Strategic resilience: From pilot to architect

By Prof. Uditha Liyanage

The world is facing turbulence, unprecedented since the early 1970s. A global slowdown, rising energy prices, food shortages, corporate scandals, collapsing stock prices, and conflicts in many parts of the world, have collided like never before, to create a highly volatile, macro-economic cocktail.

The world is becoming turbulent, faster than organisations are becoming resilient. The evidence looms large. Spiralling costs and pressures on margins have contributed to the disturbing pattern of declining corporate profits. The cost of capital and the increasing difficulty of managing customer credit, resulting in default and low margins are only some of the fallout of the emerging crisis.

The ability and readiness of organisations and industries, to deal with turbulence in a strategic way, rather than give into the natural instinct to hunker down and ride out the storm, ought to be the way forward.

Three forms

Turbulence in the context of which an industry or the firm is located is typically characterised by, “a state or condition of being violently disturbed, restless, or confused”. Resilience, which is the antidote to turbulence is typically characterised by, “an act or power of springing back to the former shape or position”.

It is observed that disturbance can take three forms such as macro-economic shocks and disturbances, industry–specific shocks and disturbance and firm-specific internal shocks and disturbances.

The dictionary definitions of 'turbulence' and 'resilience' are reflections of the Rebound Cycle. Positive action that is equated with resilience is taken to redress the imbalance and manifest disequilibria. It is a reactive mode, rather than a proactive one.

Resilience Mode I begins with a quick assessment of the disturbance. It is quick because the impulse of the actor is to adjust. Clearly, the assessment here is not a studied one, for which, one does not have the luxury of time. The severity of the disturbance and its manifest impact, propels one to act, indeed to adjust, to mitigating the impact and to regain control and normalcy.

It could be argued that the rebound cycle or resilience Mode I is typified by an airplane pilot in turbulent situations. Having quickly assessed, “what’s going on”, pilots are trained to adjust to potentially damaging situations by adjusting the configuration of their aircraft and their priorities.

Managing through turbulence needs reverting to the fundamentals, to ensure the aircraft can withstand the blows and manoeuvre to clearer skies.

Control

Having adjusted to the disturbance in the skies, the pilot’s attention is sharply focused on one thing. That is to maintain positive control. Other concerns are set aside firmly and the pilot concentrates on maintaining control. In any circumstance of disruption, severity, disorientation, or sensory overload, all pilots will likely recall the three words drilled into them by their first instructors, and reinforced throughout their training; first things first and that is, fly the airplane. (Fischer, 2004)

Having gained firm control, the pilot adapts to charter an alternative course to the intended destination. In sum, the inherent principles of managing turbulence in flight are that of assessing the disturbance, making adjustments to maintain structural integrity to withstand the blows, and then attend to restoring and maintaining positive control and positional awareness, followed by chartering an alternative course to the destination, which is to adapt to a new course of action.

Managers who deal with turbulent environments and adopt the first mode of resilience, will not behave differently to the manner in which the airplane pilot acts to deal with turbulence.

For instance, when markets shrink in an unexpected and unprecedented fashion, many managers will 'react to adjust', rather than 'study and adjust' which may be desirable as a course of action, but one which does not seem tenable as an immediate measure of control.

They will then attempt to gain a sense of control and normalcy, keeping 'survival' as their super-ordinate intent. A new course

of action which typically entails a scaling down of activities or down-sizing of structures will follow.

Resilience

Mode II is located in a paradigm that is markedly different to that of Mode I. Unlike in the first mode, turbulence is anticipated before its full blown impact is unleashed on the industry or the firm. Discerning patterns of potential turbulence is followed by positive pro-action that helps the organisation to strategically move away, well ahead of the onslaught of the storm.

This resilience in Mode II is characterised by the Cycle of Renewal (4P’s) which, in fact is antithetical to the Cycle of Rebound (4A’s). Here, the manager would predict impending turbulence and its severity. Then, importantly, (s)he would redesign the business model (i.e. pre-design) which is ill-equipped to deal with the impending turbulence.

The preparation of the ground situation or developing organisational readiness to adopt the new model is the next step of the cycle. Programs are developed and delivered, based on the new business model.

The Renewal Cycle or Resilience Mode II is likened to the actions of an architect in dealing with a situation of impending turbulence. An architect who predicts seismic disturbance in an area, based on an evidence-based decision making process, will move away from locations of impending disaster or in the alternative, redesign a new structure that will withstand the disturbance.

The preparation, attitudinal (in so far as decision makers are concerned) and physical (where resource allocation and mobilisation are concerned) will follow. Thereafter, the development and delivery of a program of action to get the new and revamped structure in place, will begin in earnest.

To follow the Renewal Cycle, the organisation must clearly come to grips with 'what could be', without denying the possible future. According to the former chief technical adviser at AT and T, Greg Blonder, “In the early 1990s, AT and T management argued internally that the steady upward curve of internet use would somehow collapse. The idea that it might actually overshadow the traditional telephone service was simply unthinkable. But the trend could not be stopped – or even slowed – by wishful thinking and clever marketing. One by one, the props that held up the long-distance business collapsed.”

For AT and T, as for many other companies, the future was less unknowable than it was unthinkable, less inscrutable than unpalatable.

Denial puts the work of renewal on hold, and with each passing month, the cost goes up. To be resilient, an organisation must dramatically reduce the time it takes to go from “that can’t be true” to “we must face the world as it is.”

Clearly, strategic resilience (Mode II and renewal cycle) is not about responding to a one-time crisis. It is not about rebounding from a setback. Rather, it is about continuously anticipating and redesigning to encounter deep secular trends that can permanently impair the earning power of a core business. It is about having the capacity to change before the case for change becomes desperately obvious. (Hamel and Valikanyas, 2003)

Zero trauma

The quest for resilience cannot start with an inventory of best practices - today’s best practices. They are manifestly inadequate.

Instead, it must begin with an aspiration: Zero trauma. The goal is strategic, one that is forever morphing, forever conforming itself to emerging opportunities and incipient trends.

The goal is an organisation that is constantly making its future rather than defending its past. The goal, is a company where revolutionary change happens in lightning-quick, evolutionary steps - with no calamitous surprises, no convulsive reorganisation, no colossal write-offs, and no indiscriminate across-the-board layoffs. In a truly resilient organisation, there is plenty of excitement, but there is zero trauma. (Hamel and Valikanyas, 2003)

Gap

The resilience gap is the gulf between contextual turbulence and organisational responsiveness or resilience. Typically, organisations are slow to respond to turbulence by adopting resilience Model II or by following the 4P’s of the Renewal Cycle. This is largely due to the inability of the manager to put away that which is past, and the critical challenges that (s)he has to encounter in being resilient.

Sloughing off

After long years of relative calm and predictability, every enterprise - business or non-business public service institution - is likely to be loaded down with yesterday’s promises. These include the products or services that no longer contribute; the acquisitions or ventures that looked so enticing when started, but now, five years later, are only still hopes.

The intelligent ideas that failed to turn into performance, the products and services, the need for which has disappeared with social or economic change and the products and services that have made themselves obsolete by attaining their objectives. A ship that spends long periods at sea needs to be cleansed of its barnacles or their drag will deprive it of speed and maneuverability.

An enterprise that has sailed in calm waters for a long time similarly needs to cleanse itself of the products, services, ventures that only absorb resources; the products, services, ventures that have become 'yesterday'.

Any enterprise needs such a systematic abandonment policy at all times, but especially in times of turbulence. Every product, every service - external and internal - every process, every activity needs to be put on trial every few years, with the question: “If we weren’t in this already, would we go into it knowing what we now know?”

And if the answer is “No”. One will not say: “Let’s make another study,” but “How can we get out”, or at least, “How can we stop putting additional resources in?”.

The time to ask these questions and to act upon the answers is not when the institution is in trouble, but while it is successful. For then, it is most likely to have its resources allocated to the past, to the things that did produce, to the goals that did challenge, to the needs that were unfulfilled. (Drucker, 1993)

The reluctance to adopt a new business model in the face of turbulence is caused by typical factors that organisations must recognise.

It usually takes a performance crisis to prompt renewal of that which is old and established.

Rather than go from success to success, most companies go from success to failure and then, after a long, hard climb, back to success. Resilience (Mode II) refers to a capacity for continuous reconstruction. It needs innovation with respect to those organisational values, processes and behaviour that systematically favour perpetuation over-innovation.

Any organisation that hopes to achieve resilience (Mode II) must address four challenges. (Hamel and Valikanyas, 2003)

Cognitive challenge: A company must become entirely free of denial, nostalgia, and arrogance. It must be deeply conscious of what’s changing and perpetually willing to consider how those changes are likely to affect its success.

Strategic challenge: Resilience needs alternatives and awareness – the ability to create a plethora of new options as compelling alternatives to dying strategies.

Political challenge: An organisation must divert its resources from yesterday’s products and programs to tomorrow’s. This doesn’t mean funding flights of fancy, it means building an ability to support a broad portfolio of breakout experiments with the necessary capital and talent.

Ideological challenge: A few organisations question the doctrine of optimisation. But optimising a business model that is slowly becoming irrelevant can’t secure a company’s future. If renewal is to become continuous and opportunity-driven, rather than episodic and crisis-driven, companies will need to embrace a creed that extends beyond operational excellence and flawless execution.

Rebound cycle

The typical impulsive reactions to turbulence have to be recognised to avoid them. These reactions at best may be managed through the Rebound Cycle or by carefully adopting the resilience Mode I. Indeed, the Rebound Cycle becomes tenable, only if the organisation, inter alia is mindful of the following caveats.

Denominator management: In tough times, the natural tendency is to cut costs. The conditioned knee jerk reaction, as it were, is to slash expenses with regard to those items of expenditure that do not seem to be immediately impacted by such reductions.

More importantly, such attempts at denominator management with no immediate and apparent effect on the numerator or revenue of the organisation, can boost the bottom line or at least help maintain it in the short-run. This may lull the organisation into a sense of complacency and further cuts may follow. The sudden and precipitous decline of revenue and profits are then encountered which jolts the organisation into action.

The challenge is to clearly identify performance drivers and their resultant performance outcomes. A lack of understanding about the nexus between the two often results in ad hoc management decisions to reduce expenses on performance drivers, which bring forth dire consequences.

For instance, during uncertain times, should organisations invest further in key marketing actions when customers are not spending, or should they wait for a change in market conditions?

A historical analysis of landmark studies conducted to answer this loaded question, points to the interesting finding that mere denominator management in so far as marketing is concerned, may not pay off all the time. (Jason, 2002)

* The 1947 Buchen Advertising study tracked sales after the 1949, ’54, ’58 and ’61 recessions. The findings revealed that sales lagged after the recession for those companies that cut back during the recession.

* The 1970 and 1979 studies by ABP and Meldrum and Fewsmith substantiated the Buchen study. It reported that higher sales and net income were achieved by those companies that maintained their advertising (versus those that cut it altogether).

* Finally, Kerns explained that the 1982 Cahners – PIMS (Profit Impact Marketing Strategies) study revealed the same results.

Industrial anorexia

When the psychosomatic disorder, nervosa anorexia strikes people, they become lean and fit before they become emasculated and eventually perish. The obsession to became lean at the expense of organisational well-being, characterised by its inability to attract and retain customers is symptomatic of organisations that suffer from industrial anorexia.

The 'thriving organisation' is one which has high 'customer effectiveness' in terms of its ability to get, keep and grow customers on the one hand, and high operational efficiency in terms of doing so at a cost and time which is less than that of its rivals in the industry.

The 'surviving organisation' is one which is high in 'customer effectiveness', but low in 'operational efficiency'. The organisation that 'dies slowly', it has been argued is the one which attempts to cut back with respect to the denominator, (increasing efficiency) with little or no concern for the numerator or 'customer effectiveness'.

Product tinkering

Attempts to shave off product or service attributes in a way that is believed to go unnoticed by the customer is clearly myopic. This arbitrary action is foolhardy, because customers, more often than not and indeed, sooner than later, recognise the 'value erosion' and punish the company in appropriate ways.

Arbitrary 'product tinkering' can disturb and dislocate the central value proposition of the company. Without a thorough value analysis, attempts at value-adjustments are risky. Value analysis would entail a break down of the product or service into its deliverable value components and comparing the value they add to the total proposition vis-a-vis the cost of designing and producing the individual components.

The legitimate question is: What do we 'reduce' or 'eliminate', if they add little or no value. The question: What needs to be introduced anew and enhanced should also be raised as a part of the process of value analysis, followed by value-engineering that must be undertaken especially in times of turbulence.

A comparison of the relative importance of each value component and attribute vis-a-vis the percent of total cost to design and develop it, constitutes a basis for value-engineering. Competitor analysis is also a vital aspect of value analysis.

Turbulence

Those value attributes that need to be enhanced or raised, those that need to be de-emphasised or reduced and the value attributes that should be created and introduced anew, and those that have to be removed or eliminated, along with those that should be retained as they are (or held), are the five specific actions of value engineering that become particularly germane in turbulent times.

Letting a turbulent environment get the better of you is fraught with the prospect of extinction. Responding to turbulence with resilience is the way forward. The Darwinian approach of adaptation as reflected in the rebound cycle is natural. Its intent is to get through the crisis and emerge unscathed as far as possible.

A more Singarian approach, characterised by an internal locus of control as reflected in renewal cycle, is to continually renew oneself to stay ahead of unfolding patterns and the trajectory of turbulence.

A proactive and innovative stance that needs to be adopted in facing up to turbulent environments needs a cognitive make up of the manager that enables him to be free of the past and the successes that belong to it.

It also needs a strategic mindset which enables the manager to reconceptualise that which worked and develop a business model that belongs to the unfolding future.

The resilient manager is not preoccupied with achieving increasing levels of operational efficiency at the expense of attaining a strategic level of customer effectiveness, which enables him to attract, retain and grow his customer base.

The new business model developed by the resilient manager helps him to reach these primary goals efficiently, notwithstanding a setting that is characterised by increasing turbulence.