Mapping the resilience blueprint

On Wednesday 22 June, Health Minister Joe Phahla announced that there was no longer a legal requirement to wear facemasks in public. This is a major step forwards and a further indication that South Africa is now moving on from managing the Covid Pandemic to rebuilding life after the pandemic.

Companies are following suit. Many companies have moved on from managing the impacts of the Pandemic to implementing plans to build resilience. We need to plan for life after the Pandemic.

Last week, I covered the first half of a McKinsey report which discusses the need for moving from risk management to building resilience. The McKinsey report focuses on the feedback from a survey that McKinsey held in association with the Federation of European Risk Management Associations (FERMA).

In my last editorial, we looked at how the Pandemic impacted companies and how they are now in a position to move on. But what does this look like?

Designing and implementing strategic resilience

The McKinsey report points out that companies have lately developed tools to deal with the challenges of the Covid-19 pandemic, but the resilience muscle must still be strengthened. Future disruptions will be different, and institutions need to plan for the primary impact and also for second- and third-order effects. Some of these knock-on effects appear only after a long delay but then suddenly accelerate; others gather momentum incrementally until an emergency tipping point is reached.

For a number of reasons, few institutions have built sufficient strategic resilience. The goal of becoming a resilient company can sometimes run counter to the more immediate objective of value creation. Building redundancy in supply chains builds resilience but it also increases costs, reduces returns on investment, and thus can make resilience a tough sell to business leaders.

The report adds that another barrier is organizational forgetfulness. Resilience is not needed every day; big disruptions are not happening all the time. The importance of resilience can be forgotten between big crises. These trigger big investments, but the next crisis will not necessarily be recognizable as a repeat of the last one. Over time, the effort to achieve strategic resilience peters out and new leaders shift priorities.

Resilience as we have been defining it cannot be achieved in a siloed approach. Yet due to inertia and biases, efforts to achieve a holistic resilience agenda can begin to veer off course, back toward familiar patterns. And siloed resilience efforts cannot collectively achieve the integrated solution.

The report points out that, as yet, we have no universal means of measuring resilience (we are working on it!). Consequently, the efficacy of investments in resilience tends to be based on qualitative judgements. Likewise, people are not trained in resilience, and performance evaluation is not much based on it. Managers are promoted for expertise in pattern recognition and for avoiding mistakes; however, resilience leadership requires creative thinking, first-principles problem solving for navigating through disruptions, and a predisposition to learn from and adjust to crises and downturns. A defensive stance and routinized thinking will prevent the organization from pivoting and accelerating in the next upswing.

Robust steps toward building sustainable resilience

The report points out that companies across industries have learned to successfully navigate fundamental disruptions, emerge stronger, and gain competitive advantage in tough times. The following steps briefly sketch a path to overcome pitfalls while systematically building and strengthening strategic resilience. The steps are not, of course, a simple how-to guide. Rather, each element relies upon talent, capabilities, and deep commitment to the integrated effort.

• Measure resilience and start to report it internally. Taking a business-model view, review resilience dimensions regularly and systematically, identifying strengths and weaknesses compared with industry peers. The ability to conduct these reviews is of critical importance to decision making and balancing value creation and resilience building.
• Pick your disruptions. A resilience agenda built around generic disruptions or overly specific scenarios is rarely useful. Instead, choose a particular type of disruption to start with, then probe it deeply for expected initial impact and longer-term secondary and tertiary effects.
• Put less emphasis on extrapolations based on planning and budgeting processes. The approach is too slow and narrow for our disrupted world. Define instead a mechanism for creating scenarios systematically. Define increasingly disruptive scenarios across a widening circle and embed the impact of structural factors.
• Risk functions need to move beyond the formal views of administration, control, and governance, as well as the formal processes for risk assessment. Find a way to replace these structures, integrating their constituent activities into strategy. Like strategy, risk and resilience management requires a strong business and market perspective, a risk mindset, and interdisciplinary thinking. For risk professionals, this is a call to come out of the ivory towers and into the marketplace.
• Identify the organization’s natural strengths and Achilles’ heels. Test strategy and underlying assumptions against different scenarios—for example, by deploying qualitative and quantitative scenario analyses.
• Define a portfolio of resilience investments. This step will entail revising short-term performance and corporate resilience strategies to enable longer-term profitable growth. Consciously invest in the resilience dimensions, with strategic options and big bets, when needed, to strengthen the strategies. Develop action plans for alternative futures.
• Build first-line capabilities in resilience; build personal resilience and resilience within teams. These efforts also better integrate people into the transition.
• Create an early-warning system that truly monitors internal and external risks. The board should be involved, but crowdsourcing can be used judiciously, for a more secure view on the risks the organization is facing.

Responding to vulnerabilities

History teaches us that the conditions of future growth are often created as organizations respond to the vulnerabilities crises expose.

The report points out that, in times of disruption, survival and the wherewithal to achieve future prosperity depend on strategic resilience, which, as the participants in the FERMA–McKinsey survey stress, importantly means adaptability and decisiveness.

Key to achieving this will be to address the challenges that our State-Owned Entities face. We are in the middle of the worst year of loadshedding with no signs of the practice going away any time soon. South African economic growth is significantly dependent on the strength of SOEs.

The breaking up of Eskom into three separate business entities will be the first step towards building resilience. Management can then start implementing the above steps to try and address any inefficiencies Eskom may have.

Secondly, we need to address corruption. The Zondo Commission into State Capture had handed over its report to the President. What now? What are the next steps? Recovery from the Covid Pandemic needs to come off the back of well run, financially strong institutions. This can only be done if honesty is a core value that is entrenched in the constitution of the country. It is no use saying that we are dealing with corruption and no actionable steps are actually put in place to bring these offenders to book.

Finally, turnaround professionals will play a major role in building future resilience. We are still trying to digest what went wrong with Comair and that its liquidation will mean for the airline industry. As a profession, we need to learn from the Comair saga and ask what needs to be done to improve the efficiency of the profession. We need to have more success stories.

Robin Nicholson is the Director of Corporate-911 and is a Senior Business Rescue Practitioner.