The term “business resilience” is all the rage right now and no wonder. The way Covid-19 has wrecked the world, with horrific effects on the socio-economic plane, exposed the “unpreparedness” of most companies across the world. The past year has seen significant attrition, job losses, international trade wars, a plunge in oil prices, a financial crisis, and most importantly, a health threat. To counter these major shocks, “business resilience” arrives as a survival imperative.
According to the leading business management consultants, businesses in every sector are battered by the coronavirus outbreak and subsequent economic crash. Keeping the current scenario in mind, resilience is clearly the business imperative. Even after the arrival of vaccines, when globalization unwinds, the turbulence will still roar with new technological risks, inequality, climate change, and more. Over the years, the dynamics of business resilience will also evolve. But, unless the companies start practicing it, reaching out to the “optimal resilience” in the long run will always remain unachievable.
Page Contents
- But first, what’s “business resilience”?
- Unjustified Fixation on Efficiency
- Resilience does not Fight Market Volatility
- Resilience is not just a Balance Sheet
- Past Resilience Has Nothing to Do with the Future
- Final Thoughts
But First, What’s “Business Resilience”?
Well, it’s a practice that helps companies hedge against the odds, both long term, and short term. But, most of the time, entrepreneurs worry about too short-term and modest goals. Secondly, improving resilience does not have to come at the expense of shareholders.
If you don’t get ahead of the challenge of becoming more resilient, expanding government regulations or restrictions―such as forgoing dividends or stock buybacks in return for bailouts―may further limit your options, believes leading business management consultants globally.
So, what exactly is becoming a hindrance to full-fledged business resilience?
Unjustified Fixation on Efficiency
Aren’t we all fixated on efficiency, without even knowing what efficiency means in the true sense of the term? The past few years have been quite stable in terms of economic growth, some economies even experienced double GDP growth. But, what fueled the exponential profit during the past years becomes quite volatile as soon as the pandemic outbreaks.
Top business management consultants across the globe believe that increasing structural resistance is the first step to a resilient business. Basically, the purpose is to build up a policy that aids in sustainable value creation. So instead of relying on only one source of revenue, a company should rely on multiple sources.
Let’s find out how Samsung hedged against the odds when its position was jeopardized in the smartphone market, following its new Note 7 product caught fire under certain conditions. The brand incurred a $5 billion loss in just a few hours. But, thanks to the steady growth in their semiconductor and display panel businesses. Over time, Samsung managed its market portfolio by identifying the root cause of battery failure and further delivering a new flagship model with a series of innovative features to win back customers.
Resilience Does Not Fight Market Volatility
Business resilience can hedge a company against the odds it may face, but clearly, it cannot fight market volatility. We cannot just ignore that the pandemic upshots a series of unprepared shocks for the economy, and even now the situation is not ripe enough to predict the events. The economy is still stagnant and unrealistically volatile. Hence, resilience can’t be a trait to fight against this volatility. Instead, companies can focus on identifying predictable fluctuations and start working on them to minimize volatility.
Business management consultants across the globe believe that by focusing on earnings certainty, management teams and boards can more accurately work on identifying real risks that they want to hedge against. Bankruptcy? Default? Rating downgrade? Hostile takeover? Activist investor? Remember, failure to define business risk is a sin and that’s one thing that can hinder your resilience in the long run.
Resilience is Not Just a Balance Sheet
Resilience cannot always be measured in terms of a balance sheet. Revenue is certainly a determinant, but the fragility of a business does not solely depend on this. Ignoring other potential sources of fragility can certainly bring you into hot waters. In fact, resilience spans five dimensions:
Strategic: It includes absolute and relative scale, demand elasticity, revenue and profit diversification, and cross-correlations;
Financial: It’s about leverage and liquidity, but also insurance coverage and hedges;
Operational: Involves including operating leverage, supplier concentration and redundancy;
Technological: Focus on technology access, workload mobility, and cyber security; and
Organizational: That covers crisis preparedness, organizational agility, and personal resilience.
A holistic view of resilience acknowledges all these factors. Any of these external convulsions can wreck your business from within. Accounting for all these dimensions allows executives to make smarter choices about where to invest scarce resources in resilience.
Nissan’s experience illustrates the point. Through the 2000s, Nissan took a number of steps to reduce risk. These included developing detailed crisis playbooks with clear disaster-recovery plans and regular simulation training; a more geographically dispersed production base and diversified supply chain than its peers; and proactive steps with suppliers to ensure that they had plans for switching production during a crisis. These preparations paid off handsomely during the 2011 earthquake in Japan, with the automaker returning to production after about two months.
Past Resilience Has Nothing to Do with the Future
Once the Covid crisis is over, most companies will be well prepared to deal with another pandemic. Like banks have already prepared for the mortgage crisis. But, what about something different from what the world has faced? It could be a natural disaster or something else that the world does not have in recent memory.
Building true resilience demands asking what could happen that would truly test the business, rather than anchoring on recent experience. Many companies that have shown resilience in responding to strategic and financial shocks have suffered from major technology outages―sometimes due to the failure of just one router or server―and cyber-attacks. As the trends to digitalize and automate operations accelerate, technology will pose greater risks that some firms haven’t yet prepared for.
Final Thoughts
For bigger firms with annual revenue over $1billion, multiple factors come into play while talking about business resilience. Debt levels, revenue diversification, or choices around asset ownership are some of the most important factors while defining your resilience. However, keep in mind that business resilience is ever-evolving and you need to start working on it as early as possible.
