How to Build a Resilient Company

The Covid crisis has exposed widespread weaknesses in companies, countries, and society. The inability to deal with a major pandemic, something which has been widely predicted for many years demonstrates the short-term thinking that pervades much of our thinking and presents a major global risk.

Many firms in the hospitality industry, transportation and consumer firms have been dealt a harsh blow by the pandemic. Many firms have been put out of business or placed on government life support. Destined to become “zombie” companies propped up by tax payers until they become viable again.

Governments particularly those in Europe and North America have experienced heavy death tolls, large parts of their economy closed down and growth go into sharp reverse. Many Asian countries such as Vietnam, Taiwan and New Zealand were far more agile and have avoided the worst affects of the virus. The relatively recent experience of SARS helped build awareness and capacity in handling a pandemic.

Looming Crisis

The pandemic continues to rage across the world and although it may subside soon, many observers believe the world is becoming more unstable, chaotic and dangerous. The looming threat of climate change, the dangers of an economy increasingly based on new technology and the prospect of a multipolar world all point to an unpredictable future.

Faced by this new world the question for businesses and leaders is how can we prepare for this unpredictable future? The answer lies in building a resilient organisation. Resilience is usually defined as the ability to recover key infrastructure, absorb stress and thrive in adversity.

Many companies are focused on short term shareholder value whereas resiliency requires long term thinking. For example, nurturing and developing loyalty in staff over the long term may be expensive, but loyal staff are invaluable in a crisis.

Most organisations have well thought out strategic plans which are designed for reasonably predictable circumstances and when relationships are clear. Crisis can change all this and resilience means dealing with change and unpredictability.

Many companies take their customers, the countries they are based in for granted. Crisis can change all this and throw old assumptions out the window. Resilience needs to take into account unidentified risks. Firms are usually good at identifying and reducing exposure known risks. Resilience must consider “black swans” or unknown unknowns.

When crisis hits companies they must adapt and look for advantages in the new environment. For example, when Covid hit the restaurant industry LWC quickly shifted to supplying households instead. Many other firms have thrown their business model out the window and have embraced the pandemic world as best they can.

How Can Companies Develop Resilience

Redundancy builds buffers against shocks, at first sight this can cost money and appear inefficient. For example, having additional staff cover key positions or duplication in production. This appears wasteful until there are widespread absences. When staff particularly those who cannot be replicated easily start falling sick or leaving, then those “inefficiencies” make business sense.

Diversity of response: This involves developing an environment which encourages multiple ways of thinking and responding to crisis. Again this can appear inefficient and chaotic, with different views and no shared vision. But the result can be that better decisions can be made because more experience and viewpoints come into play.

Modularity: this means allowing parts of an organisation to fail without causing total collapse. The trade off is that the organisation as a whole may lack cohesion. Unless an organisation is already modular then shifting to this model is particularly difficult.

Precautionary principle or prudence: if something can go wrong it will go wrong. The response is widespread contingency planning and stress testing of relevant risks. Critical parts of the business should be tested through desktop scenario exercises and stress tests. Other risks should be identified by horizon scanning and early warning systems.

Adaptability is evolving through trial and error. This requires that processes and structures in resilient organisations are designed for flexibility and the willingness to learn through mistakes. This comes at the price of stability.  

This can be taken a step further by actively seeking to take advantage in adversity. Instead of just looking to mitigate risk the firm should seek to improve its position by adjusting to new realities. Using a crisis to its advantage, either by using it transform the company internally, or to take a position in a new world.

This could mean acting to take advantage of new markets. As the global Covid pandemic subsides much of life will return to normal, but much will change permanently. More widespread permanent remote working and therefore smaller office footprints, more home deliveries, fewer flights and many other facets of life and business will shift. The skill is identifying these changes and adapting to the new environment quickly or face extinction.

Embedding these principles while in alignment with the company’s goals and activities is critical. Having a deeper purpose than short term profit can help a company articulate resilience, particularly when resilience is at odds with short termism.

Embeddedness is the alignment of a company’s goals and activities with those of broader systems. It is critical to long-term success because companies are embedded in supply chains, business ecosystems, economies, societies, and natural ecosystems. Articulating a purpose — the way in which a corporation aims to serve important societal needs is a good way to ensure that the company does not find itself in opposition to society and inviting resistance, or reputational risk and sanctions.

Diversification or migration is a more obvious strategy: this means developing new markets, geographies, or business models. This is commonly done by companies to ensure they are not over dependent on any one area or product.

However, migration during a crisis is a much more difficult proposition. Deploying resources in the business requires business intelligence and foresight to spot opportunities and risks in advance. The company also needs the flexibility to reallocate resources at speed.

What are the Benefits of Resilience?

By recognising the idea and planning there is a better chance of spotting threats earlier. These plans will be useful when the company is put under stress during a crisis.

Resilience will allow the company to rebound when the crisis subsides. Having the agility and the ability to learn an adapt will mean the organisation will better able to thrive in the new reality. While many retail outlets will have been hit by Covid, some will divert resources to online and delivery which will outlive the crisis.

While a crisis may appear the time to revert to stability and familiar structures. There is a famous saying “Never let a good crisis go to waste”. A crisis can be the harbinger of change, transformation to a digital organization has been achieved by mass remote working rather than a strategic plan.

A resilient agile organisation will press this advantage by enjoying the efficiencies allowed by remote working, reducing their physical footprint to save money and allow hybrid working at home and the office to get the best out of their staff.

Resilient organisations should assume that change is the new default andallow for constant iterations and experiments. So for example making plans and policies than can be easily updated and have room to manoeuvre and avoid a major breakdown. Constant small shocks and incidents to an organisation make it fitter, less complacent provided that staff and management are alert more adaptable.