Thanks to Jim de Vries (Founder/President, EIG) for his contributions
A few years ago (2017), Sheryl Sandberg, the COO of Facebook, published a book with Adam Grant called ‘OPTION B’ on the topic of building personal ‘resilience’ after the tragic loss of her husband. The book offered compelling insights for dealing with personal hardships in our own lives and how to help others in crisis.
In addition, it also shared how people can build resilience even if they have not experienced tragedy, resulting in better helping themselves and their families respond to adversity as it occurs. In a similar fashion, Business Resilience (BR) can be built proactively and enable companies to pre-empt the adversity and economic consequences of disruptions – whether they are triggered by natural disasters, technological or market changes, infrastructure disruptions, or even a pandemic like Covid-19.
This pandemic has made it abundantly clear that business resilience can be the difference between business survival and failure. Consequently, in this article we take a closer look at this topic, starting with defining business resilience, its importance to a business, and the key critical success factors of a BR plan.
The concept of business resilience has of course been around for some time.
It was initially encompassed under the term ‘business continuity’ (BC), whose focus was ‘keeping the lights on’ in the face of a natural disaster, infrastructure failure or cyber-attack. BC plans have been around for decades, captured as both an ISO (as well as ITIL 4) standard and subsequently implemented globally in both the public and private sectors.
Over time, it became clear that there is a difference between the two. Although, the terms are still used interchangeably today, the difference is that BR is your destination (your target), and BC (and the associated plans) is the roadmap for getting there. Harvard Business Review defines BR as,
a company’s capacity to absorb stress, recover critical functionality, and thrive in altered circumstances.Harvard Business Review
Being able to not just maintain operations during a major disruption but thriving or even growing your business…that is a pretty good destination to target for any business.
The importance of resilience
BR is essential to any business because without it, few businesses
are likely to be able to recover from unexpected internal disruptions or adapt fast enough to sudden external disruptions such as changes in supplier availability and market demand or even regulatory changes.
The latest technology developments in areas such as Business Intelligence, Artificial Intelligence and Machine Learning (BI/AI/ML) are driving companies to increase their capabilities to see and predict potential disruption (prescriptive analytics). Most importantly, this new technology makes it apparent that we cannot prevent every risk scenario, but we can develop timely risk mitigation and response plans. The companies that can respond faster to internal/ external risks will have the ability to methodically capture their unfair market share one-bite at a time – closing out the competition – thriving through risk adversity.Jim de Vries, Founder/President of Enhance International Group (EIG).
In addition, the BR environment is becoming more dynamic and unpredictable due to an acceleration in strained ‘leaned out’ supply chains (SCs) overlaid with external uncertainty impacts due to weather, cyber-attacks, geopolitical factors or even pandemics. Covid-19 has radically changed the supply/demand balance for products and services in every sector, while exposing points of weakness and fragility in global SCs and service networks.
A recent Boston Consulting Group (BCG) survey stated that 60% of companies expect to report at least a 10% decrease in revenue and earnings in 2020. But at the same time, there are many examples of how well and how fast many companies have adapted and transitioned with new products and services. They have achieved new levels of visibility, agility and stability, driving productivity through end-to-end supplier to customer connectivity (see Figure 1). In the past four downturns since 1985, about one in seven companies increased both its sales and profit margins, according to another 2019 BCG study. Despite the challenging circumstances, these successful companies grew their sales and margins by 14% and 7%, respectively, while more than the 44% of companies declined on both parameters. Why is it that some can grow through adversity while others suffer immensely? One of the keys is BR, so let us take a closer look…
Critical success factors
BR or sometimes called, Operational Resilience, is top of minds for business leaders right now.
Although pivots to video conferencing in lieu of in-person meetings took place rather quickly, there are other business processes in need of a comprehensive BR strategy to minimize impacts from future disruptions. Let us start with some foundational critical success factors (CSFs) needed to ensure a robust BR strategy:
• Effective & strategic leadership – It starts at the top with the CEO and the entire C-suite. As with any crisis or strategic initiative, the executive team’s involvement is critical to its success. Starting with the business strategy and a clear understanding of where the company is headed, the C-Suite needs to refresh the strategy with elements that often need to be accelerated to win in the new reality. It may require unanticipated investments to position the business with a sustainable competitive advantage ahead of (or during) a future disruption. The senior IT leader or CIO and/or chief digital officer
are key players but, they cannot own this…it must be driven and owned by the business and enabled by IT.
• Preparation/anticipation – It is not surprising that businesses impacted the most during the pandemic were the ones not adequately prepared.
In a recent Mercer survey, 51% of businesses had no BC plan to address a pandemic; 31% had a plan but it had not been implemented; and only 18%hadalreadybegunimplementing their plans. Many of the Fortune 500 companies (as well as the Tier one industrial gas players) have
an Enterprise Risk Management capability that is accountable for taking direction from the C-suite and ensuring that all businesses and functions develop BC plans for a consistent set of scenarios. Risk Response Plans are robust and tested regularly to ensure employees are familiar with their roles during/after a simulated disruption.
• Robust IT infrastructure – One measure of the ‘robustness’ of a company’s IT infrastructure during the pandemic, was how long did it take to complete the transition of staff to a ‘Work from Home (WFH)’ strategy? Did it take hours, days, weeks or even months? An example of robustness was Intel, who took one weekend to move 50,000 of its North America employees to WFH – that is robust! Obviously, IT infrastructure goes well beyond what was needed to enable a WFH strategy, but it should start with the customer and then work backwards toward the core IT work streams. Focus should be on increasing task automation, agility, and availability, and enhancing cyber/data security (see Figure 2). Cybersecurity is the top risk area for all companies for the past 10+ years according to the SANS Institute. Moreover, it is essential for every organization to assess and understand the degree to which their business operations depend on IT, because the greater the dependence, the greater the importance of IT resilience to overall business resilience.
• Supply chain (SC) optimization – The pandemic exposed vulnerabilities in regional/global supply chains across most industry sectors. Consequently, accelerating end-to-end digitization is one of the ways to bring visibility to those vulnerabilities. Start with automating/digitizing how your company engages and interacts with customers (selling/ordering/ billing/self-service), progress through production planning and operational execution leveraging proven factory and warehouse automation solutions, to customer delivery leveraging advanced analytics in sourcing, network optimization and logistics scheduling. In addition, the pandemic has caused companies to challenge long-held assumptions surrounding the proper balance of both regional and global chains, forced reassessment of make-versus-buy options for select raw/intermediate materials, and even the number of qualified vendors. Companies are also increasingly dedicating resources to focus on supply-chain risk-management to proactively address vulnerabilities. You may ask are these incremental resources worth the cost? Consider this justification from a recent McKinsey article on the topic,
Companies can now expect supply chain disruptions lasting a month or longer to occur every 3.7 years, and the most severe events take a major financial toll.McKinsey & Company
Another cost justification from Insurance News Net states that the average company encounters 11 risk events per year, costing at least $350K each; annually $3.5-4m.
• Change management–It is typically the last thing many leaders are thinking about during a crisis; however, it may be the most impactful for your organization going forward. Being adaptable to business risks that are low probability and high impact (better than your competition) is key for success. Sure, senior leaders needed to provide open communications daily (or more frequently) for their employees during the height of the pandemic. However, there was also an opportunity that many senior leaders missed which was to use this experience as an opportunity to ‘shift the culture’ opportunity to ‘shift the culture’ towards a new and more ‘digital-based’ culture. If you knew that 75% of your S, G&A resources could be operating
at the same or higher productivity under a WFH strategy, why didn’t you do it sooner?
Another CSF is Linking Strategy to Execution. BR starts with establishing the company’s strategy, which is composed of the vision/brand/ identity, intrinsic value and operating structure. If the business strategy is not intrinsically linked to execution, the company will introduce inherent risks that will cause the company to be exposed, leading to underperformance. Gaining traction to achieve business continuity and momentum can only be achieved with aligned visibility, so that addressing business resilience becomes part of the DNA of the company. The exemplars like CISCO, ZARA, Apple, Amazon, Coca-Cola, PepsiCo, Flex and Google look to take advantage of these disruptive opportunities to grow their market share, through talent optimization aligned to clear cascaded plans where the company’s value proposition is clearly understood inside and out.Jim de Vries, Founder/President of Enhance International Group (EIG).
One could spend the entire article on any one of the CSFs, and probably a few others (cyber resilience, for example). However, we have introduced some key ones to get you thinking strategically about BR. So, let us shift our dialogue to some tactical steps to get you started on your journey.
Prior to developing a BR resiliency strategy, there a few steps you may want to complete to help you get started:
- Lessons learned – If you have not done it already, I would immediately and formally execute a lesson learned exercise. It should focus on what went well, what did not go well, and the tactical/strategic changes the team implemented during the pandemic. It should cover all functions and businesses and have a separate session at the senior leadership level adding the area of how decisions were being made during the pandemic. Having participated in executive sessions during the pandemic, the participants all valued the sessions and quickly realized that they needed to execute them earlier to take advantage of market conditions. The output from this exercise will be the input for refreshing your business strategy.
- Impact analysis – It attempts to define how a disruptive event like
a pandemic may negatively impact business operations. The target is
to develop a stage by stage outline
of actions to help your business not only survive but thrive whenever a disruption occurs. The output will be a great start and input for BC planning. Many companies bring in outside consultants to facilitate or even conduct this exercise; however, it is entirely possible to do it in-house with planning and knowledge of
- Leading indicators – Revisit the
KPIs and sources of external market indicators that your senior leadership team regularly reviews, especially the leading indicators.
Once you’ve addressed the latter step (indicators), then answer the following questions:
• What KPI or information helped the senior executive team take appropriate actions at the beginning of the pandemic?
• How long did it take for the leadership to take its first action? Was it when Wuhan was locked down in January, the first case/death in your country/ province/state, or when your local government mandated the shutdown of your operations on a specific date?
• Do you have Key Risk Indicators (KRIs) such as Time-to Recover (TtR), Value-at-Risk (VAR) or a Risk Exposure Index defined?
Your honest answers to the above questions will reveal if you have a gap in your executive-level KPIs/KRIs and external market indicators, that could have both minimized pain and created revenue opportunities.
An additional next step is to Identify Internal and External Risks. It is an Outside-in High-Level Review and closely connected with the Impact analysis. Ideally, you will want to look at your organization from the inside-out (end-to-end process maps) and outside-in (top-down) perspectives. However, to get started, focus on developing a high-level top-down analysis identifying your low probability high risk events, assess (estimate) your time-to-recover, and establish mitigation tactics.
Setting risk response plans aligned to a governance structure will drive timely decisions and immediately making a bottom-line impact. Just like following your company’s safety protocols, practice makes perfect. Also, at the beginning of your deployment, do not get too hung up to identify every possible scenario and focus on response protocols to perform timely action. Time is money!Jim de Vries, Founder/President of Enhance International Group (EIG).
The Covid-19 pandemic has demonstrated the need for all organizations to be able to weather major, unforeseen disruption.
The companies able to ‘power through’ the pandemic were the ones most prepared. They were typically knowledgeable about how to build resilience through BC planning. They identified their critical processes and developed back-up plans to ensure they were on track, no matter what crisis hit. Most organizations complemented these plans with scenario planning and rehearsals, which helped develop the right mindset to carry into a crisis. Experience from previous or forecasted disruptions such as tsunamis (Japan), SARS/H1N1 pandemics (China/US), 9-11 (US) and more recently (Brexit) and several data breaches, all provided ‘real’ and potential scenarios to include and customize to the specifics of the business, industry, and locations.
As you would suspect, planning and preparation only get you so far, still
it was ultimately execution, decision- making, and a culture of empowerment that enabled these companies to minimize the impact and enabled them to thrive and grow their businesses. By implementing some of these concepts, your company will be well on your way to establishing a more resilient organization. Are you ready to take the first step?
ABOUT THE AUTHOR
Art Anderson is a Senior Business Management Executive with 20+ years of experience in the industrial and specialty chemical industries. He has specific expertise in optimizing commercial operations, implementing shared business services, leveraging process excellence tools and processes, and improving both internal and external customer focus. Previously, Art was a Director for a Fortune 300 company, and member of the executive team leading the transformation from SS to a GBS framework. Learn more at www.linkedin.com/in/artandersonjr. Art can be reached directly at firstname.lastname@example.org.