advantage. Businesses that recognize and prioritize resilience will be better equipped to weather the storms of change, adapt to evolving circumstances, and ultimately secure their place in the competitive landscape of the future. In an environment where “15 minutes of fame” is fleeting, resilience is the enduring path to success.