How businesses can build resilience by design
From product development to operations management, Dow, Cisco, GE, GM, IBM, Swiss Re and Toyota offer a range of lessons for resilience lessons.
The following is an excerpt from the book "Resilient by Design: Creating Businesses that Adapt and Flourish in a Changing World."
What is resilience?
As managers grapple with the challenges of climate change and volatility in a hyper-connected, global economy, they are paying increasing attention to their company’s resilience. Sudden natural disasters and unforeseen supply chain disruptions are increasingly common in the new normal.
To cope with these challenges, businesses need a new paradigm that takes an integrated view of the systemic risks in today’s dynamic business environment.
In recent years, a growing number of multinational enterprises, including Dow Chemical, Cisco and General Motors, have launched efforts to improve the inherent resilience of their global operations. They have found that the lessons of resilience are applicable to every enterprise activity, from strategic planning to product development to operations management. They are better able to respond to disruptive forces and better able to seize business opportunities that may open up.
The term "resilience" has quickly entered the corporate lexicon, but there are as many definitions of the word as there are business functions. For example, some define strategic resilience as "the ability to dynamically reinvent business models and strategies as circumstances change." Others prefer to define resilience in operational terms as an extension of business continuity management — "the ability to recover from unexpected disruptions" such as floods, chemical spills, cyber-threats or terrorist attacks.
In the broadest sense, enterprise resilience encompasses many familiar concepts, such as agility, adaptability, robustness and continuity, but it goes beyond these tactical notions to the very heart of the enterprise structure and culture. Our definition of enterprise resilience is quite simple: "Resilience is the capacity of an enterprise to survive, adapt, and flourish in the face of turbulent change and uncertainty."
From this perspective, resilience is not just the ability to bounce back quickly and recover from a disruption. Rather, resilience is a strategic approach to embracing change that addresses both downside and upside possibilities. Resilient enterprises adapt successfully to turbulence by anticipating disruptive changes, recognizing new business opportunities, building strong relationships and designing resilient assets, products and processes.
Resilience is not a substitute for the established methods of enterprise risk management; rather, it enables companies to embrace change by expanding their portfolio of capabilities. Early adopters of resilience have demonstrated how they can augment traditional risk management practices with new competencies that help them anticipate, prepare for and recover from disruptions and, in some cases, treat disasters as an opportunity for gaining advantage by responding faster than their competitors.
Some companies, including General Electric, IBM and Swiss Re, see the emerging interest in resilience as an opportunity for new products, services and markets. For example, resilience is a core concept in IBM’s Smarter Cities business, which offers capabilities such as an Intelligent Operations Center including geographic information systems, optimization tools, workflow management and a dashboard for real-time situation monitoring.
Strategies for enterprise resilience
With the increasing pace and unpredictability of change, resilient companies have shifted from a reactive mode to the proactive design of resilience strategies. These strategies can be divided into four categories, depending on the magnitude and abruptness of changes that occur both inside and outside a company.
Steer and adjust
When the pace of change is slow and manageable, involving relatively minor fluctuations, companies can use orderly, well-defined business processes that operate precisely and efficiently. The concept of continuous improvement, based on a “plan-do-check-act” cycle, enables periodic midcourse corrections to ensure that companies learn from experience and achieve ever-higher performance goals. An example of the steer and adjust strategy is inventory management based on seasonal demand forecasting.
Sense and respond
Every business may experience unexpected disruptions that interfere with normal business operations. Disruptions can range from known risks, such as fires and chemical spills, to black swan events that are difficult to anticipate. Risk analysis and emergency response procedures help anticipate common types of disruptions and ensure business continuity. For disruptions that are rare or unpredictable, companies can supplement traditional risk management processes with the capacity to sense early warning signals and respond in a flexible manner.
Adapt and transform
Gradual changes in the business environment eventually may erode a company’s competitive advantages. By using trend forecasting and scenario planning, companies have become more proactive in identifying major paradigm shifts that could influence their strategy, such as the growth of Internet commerce and the emergence of new market segments. To adapt to such trends, many companies have turned to reengineering and change management, although internal change is often difficult and true business transformation is rare.
Survive and flourish
Increasing globalization and complexity have amplified the turbulence of the business environment, forcing companies to abandon reactive approaches and become wary of future predictions. Catastrophic disruptions are becoming more common, and it has become clear that "business as usual" is a fallacy. Disaster recovery is merely a survival strategy.
To remain successful and flourish under these challenging conditions, companies must anticipate possible futures, develop adaptive capacity and embed resilience thinking into their business processes. For example, General Motors and Toyota, among many other manufacturers, were disrupted by the Fukushima disaster in Japan and have adjusted their supply chain strategies to improve their agility and adaptability.
Ironically, the original architects of the modern business enterprise designed for stability, essentially resisting the relentless waves of change rather than moving with them. The quality movement, which sought to eliminate product and process variability, appears to be a successful strategy up to a point. Establishing precise schedules, standardizing work processes and emphasizing repeatability have resulted in greater operating efficiencies, higher yields and associated cost savings.
Today, increased variability in the business environment requires greater flexibility in business processes, implying a shift from rigid, prescriptive processes to more fluid processes that are sensitive to changing conditions.
Likewise, the "lean" movement, which sought to eliminate waste from business processes, has made production systems more susceptible to unplanned disruptions. Optimization actually can weaken resilience by removing buffers that protect against fluctuations. Instead, supply chain practitioners now advocate a middle ground — lean and agile — that balances waste elimination with the need for flexibility and backup resources.
Embracing change and embedding resilience requires not only a continued focus on internal process excellence, but also an awareness of emerging trends, including regulatory, socioeconomic and environmental changes. One highly visible example is Business for Innovative Climate and Energy Policy (BICEP), an advocacy coalition of more than 200 U.S. companies working with policy makers to pass energy and climate legislation that will enable a rapid transition to a low-carbon economy.
BICEP companies recognize that, regardless of scientific uncertainties, climate change cannot be ignored by major producers or consumers of energy. They are positioning themselves for competitive advantage in the face of anticipated changes such as carbon taxes and emission limits.
Finally, resilience is a prerequisite for sustainability. In a turbulent world, long-term sustainability will result not from movement along a smooth trajectory, but rather from continuous adaptation to changing conditions. We cannot assume that nature will be infinitely resilient, nor can we presume to foretell what cycles of change will occur in the future.
A sustainable society must be based on a dynamic world-view in which growth and transformation are inevitable. In such a world, innovation and adaptation will enable human societies — and enterprises — to flourish in harmony with the environment.