Is building business resilience achievable in the South African business environment?

Any businessperson within South Africa or who does business with South African companies will be fully aware of the challenging environment that the country faces. If one ventures towards reading between the lines of the narrative coming out of the highest office of the land, the only conclusion that one can come to is that South African companies will need to build resilience in the years to come.

The reason for this resilience is straightforward. Government has no short-term resolutions to the Energy Crisis or short-term solutions to lessen its impact; many energy experts and climate advisors have slammed the Integrated Resources Plan for 2023, saying that it simply does not deal with loadshedding. President Cyril Ramaphosa had to speak out in defence of Sylvia Lucas, an ANC MP, who said that loadshedding is not the end of the world. His position was that the press and the public misinterpreted what she said. However, the narrative is clear; there are no immediate plans to address load shedding.

This leaves the ball firmly in the court of businesses that must work around this challenge. I recently read an article by McKinsey. that discusses what companies in advanced industries can do to become more resilient in constrained markets.

Striving for resilience in all dimensions

A weakness within finance, operations, and organisation could seriously hurt a company’s bottom line or even jeopardise its survival, so it’s unsurprising that most of the respondents to a recent McKinsey survey regarding resilience prioritise these dimensions.

The McKinsey article points out that companies in constrained markets might obtain greater benefits by following the example of resilience leaders and taking a broader, more balanced approach to improvement. Even when faced with immediate threats, such as supply chain disruptions that threaten to shut down production lines, resilience leaders devote serious attention to other dimensions, such as ESG or digital and IT, because problems in these areas could jeopardise their longer-term success.

The article adds that companies should consider talent. Companies may downplay this dimension if they have sufficient staff and receive many job applications for every opening. On closer examination, however, they might find that demographic trends or other factors could leave them short of employees in a few years. Companies that take a balanced resilience approach are more likely to detect such issues early, allowing them to avoid or mitigate problems ahead of time or respond more quickly at the first sign of trouble.

Complementing defence with a robust offence

The McKinsey article points out that research suggests that resilience leaders often go on the offence, especially during times of crisis. They are among the first to respond to trends and take decisive actions that radically depart from existing strategies, such as changing the business model, developing new products, or acquiring a complementary business at a time of low valuations. First movers assume some risk, but they also get a chance to shape their industry and gain a large market share lead. In highly globalised sectors, including most segments within advanced industries, such early moves can provide a particularly strong competitive advantage.

Companies in advanced industries may find inspiration in other industries from businesses that have taken bold steps, such as significantly reallocating capital. For instance, an energy company recognised early that a shift from carbon-based products to renewables would inevitably occur. In response, it divested many legacy businesses while demand was still high and allocated more than half of its capital expenditures to green ventures. The company now focuses almost entirely on renewables and has a large market share.

Maintaining momentum

What can companies do to support broad resilience plans that take a long view and contain a balanced mix of offence and defence? McKinsey’s review of resilience leaders shows that the following actions may be particularly important:

• Systematically assessing, measuring, and tracking progress. Resilience leaders monitor results closely (for instance, by assigning KPIs across all dimensions). They also ensure that top leaders review and discuss resilience metrics during regular strategic reviews rather than only looking at them if a crisis appears imminent or delegating the review to a risk group. Our survey supports the value of tracking resilience initiatives. Overall, 79% of respondents to the McKinsey survey whose companies had a plan for measuring the impact of resilience programs state that they feel prepared for future challenges, compared with only 66% of respondents at companies that lack such plans. What’s more, 57% of respondents at companies with strong resilience tracking state that their short-term strategies involve a mix of offensive and defensive measures, compared with only 43% of respondents at companies with less stringent tracking;
• Building capabilities in foresight and adaptation. Even the best companies may lag in these areas. To improve, they can analyse data and connect with their external network to monitor trends and build scenarios. One global OEM created a data-based model that sends alerts when it detects any changes in the key performance indicators of its suppliers. This reduces the chance of supplier loss and component shortages. Embedding such insights in both day-to-day operations and strategic reviews is key; and
• Ensuring clear and transparent communication. The best companies are transparent about the strengths and weaknesses of their resilience programs, not just internally but also with external stakeholders. Recently, a life sciences player discussed and shared the results of the company’s resilience assessment and its ongoing plan for additional improvement (such as leveraging its good financial position vis-à-vis peers, advancing digitisation, and doubling down on M&A and strategic collaboration) in its investor communications.

Be aware of the ever-changing environment

What pearls of wisdom can South African companies take out of the McKinsey article?

When it comes to assessing, measuring, and tracking progress, technology is your friend. Big Data not only tracks where a company is at any point in time, it also provides insights into trends that are shaping their environment. Statistics South Africa played a major role in the country’s business response to the COVID-19 pandemic. It offered insights into global trends and how they would be applied in South Africa. Companies capitalised on this and used this intelligence in their business models, which increased the resilience and ensured the survival of many companies.

When it comes to building capabilities in foresight and adaptation, the risk management function of companies becomes essential. While many companies may be tempted to reduce the budget of this business function, it is ill-advisable in an economy that promises to see an increase in companies in financial distress in an environment where industry experts are sceptical about returning companies to profitability. Avoiding financial distress through foresight, planning, and awareness of potential headwinds must be prioritised.

Finally, when it comes to ensuring clear and transparent communication, every department within a company needs to be aware of the company’s KPIs and health indicators. Further, they need to be mindful of the company’s strategy to achieve these KPIs and align their own strategy accordingly.

This environment is stubborn and will not go away easily. Companies must learn a lesson from Bear Grylls, whose mantra of improvising, adapting, and overcoming may be the only way to build resilience.