With an average lifespan of 100-300 years, live oak trees fit the definition of resilience for their ability to “absorb and adapt in a changing environment.”
One of my most treasured possessions on my property in northern Florida is a beautiful live oak tree. Although live oaks can cause allergies in some people when they begin budding new leaves in the spring, residents and visitors alike treasure these trees for their sheer majesty and the shade they provide. In times past, their hardy wood was used for a variety of purposes. The USS Constitution’s hull for example was made from the live oak tree, and after surviving repeated bombardments during the War of 1812, the ship earned the nickname “Old Ironsides.”
Question #1: What is business resiliency?
While I don’t know the exact age of the legacy oak in my yard, it has undoubtedly seen its share of hurricanes, strong thunderstorms, freezes, heat waves, droughts and more. Through all of that, it still stands tall…
This same principle of resiliency can be transferred to a company as well.
Risk thought leaders all agree that risk management is about more than avoiding failure. Even standards like COSO acknowledge that risk management should fundamentally be about helping the company succeed – to ensure goals are met. Many of these same thought leaders emphatically argue that clinging to the old “preventing failure” mindset will eventually lead the organization into obscurity.
Many of our posts discuss this from a short- and medium-term perspective – at most 5 years into the future, but…
Question #2: What about the future? Why is long-term business resiliency so important?
If the last 30 years are any clue, the next 30 years are going to look completely different than today.
Let’s go back to our beloved oak tree for a moment…
Like every living thing, this tree lives in an “ecosystem” that consists of a variety of conditions that can impact how big it gets and how long it ultimately lives. With the right combination of factors like sun, rain/water, proximity to other trees, and more, these trees can be incredibly resilient, with a few even living to be 1000 years old!
Elements within a business’ ecosystem can include:
- Social factors –consumer/customer values, society expectations, and demographic shifts.
- Technological factors –automation, mechanical advances, and research.
- Economic factors –market growth, asset prices, borrowing costs, currency valuation, and more.
- Environmental factors –emissions, energy costs, and climate change.
- Political factors –government policy, legislation, and regulatory regimes.
All the elements within an ecosystem combine to either help or hinder the company’s long-term viability.
Also, as real-world experience and surveys from NC State and elsewhere continually show, the velocity of change along with the intensity or magnitude of risks is higher than in the past. When you couple this with how interconnected companies and organizations throughout an ecosystem are, any changes or risks will have even faster effects.
Question #3: How can I make business resiliency a priority?
Between the current volatility throughout the world, be it supply chain breakdowns, advancements that will displace current technologies, and other issues, business resiliency is more important now than ever. While our current circumstances magnify this need, it is not an easy thing to do.
As the COVID-19 pandemic has shown in a more profound way, major changes in a business’ ecosystem can occur at any time in a flash. This fact is one reason why adaptability and flexibility with internal structures, customers, suppliers, and other aspects of your ecosystem that is within your control is so important.
Writing in the Institute of Risk Management’s Enterprise Risk magazine, consultant and APAC representative Gareth Byatt explains:
Even with robust plans in place to deal with disruption, if they are not aligned to a flexible structure and an ability to change when you need to deal with things in unexpected ways, they will not be truly effective when you need them.”
Many tools familiar to risk managers can be helpful in this circumstance or at least “re-tooled” so the company can better understand these long-term risks and opportunities.
In a recent interview, Hans Læssøe discusses a long-term scenario analysis tool he developed in his former role as strategic risk manager at the LEGO Group. Other tools risk managers use that can be slightly repurposed for business resiliency can include problem definition worksheets, stakeholder mapping, bow-tie analysis, decision trees, and more.
Like I mentioned earlier, while business resiliency is important, it is not exactly easy and can seem impossible, especially if other shorter term risk management processes have not been fully developed.
Question #4: What can happen if my company ignores long-term business resiliency?
It should be clearly understood that the world is changing at what seems like a rollercoaster pace. Companies who ignore this do so at their own peril.
By ignore, what I mean is this:
If the company does not take action to have the right talent, systems, suppliers, or product/service offerings in place and is not agile enough to adapt to ever-changing circumstances on short notice, it could suffer a variety of consequences similar to what I discuss in this article.
It’s hard to get into specific consequences since the challenges facing every company and industry are unique, but I can provide some general ideas.
Take our recent article on the changing nature of work as an example…
It’s clear from surveys that employees, especially younger workers, expect something a little different from their careers than just good pay and benefits. For example, a significant number of employees report they will take less salary in order to work with a visionary leader or in a company whose mission they believe in. By not taking steps to adapt to this reality, a company is putting itself at extreme risk of losing or not being able to recruit valuable talent, especially 10+ years from now when the millennial and Generation-Z workers will have more experience.
Another example could be a credit or investment-ratings agency like Moody’s or S&P reducing a company’s score, which could lead it being cut off from financing or otherwise becoming an unattractive investment when compared to more nimble competitors.
Of course, all can ultimately lead to business failure either through bankruptcy or some sort of merger or acquisition. We could go on all day discussing what became of companies who did not take long-term business resiliency important.
Just take a moment to think about retailers or other companies who seemed to be at the top of their game 20 years ago but are not around today…I venture to guess it won’t take long for you to come up with a couple.
Question #5: What is an example of a company with good long-term business resiliency?
I know, I know…
You’re thinking this all sounds great, but who out there has actually done it?
One of the best examples of business resiliency in action is pharmacy-giant CVS, which actually started out as a health and beauty retail store in 1963. The company actually didn’t have a pharmacy until four years later, when the company realized customers were looking for more one-stop shopping. CVS’ leaders also recognized that in order to maximize the company’s impact, they needed to be a national brand, so beginning in 1972 and continuing through today, it begin acquiring other pharmacies, drug stores, and related mail-order and pharmacy benefit management companies.
CVS was also a pioneer in using the Internet with the launch of its online pharmacy in 1999, and in 2006, the company acquired The MinuteClinic to allow customers to see a health professional for minor issues quickly in the store instead of going to a more costly urgent care clinics or the emergency room.
This, of course, is just part of CVS’ story, but consider this – what if they had remained the health and beauty store they started out as.
Would they still exist today? Certainly not as a national chain!
Like our mighty oak adapting to changing weather and climate conditions, CVS took special care to understand its ecosystem and be adaptable to shifting consumer expectations over the years and therefore is a prime example of good business resiliency.
For more in-depth information on this topic, including 6 points for developing and implementing a resiliency strategy for your organization, check out our interview with risk and resiliency consultant Gareth Byatt
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