A Guide to Building a More Resilient Business

Amid epidemic, business leaders have become painfully aware of the fragility of supply chains, health care, and other critical systems. Many leaders wish to rebuild business back resiliently but do not know how to do so. 

Resilience can be defined as a company's capacity to absorb stress, recover critical functionality, and thrive in altered circumstances. It becomes very important today as the business environment is becoming more dynamic and unpredictable. this is due to several factors like technological evolution, rising inequality, species depletion, and climate change. 

The current epidemic further reinforces this thinking. The dense population facilitated the rapid spread of the disease air travel helped spread globally. As a result supply chains have broken down, social tensions have been exacerbated. This is not an isolated incident. previously we had the SARS, MERS, and Ebola epidemics and we are likely to see more such disruptions in the future. 

The challenge of measuring and managing resilience

Traditional approaches have several limitations that make it difficult to measure resilience.

• Companies have been designed to maximize value and very ew companies even attempt to measure anything beyond specific material risks.
• Companies often focus on short-term returns, whereas resilience requires a long term perspective. 
• Companies have focused on creating stable plans which work well when relationships are clear and predictable. Resilience deals with the unknown, changeable, and unpredictable. 
• In the current setup, each company is treated as an individual entity and it masks the interdependence between different stakeholders. resilience is a property of systems, a company's resilience is of little use if the supply chain, customer base, the social system it is dependent upon are disrupted.

Managing for resilience requires a fundamentally different model that embraces complexity, interdependence, complexity, system thinking, and thinking long term. Resilience must deal with undefined risks and it must transform a company to absorb the stress and even take advantage of it.

Building resilient systems

• Redundancy build buffers against unexpected shocks, at the cost of short term inefficiency. It can be done by duplicating elements or having multiple elements that achieve the same purpose.
• Diversity of responses to stress helps to ensure systems do not fail, at the expense of efficiencies through standardization. Employ people from different backgrounds, cognitive profiles, and foster multiple ways of thinking and doing things.
• Modularity allows individual elements to fail without affecting the whole system. Modular systems can be divided into smaller chunks with well-defined interfaces and can be rewired more rapidly during a crisis.
• Adaptability is the ability to evolve by trial and error. It requires a certain level of variability and the processes are designed for flexibility rather than stability and minimal variance.
• Prudence involves operating on the precautionary principle that if something can happen, it will. It calls for developing a contingency plan and stress tests for plausible risks that can be envisioned and prepared through scenario planning, war games, etc.
• Embeddedness is the alignment of a company's goals and activities with those of broader systems. It is critical to long-term success as companies are part of supply chains, business, and the natural ecosystem. 

Beyond these structural options, companies can deploy migration strategies, such as shifting its business portfolio mix across products, geographies, to maximize business opportunities and minimize risks. Most companies tend to allot resources relatively across different businesses and units, but extreme circumstances need moe decisive re-allocation.

Then there are strategies of environment shaping. A pioneer in an industry can shape the environment. By imagining new possibilities and realizing them through persuasion and shaping they can reduce their exposure to unfavorable shocks.

Finally, companies can increase their resilience through collaboration. Business ecosystems can increase their resilience through collective access to new capabilities, increased flexibility, and reduced fixed cost of entry into businesses where the assets can now be shared. 

Benefits of resilience

When faced with unanticipated stress, a company that employs resilience principles has multiple advantages:

First, there is anticipation benefit, the ability to recognize threats faster. it may not be manifested in performance immediately but it can drive advantages in subsequent phases. 

Next is the impact benefit, representing the ability to resist or withstand the initial shock.

Then there is recovery speed benefit, representing the ability to rebound from the initial shock quickly by adjusting the required elements and implementing them swiftly and effectively.

Finally, there is an eventual outcome benefit, representing increased fitness for the new post-shock environment.

Cumulatively, these four gaps produce a significant difference in value. 

Become a more resilient company

Revisit business models to build greater systemic resilience starting with

• Seek advantage in adversity - Don't just mitigate risk, aim to create an advantage by effectively adjusting to new realities.
• Look forward - In the short run, a crisis may seem tactical and operational but over time, new needs create new opportunities. 
• Take a collaborative, systems overview - Resilience concerns how business components change under stress. t requires systems thinking and systemic solutions, which depends on collaboration among employees, customers.
• Measure beyond performance - Measuring flexibility, adaptation, and other components of resilience are critical to building a sustainable business. 
• Price diversity - Resilience depends on being able to generate alternative ways of reacting to situations. resilient businesses prize diversity and appreciate the value of variation and divergence.
• Change as a default - Resilience is less about occasional adjustments and moe about building organizations predicated on constant change and experimentation. 

With the mainstream business education focussed on managing performance, resilience represents an opportunity to mitigate risk and an opportunity for competitive advantage for enterprises who choose to focus on it. Today, transient high performance is commonplace, it is sustained performance by resilient companies that set them apart.

A Guide to Building a More Resilient Business

by Martin Reeves and Kevin Whitaker HBR July 02, 2020