This year has been a tiring one for companies in Egypt. Interest rates went from 8.25% to 13.25%, and the pound devalued twice from EGP 16 to the dollar in January to EGP 24.5 at press time. Meanwhile, bottlenecked global supply chains and the war in Ukraine have fueled global inflation as friction increases between the United States and China over trade and Taiwan. According to the World Economic Forum’s annual Global Risks Report published in July: “We have entered an era that will increasingly be defined by risk.”
In today’s world, the nature of risks can be economic, environmental, geopolitical, societal, and technological.
“Traditionally, businesses have been confronted by one shock or one disruption at a time,” said the forum’s report. “But even in the face of … singular events, history has more often shown that business has underestimated the likelihood of such events and shown limited understanding of its own exposure.”
.That puts top management under pressure to ensure the survival and success of their companies. “It’s one thing to succeed in business when things are going well; it’s another to thrive during times of uncertainty,” agreed 15 members of the Forbes Business Council during a September webinar. “In trying circumstances, resilient organizations and teams are likely to bounce back quickly or not be affected at all.”
On the other hand, the panel stressed that inflexible organizations “struggle to meet changing needs and may never truly recover.”
Dana Moar, co-head of the People & Organizational Performance Practice at McKinsey & Company, said in an October article that “repeatedly rebounding from disruption is tough.” The keys to recovery include having “a systems mindset emphasizing agility, psychological safety, adaptable leadership and cohesive culture.”
Moving quickly and making the right resilience decisions has become increasingly urgent, vital and tricky. “If you respond too late or inappropriately, you could well get left behind or annihilated,” wrote Steve Macaulay of the U.K.’s Cranfield School of Management on the Unleash news portal in April.
Moar described resilient organizations as companies that “absorb shocks and turn them into opportunities to capture sustainable, inclusive growth.” To accomplish that, company executives, managers and teams must act quickly, but not recklessly. “When challenges emerge, leaders and teams in resilient organizations quickly assess the situation, reorient themselves, double down on what’s working and walk away from what’s not,” she said.
The World Economic Forum (WEF) breaks down resilience into operational resilience, which “captures a company’s business continuity” during shocks. Strategic resilience is the “ability to respond to changes in the economic, social and political environment [where] the business operates.”
The third type of resilience is financial, which the WEF report said involves the ability to “weather a crisis.” Social resilience prioritizes how the external environment can hurt the company.
Those four types depend on overall organizational resilience, which WEF says “refers to the ability of a company’s workforce, culture and structure to deal effectively with sudden disruptions.” It is the “foundation for the other four,” said the report.
Resilience and sustainability
While many perceive resilience and sustainability as one and the same, the WEF paper stresses they aren’t. Confusion over their differences is a “complicating factor in the challenge of enhancing resilience.” That has been particularly evident during the past few years, as “issues related to sustainability are top of the mind and have attracted wide attention within firms.”
Sustainability is a long-term exercise to comply with environmental, social and corporate governance (ESG) global standards, the U.N. Sustainable Development Goals and other measures. Companies that want to be sustainable also must align with standards set by the Sustainability Accounting Standards Board and the Task Force on Climate-Related Financial Disclosures.
The WEF paper noted “sustainability efforts often focus on efforts to reduce the impact of climate change … requiring gradual shifts in resources, operations and business strategy geared towards commitments far into the future.”
On the flip side, resilience is harder to define. There is a “lack of shared understanding of what resilience entails and how it can be measured and strengthened,” the WEF report said. “It provides fewer avenues for business to talk the talk without walking the walk.”
Additionally, the WEF said there could be “hard choices today to be prepared for shocks that may well appear tomorrow or will appear with some certainty over the next few years.” Those decisions are “often associated with cost,” said the report. Therefore they can be seen as being at odds with the optimization associated with stronger short-term performance.”
Compromise is vital when building resilience. “Acting on sustainability may require fewer tradeoffs, at least in the short term, than building robust resilience frameworks,” said the WEF.
What sustainability and resilience have in common is “scenario building” to anticipate various outcomes. Sustainability scenarios are less complicated than ones developed for resilience. The former considers the impact of climate change, which science can simulate and requires political will to implement.
Resilience scenarios need to account for “the next big shock,” which could be “geopolitical fallout, a cyberattack, a financial crisis, another pandemic, or even some or all of these.” Additionally, all resilience scenarios must be implementable at a moment’s notice.
The WEF report cites logistics bottlenecks that started with COVID-19. They were further amplified by the war in Ukraine and will likely get significantly worse if the situation between Taiwan and China worsens. Taiwan supplies 65% of the world’s semiconductors and almost 90% of “advanced” chips, said Dexter Roberts, a senior fellow at the Atlantic Council, speaking to the VOA in August.
Resilience also is trickier to implement. Its short-term imperative means managers and leaders must make quick decisions, which could be made unilaterally. Getting it wrong could significantly hurt an organization. “It does no good … to move fast on a procurement decision only to have to reverse course a month later because one … failed to get input from other functional leaders on the terms of the decision,” said Maor of McKinsey.
Companies can skip resilience to focus on sustainability, given that the latter is less disruptive. However, that may be self-defeating. “An organization cannot be sustainable without resilience,” said the WEF paper. “For a company to [fully align] with ESG factors and successfully adapt to the challenge of the future … it needs to ensure it can overcome the shocks of the next few years.”
Resilience in companies “may look different depending on the industry and geography,” said the report, so resilience frameworks are “built around principles rather than metrics or standardized measures.”
The WEF framework for building resilience focuses on resolving conflicts and challenges, communication to move from commitment to planning, agility to facilitate change and employee empowerment.
Piyush Jain, CEO of ImpactGuru, an Indian healthcare financing platform, told Forbes in September that small businesses need to “build strong personal relationships” within teams “so they feel part of the business.” Udi Dorner, COO of the online communication platform SetSchedule, stressed the need for “team-wide open communication. That includes relations leaders and managers. “With real communication, team members are resilient and adaptable.”
Forbes Business Council members on the September webinar offered the following advice: don’t be afraid to be vulnerable, focus on company culture, establish airtight operational structures and teach the skill of letting go of failed ideas.
Cordial relations among employees are also vital to resilience. FBC members suggested sharing employee success stories, promoting kindness and building intangible capital through strong personal ties with colleagues. They also stressed investing in well-being to relieve work-related stress, as well as the need to encourage employee creativity and decentralize routine tasks.”
Moar of McKinsey added that resilient organizations offer employees sufficient tools and resources to ensure a “shift toward faster, federated, data-informed decision making.” Additionally, teams must be “self-sufficient [to] feel empowered to carry out strategic plans and stay close to customers.”
Building resilience means having “adaptable leaders” who “ultimately set the tone for resilience,” noted Moar. “It’s so important for companies to identify the traits that set these leaders apart, build them into the company’s performance evaluation system and promote [their] work.”
Additionally, a company’s top management must have robust systems that can “promote adaptable leaders who don’t just react when faced with … natural disasters, a competitor’s moves or a change in team dynamics.”
Companies must build excess capacity and resources for “plug-and-play” operations to react quickly to crises. The WEF paper stressed, “businesses must recognize that resilience building requires developing and maintaining an organizational capacity to withstand future crises in whatever form they may arise.”
Resilience also requires top management to be “crystal clear about adapting their cultures and employee experiences to offer value to [the] workforce,” said Moar. That includes reassessing compensation and benefits packages to attract top talent.
Getting it right
Even with key personnel in place to drive resilience, some companies must undergo structural changes to ensure that resilience-building efforts positively impact the organization. Macaulay of Cranfield School of Management explained that “organization structures often frustrate rapid change,” mainly due to a lack of communication and alignment across various functions.
Scenario-building is critical, as correctly assessing and identifying all possible threats and their extent “helps a company form a better idea [of] what may lay ahead,” said Macaulay. It “helps spot and exploit emerging patterns.”
Companies might have to change their procedures. “Particularly for big-bet decisions, it may be useful for companies to establish a nerve center or a decision-making body,” said Moar, adding it should include senior leaders and key stakeholders.
Companies’ survival has long depended on being resilient to crises. The WEF report said the survival rate of resilient companies is “nearly twice as high as those with lower resilience.” Such firms are less dependent on financial and other resources when the time comes to bounce back from crises.
Looking ahead, that is increasingly vital as “black swan” and “100-year” events occur more frequently,” said the WEF report. “It is incumbent upon businesses to strengthen and accelerate their resilience strategies and invest in the development of resilience as a critical piece of their long-term value creation.”