Global Trend

Resilience Is the Decades Main Business Strategy Theme

Most business executives have traditionally viewed business models as static constructs that work on a simple input-output method. And yet today, because of a variety of forces, from globalization to the information revolution, companies are being forced to face the fact that nothing is static anymore. All systems, including business models and strategies, are dynamic and ever-evolving.

This new business environment saps momentum and demands strategic resilience ? the ability of organizations to dynamically reinvent business models and strategies amid changing circumstances. This means continuously reading the environment and adapting to it.

There are many facts of corporate life that work against resilience, including arrogance, denial, and a stagnant corporate culture, according to an article in the Harvard Business Review. As a result, four main challenges stand in the way of becoming resilient:

First, there is the cognitive challenge. Senior management must remain alert to change in the environment and must constantly analyze how those changes are going to influence the business model.

Second, there is the strategic challenge. Management must see strategy as a continuously evolving set of options that offer reasonable alternatives to the way business is done today.

Third, there is the political challenge. Managers must not let projects continue simply because they’re already under way. They must rapidly reallocate resources to support new projects that offer the best response to the changing environment.

Fourth, there is the ideological challenge. The long-standing mantra of “continuous process improvement” must be questioned when the environment changes. Innovation must replace perpetuation if a company is to be truly resilient.

Changes in the environment can take many shapes. For example, when a labor dispute closed seaports on the West Coast in September 2002, disrupted supply chains inflicted a billion-dollar loss on manufacturing companies every day the disruption continued.

This example highlights two important facts: First, a more resilient industry might have fared better. And second, in today’s networked world, disruptions at one small point in the value chain can have ramifications in many others.

Like it or not, every company has to become resilient or be at the mercy of the changing world. In response to this, a team at the Booz Allen Hamilton management consulting firm developed the following eight questions designed to help businesspeople assess how resilient their organization is:

? Can you identify what drives earnings across your entire enterprise, including the extended and networked elements that lie outside the corporate boundaries?

? Can you identify the interdependent relationships among those elements and how their interactions produce unique risks to your earnings?

? What precautions have you taken to safeguard the drivers of your earnings in the event that those risks materialize?

? Do you understand how well those precautions are aligned with corporate strategy as well as the compromises demanded by them?

? Have you analyzed how much you spend on making the business more resilient?

? What tools and programs do you have in place for monitoring your environment? Is there enough intelligence, and is it gathered from the most useful sources?

? Is that intelligence processed and used in the best way to allow you to adapt to changes in the environment that could affect your earnings?

? Who is ultimately held responsible for resilience? How are decisions about it made? What metrics are in place to measure progress toward a more resilient enterprise?

Those companies that don’t have clear, effective answers to these questions clearly need to focus on building resilience. And today, senior managers at companies around the world are increasingly stepping up to address the challenge of building resilience.

Once it’s clear that the company needs to improve its resilience, four steps can lead to major progress. This approach was conceived by Liisa Valikangas, the managing director of the Woodside Institute, a research organization that develops new management practices to improve corporate resilience.

Step 1 is to reconsider how the company makes decisions. Instead of giving control for R&D decisions to the R&D department, and leaving decisions about marketing to the marketing department, companies should take advantage of cross-functional decision making. By involving more perspectives in each decision, the company can increase its resilience.

Step 2 is to build a stronger portfolio of strategic options. Valikangas recommends that companies allocate 30 percent of their capital expenditures to experiment with new strategies. This can lead to entirely new business models, such as shifting from making products to selling services.

Step 3 is to evaluate the way the company allocates resources. Instead of only funding the businesses that made money in the past, invest in new opportunities that may generate profits in the future.

Step 4 is to institute better corporate governance. This will help steer senior executives toward resilient strategies that will enable the company to survive and succeed despite potential upheavals in the market.

Given the trend toward resilience, we offer the following four forecasts for your consideration:

First, in the next five years, companies will consider it more and more a standard practice to migrate from risk management to resilience management. This means they will have to define the “extended enterprise,” not just what the company does from within. That could include everything from the government’s role to the weather, and from suppliers to unionized workers. Then, once that extended enterprise is defined, an objective analysis of the risks it represents must be developed to assess the interdependent nature of the whole network.

Second, as a result of these analyses, corporate strategies and operating models will be adapted to the requirements of the resiliency initiative. Decisions at the CEO and board level will have to be made about what compromises resilience entails. A cost-benefit analysis will have to show the value of the initiative, while protecting strategic objectives.

Third, corporate managers will have to learn to live in an increasingly complex world of higher risk. In order for decision makers to respond to the networked risks of the modern world, they will have to face uncertainty squarely, with an organizational structure that oversees and integrates business intelligence and risk monitoring for the entire breadth of the extended enterprise.

Fourth, senior managers will increasingly engage in “war gaming” exercises, just as the military does, to map out resilient responses to various possible scenarios ? including natural disasters, political upheavals, and even normal supply chain disruptions. These realistic exercises will prepare executives to accept reality, think on their feet, and respond swiftly to the complex failures that can adversely impact their earnings.

References List :
1. HARVARD BUSINESS REVIEW, September 2003, “The Quest for Resilience,” by Gary Hamel and Liisa Valikangas. ⓒ Copyright 2003 by the President and Fellows of Harvard College. All rights reserved.
2. STRATEGY + BUSINESS, Summer 2004, “Four Steps to Corporate Resilience,” by Liisa Valikangas. ⓒ Copyright 2004 by Booz Allen Hamilton Inc. All rights reserved.