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Organizational Resilience

Organizational Resilience

Summarized from The Quest for Resilience by Gary Hamel and Liisa Valikangas,  Harvard Business Review

Resilience - The ability to dynamically reinvent business models and strategies as circumstances change.

Strategic Resilience – Continuously anticipating and adjusting to deep, secular trends that can permanently impair the power of a core business.

Historical factors for incumbency success

  1. Insulation from competition by regulatory protection and oligopolistic practices
  2. Stable product design
  3. First-mover advantage
  4. High capital entry barriers

Companies had to work to get better but they seldom had to get different – not at their core, not in their essence. Now continued success no longer hinges on momentum but rather, on resilience – the ability to dynamically reinvent business models and strategies as circumstances change.

Strategic resilience is not about responding to a one time crisis. It’s not about rebounding from a setback. It’s about continuously anticipating and adjusting to deep, secular trends that can permanently impair the earning power of a core business. It’s about having the capacity to change before the case for change becomes desperately obvious.

To thrive in turbulent times, companies must become as efficient at renewal as they are at producing today’s products and services. Renewal must be the natural consequence of an organization’s innate resilience.

The quest for resilience can’t start with an inventory of best practices. Today’s best practices are manifestly inadequate. Instead, it must begin with an aspiration: zero trauma. The goal is a strategy that is constantly making its future rather than defending its past. The goal is a company where revolutionary change happens in lightening-quick, evolutionary steps – with no colossal write-offs, and no indiscriminate, across-the-board layoffs. In a truly resilient organization, there is plenty of excitement, but there is no trauma.

Any organization that hopes to become resilient must address four challenges:

  1. The 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 the current success.
  2. The Strategic Challenge: Resilience requires alternatives as well as awareness – the ability to create a plethora of new options as compelling alternatives to dying strategies.
  3. The Political Challenge: An organization must be able to divert resources from yesterday’s products and programs to tomorrow’s products. This means building an ability to support a broad portfolio of breakout experiments with the necessary capital and talent.
  4. The Ideological Challenge: Optimizing 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.

Confidence in the future of a business depends on the extent to which it has mastered three essential forms of innovation.

  1. Revolution – A company needs an unconventional strategy to produce unconventional financial returns. Industry revolution is creative destruction. It is innovation with respect to industry rules.
  2. Renewal – To reinvent its industry, an incumbent must first reinvent itself. Strategic renewal is creative reconstruction. It requires innovation with respect to one’s traditional business model.
  3. Resilience – Resilience refers to a capacity for continuous reconstruction. It requires innovation with respect to those organizational values, processes, and behaviors that systematically favor perpetuation over innovation.

Why resilience matters:

  • A company that fails to adjust to its changing environment soon loses its relevance, its customers, and, ultimately, the support of its stakeholders.
  • A lack of resilience may go uncorrected for a considerable period of time, while constituents remain underserved and society’s resources are squandered.
  • An organization fails when it deserves to fail, that is, when it has proven itself to be consistently unsuccessful in meeting the expectations of its stakeholders.
  • Longevity is important because time enables complexity and to elaborate a simple idea into a robust operational model. This is a reason to imbue organizations with the capacity to dynamically adjust their strategies as they work to fulfill their long-term missions.

Our institutions constitute the legacy of our collective, purposeful selves. We hope they will do well and be well treated by our successors. This hope for the future is a reciprocal responsibility – that we be good stewards of the institutions we have inherited from our forebears. A noble past, however, does not entitle an institution to an illustrious future. Institutions deserve to endure only if they are capable of withstanding the onslaught of new institutions. The best way of honoring an institutional legacy is to extend it, and the best way to extend it is to improve the organization’s capacity for continuous renewal.

While there is no simple recipe for building a resilient organization, a decade of research on innovation and renewal suggest a few starting points.

  1. Conquering Denial - even “unexpected” shocks can often be anticipated if one is paying close attention

    1. Invest in future thinking - Make a habit of visiting the places where change happens first. Spend time thinking through the second-and third-order consequences of changes you have witnessed.

    2. Filter out the filterers – Make sure that future thinkers’ views are not censored by the custodians of convention and their access is not blocked by those who believe they are paid to protect leaders from unpleasant truths.

    3. Anticipate strategy decay – Know when a dearly beloved strategy is going from ripe to rotten.

      1. Replication – Is our strategy losing its distinctiveness?

      2. Supplantation – Is our strategy in danger of being superseded?

      3. Exhaustion – Is our strategy reaching the point of exhaustion?

      4. Evisceration – Is increasing customer power eviscerating our margins?

  2. Valuing Variety – The larger the variety of actions available to a system, the larger the variety of perturbations it is able to accommodate.

    1. Commit to broad-based, small-scale strategic experimentation instead of grand, imperial strategies.

    2. Institutionalize an experimentation process.

    3. Create a broadly shared sense of direction rather than a tightly circumscribed definition of served market or an allegiance to one particular business model.

    4. What counts is how the portfolio performs - the value of your successes when compared with your failures.

  3. Liberating Resources – Businesses must minimize their propensity to overfund legacy strategies and overcome the politics of status quo fund allocation.

    1. Find and fund the unconventional ideas and initiatives that might yield an even higher return than existing programs and processes.

    2. Provide seed funding within divisions for internal innovators whose ideas are aimed at transforming the core business in ways large and small.

    3. Acknowledge that human skills are even more critical than cash and allow project teams substantial amount of freedom in negotiating membership.

    4. Recognize that transformational projects typically offer transformation opportunities for personal and professional growth.

  4. Embracing Paradox – An accelerating pace of change demands an accelerating pace of strategic evolution.

    1. Recognize that optimization is sufficient only as long as there is no fundamental change in what is wanted by customers.

    2. Recognize when working to resize costs to accommodate a deflationary economy and unprecedented competitive pressure will not revitalize a moribund business model.

    3. Instantiate strategic variety, wide-scale experimentation, and rapid resource deployment in employee training, performance metrics, and management processes.

    4. Dedicate as much energy to laying the groundwork for perpetual renewal as to building foundations for operational efficiency.

      Any company that can make sense of its environment, generate strategic options, and realign its resources faster than its rival will enjoy a decisive advantage. This is the essence of resilience. And it will prove to be the ultimate competitive advantage in the age of turbulence – when companies are being challenged to change more profoundly, and more rapidly, than ever before.


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