We’ve become painfully aware of the fragility of supply chains, health care, and other vital structures amid the Covid-19 crisis.

The intention to rebuild their companies more resiliently was declared by many leaders, but not many know how to do so.

Few business schools teach resilience, and financial performance management dominates the managerial toolkit of today. As a result, very few businesses can plan, calculate, and manage resilience directly.

Why Resilience Matters

companies, board meetings

In altered circumstances, we can usefully describe resilience as the ability of a business to withstand stress, recover essential functionality, and survive.

Resilience is particularly important today because it is becoming more complex and volatile in the business world. This is the result of many enduring forces stressing and stretching business processes, from rapid technological evolution to greater global economic interconnectedness to broader issues such as increasing inequality, biodiversity extinction, and climate change.

There is no better example than the coronavirus crisis of device tension. The risk of cross-species diseases has been increased by humans influencing the natural environment. The rapid initial outbreak of the illness was encouraged by dense urban populations. Its global spread was encouraged by foreign travel. Global extended supply chains have broken down. Economic activity has been greatly disrupted, exacerbating inequality and social tensions.

The imminent global pandemic was predicted by SARS, MERS, and Ebola, and there is every reason to believe that we will see more in the future. Besides, the spread of a computer virus and economic turmoil that may result from climate change or social conflicts are also conducive to the same circumstances.

There are some major drawbacks to conventional management methods that make assessing and achieving resilience difficult:

  1. To optimize shareholder value from dividends and stock appreciation, companies were primarily planned. Very few businesses even aim to calculate durability beyond simply revealing unique material hazards.
  2. Often, companies and shareholders concentrate on optimizing short-term returns. Resilience, on the other hand, requires a multi-time scale perspective: forgoing a certain amount of productivity or success today for the sake of future more sustained performance.
  3. Companies have concentrated primarily on the creation and execution of stable strategies that perform well when causal relationships are simple, consistent, and unchanging. Resilience deals with and has essential ramifications for what is uncertain, changeable, unpredictable, and improbable.
  4. Each business is viewed as an economic island in the current paradigm of corporate capitalism, to be optimized individually. While this simplifies leadership and transparency, the degree of economic and social interdependence between the various stakeholders is masked. In comparison, resilience is a property of processes: the resilience of an individual organization means nothing if it disrupts its supply base, customer base, or the social systems on which it relies.

Therefore, managing resilience needs more than just grafting new concepts or instruments onto today’s techniques. This involves a radically different mental business model, one that incorporates ambiguity, confusion, interdependence, thinking about processes, and a multi-time perspective.

Also Read, What does it take to build and maintain a Hotel?

companies, companies meeting, board meetings

Of course, some form of risk management is already undertaken by many businesses, but mainly to recognize and mitigate exposure to real, defined risks. Resilience must also cope with unidentified threats, and it must take into account the adaptations and transitions that a business has to make to absorb and even convert environmental stress into an advantage.

Through the following six concepts of long-lasting structures, businesses may organize their organizations and decision processes for resilience:

  • Redundancy, but at the cost of short-term performance, protects networks against unwanted shocks. It can be generated by duplicating elements (such as having several factories producing the same product) or by having numerous elements achieving the same goal (functional redundancy).
  • The variety of responses to new stress helps to ensure that processes do not fail catastrophically, although at the cost of standardization efficiencies. In industry, this involves not only hiring individuals of diverse experiences and cognitive profiles but also creating an atmosphere that encourages various ways of thinking and doing things.
  • Modularity enables individual components to fail without the failure of the entire structure, even though the usefulness of a tightly integrated organizational design is ignored. Since a modular organization with well-defined interfaces can be split into smaller chunks, it is, therefore, more understandable and can be re-wired more easily during a crisis.
  • The capacity to develop by trial and error is adaptability. In conjunction with an iterative selection process, it needs a certain degree of variation or diversity, obtained through natural or planned experimentation, to scale up the ideas that work best. Processes and systems are built for versatility and learning rather than continuity and minimal variation in adaptive organizations.

board meetings, companies

  • Prudence means working under the precautionary principle that if anything can happen plausibly, it will inevitably happen. This calls for the creation of contingency plans and stress tests that can be imagined and planned for through scenario planning, war games, early warning signals monitoring, device vulnerabilities analysis, and other techniques for plausible risks with severe consequences.
  • Embeddedness is the convergence of the priorities and procedures of a company with those of larger structures. As businesses are embedded in supply chains, market networks, economies, communities, and natural ecosystems, it is crucial for long-term success. Articulating a goal-the way a company seeks to fulfil significant social needs-is a successful way to ensure that the company is not opposed to society and encourages opposition, restraint, and punishment.