Abstract
Resilience of an organization is increasingly being perceived as the key factor that enables businesses to bounce back from the inevitable ‘curved balls’ posed by big challenges such as economic, environmental and health impacts (as with the current pandemic), technological discontinuities, regulatory changes, geopolitical shocks, industry de-verticalization and dis-intermediation, sudden shifts in consumer tastes and many/new non-traditional competitors who undermine the disadvantages of incumbency.
Organizational resilience defined: Key definitions in the classical literature specify it as a dynamic capability and ‘ability to effectively absorb, develop situation-specific responses to, and ultimately engage in transformative activities to capitalize on disruptive surprises that potentially threaten organization survival’ (Lengnick-Hall et al., 2011).
This article attempts to study how resilience can be built in organizations and how it generates market/customer value for businesses in the long haul.
Keywords
If the world outside your company is changing faster than the world inside your company, the end is near!
—Jack Welch
Introduction
Bad Companies are destroyed by Crises,a
Good Companies survive them,a
Great Companies are improved by them.
—Andy Grove, Intel
The word ‘business resilience’ began to gain popularity in contemporary lexicon around early mid-2020 as we were well amid the first wave of the pandemic. Corporate CEOs, political leaders and academicians began flouting this ‘mantra’ as the new panacea for the challenges ahead. But what is resilience? How does an organization build it? How does it deliver value, especially during challenging times? As a researcher, the prospects of this study seemed particularly timely and interesting because the entire business world across nations, states, industries and domains, big and small, were all affected in different ways. Their actions, reactions, strategies and responses provided such a once-in-a-century possibility as a real-time testbed to study, understand, decipher and explicate how businesses demonstrate resilience (or not) as the challenges and disruptions hit, swelled and waned, only to rise again unpredictably before beginning to taper down now in Q2 of 2022. And just as we thought we have seen a full-cycle challenge and disruption, the sudden Russia–Ukraine war came, with its impact and strains globally across geopolitical relationships, supply chains, crude oil prices, food security challenges and the merciless advent of the inevitable forces of inflation and stagflation led by continuous cycles of easy money policies by governments the world over.
Clearly, even anecdotally, as we see businesses of all sizes in all domains grow, plateau, stutter and wane, struggling to reach their once glorious peak, resilience of an organization is seen as the key factor and measure of long-term sustainability of an organization. It is seen to enable businesses to bounce back from the inevitable ‘curved balls’ posed by big challenges such as environmental challenges (as with the pandemic affecting almost all businesses and all countries), legal environment, regulatory changes, government actions, new major competition, disruptive new technologies and others, as companies wade through different challenges, big and small, through their growth journey, as an appropriate metaphor, providing both the shock absorber and the spring to businesses to cope and lead their recovery.
Corporate performance slumps are proliferating even as year-to-year volatility of S&P 500 companies has increased by over 50% over the last four decades. This is despite the significant economic boom and much prosperity across industries and the significant evolution of new industries born of newer technologies.
The new world: The speed of technological changes, dramatic and disruptive shifts in market dynamics led by geopolitical tensions and impact of globalization, all pose significant competitive pressures, not to mention the more unnatural disruptive effects of financial crisis, terror and cyberattacks, natural disasters and so on. The revolutionary advances in robotics, AI, cloud computing, IOT and 3D printing are challenging existing business models, manufacturing arrangements and supply chains in unthinkable ways, threatening the very survival of organizations. The McKinsey Group in a study observed that compared with the Industrial Revolution, change is now happening 10 times faster and at 3,000 times the impact.
Amid all this, some businesses are thriving and growing rapidly through rapid organic growth, key acquisitions, entering new markets and industries, and setting the pace for competition to match or fall by the wayside. Key examples in the Indian context include the Adani Group and Reliance Industries, among others.
What factors then constitute organizational resilience that enables businesses to survive unexpected challenges? The interesting research question then is: While organizational resilience helps businesses to absorb shocks and bounce back, does it also help businesses to not just survive but also thrive and enable growth and value creation for customers and itself?
The other important questions are: While well-run, successful and highly profitable firms are nurtured and built for efficiency—from the financial structures (as dictated by their investors and markets), supply chains, outsourcing of all non-core activities, stringent process focus and their very business models—are they simultaneously designed for resilience with its possibly diametrically opposite needs for slack resources (financial and human), absorptive capacity, flexibility and agility as their key coping requirements? Are the very drivers of efficiency and resilience significantly different and are there trade-offs that can compromise long-term survival and growth?
Organizational resilience can be thought of from two conventional and popular dimensions: resilient leadership and team resilience and business resilience. While resilient leadership will focus its study on the adaptive leadership that needs to be provided to the organization by its leaders and take forward the thinking and research over the years, the study of team resilience focuses on studying how team dynamics cope with resilience needs across different team structures and compositions. The broader question of business resilience then boils down to how the leadership and organizational teams need to build a business that not only bullet-proofs itself from shocks but is also able to future-proof itself through multiple consciously thought-through measures and strategies.
This article seeks to address the further question: How does resilience (in businesses) create market value?
Customer Value and Market Value
Professor Kumar and Reinartz in their important paper on ‘Creating Enduring Customer Value’ state simply, ‘The purpose of a sustainable business is, first, to create value for Customers and, second, to extract some of that customer value in the form of profit thereby creating value for the firm’ (Kumar & Reinartz, 2016). More importantly, they view the challenge of resource allocation in aligning customer-perceived value with customer-generated value as significant and worthy of significant research.
The above challenge is significantly exacerbated during difficult and disruptive times. How can a customer and hence market value be retained, protected and generated during these times when conventional plans and strategies that are drawn up come unhung and rendered irrelevant.
We believe that building key resilience building blocks and strategies in businesses enable organizations and companies to deliver enduring customer and hence market value.
What Is Resilience? What Do We Know and How Can It Be Built?
In a review of research on resilience in business and management studies across influential publications (1977–2014), Linnenluecke (2017) systematically reviewed 339 papers, books and book chapters and summarized that resilience research has so far developed into five steams or lines of enquiry:
Organizational responses to external threats Organizational reliability studies Employee strengths Adaptability of business models Design principles that reduce supply chain vulnerabilities
The key findings being that (a) resilience has been conceptualized differently across different studies with different definitions, theories and understanding, (b) conceptual similarities and differences across these streams have not yet been explored or insights on generalizable principles and (c) resilience has been operationalized quite differently with few empirics for detecting resilience to future adversity. The literature seems to suggest contradictory responses so far on how organizations can build resilience. There clearly seem to be arguments for the need for organizational stability on the one hand (consistency, processes, routines, control, minimal deviation and so on) and the diametrically opposite requirement for change on the other hand (search, mindfulness, openness, redundancy, experimentation and innovation, imagination, and variety). Even on the results area, there exist contradictions between achieving organizational reliability and delivering innovation, adaptability and flexibility, clearly suggesting areas for research around achieving the right degree of response ‘mix’ to building resilience for not just survival but growth too.
Interesting studies so far have focused retrospectively on ‘how resilient’ organizations were during a certain situation at a certain point in time (probably indicating insights for organizational improvement in the future. However, that studies so far have ‘yet to identify predictive factors that promote organizational resilience for future conditions’ is an important assessment in the papers that guide the direction for future research.
In another contemporary, useful and structured literature review of 66 papers between 2000 and 2017, Eliza Conz and Giovanna Magnani (2020), through a method of inductive content analysis, suggested a novel conceptual framework and introduced a new dynamic perspective on the resilience of firms. The proposed framework raised the interesting temporal element to the study of resilience. They contributed to the business and management literature by viewing the resilience of a firm as ‘a process in time’, clarifying the capabilities needed to be resilient before, during and after the shocks. In effect, their framework viewed (a) resilience as a firm attribute that evolves in time by clarifying the time-variant definition of resilience, (b) conceptualized resilience as a dynamic process consisting of two paths—the absorptive and the adaptive, and (c) identified a set of organizational capabilities required to be successfully resilient at different stages of the two paths. An interesting observation in the study was that the 66 papers were published across 51 different management journals, indicating the huge fragmentation of disciplines and research fields as a truly multidisciplinary area of study.
The studies therefore viewed resilience under three phases with corresponding capabilities to build resilience:
Time (t – 1) before the event occurs, calling for capabilities of the firm to be alert to changes viewing resilience as a Time (t) during an event, calling for firm capabilities to adapt and withstand disruptions and such catastrophic external phenomenon viewing resilience as ‘absorptive’ Time (t + 1) after an event has occurred, viewing the firm’s capabilities to survive disruptions and respond to them effectively, viewing resilience as a ‘reactive attribute’ Finally, a continuum of (t – 1), t and (t + 1) before, while and after the event has occurred, viewing resilience as a ‘dynamic attribute’, calling for alertness, adaptation and responsiveness of the firms
Resilience as a proactive attribute (at time t – 1): It distinguishes key components of resilience as ‘redundancy’ and ‘resourcefulness’ of resources in reserve and possesses various assets—material, financial, human and technological—to sustain during times of crisis.
Resilience as absorptive and adaptive (at time t; 40% papers): Here, the focus is on the ‘absorptive’ ability to return to equilibrium after the shock, remain in a stable state maintaining/increasing its income and so on. The authors define robustness as the ability to resist disruption and operational agility coupled with robustness as being able to limit the variables threatening the firm’s stability and vulnerability.
In relation to ‘adaptation’ to a shock, the literature refers the ways firms recombine extant or normal resources and prompt internal changes seizing the opportunity to innovate and sustain business longevity, particularly mentioning three core competencies: adaptability, innovativeness and flexibility. Other papers in the area have stressed on four key attributes: diversity, adaptability, efficiency and cohesion. Papers in the area have also talked about a combination of cognitive, contextual and behavioural properties of firms during times of uncertainty.
Resilience as a reactive attribute (at time t + 1; 18% papers): It explains resilience as an ability of firms to recover, rebound and bounce back after shocks, and recombine their structures to recover to new points of equilibrium.
Resilience as a dynamic capability (38% papers): It refers to the dynamic adaptation of shock with abilities to anticipate, withstand and cope with and to adjust accordingly by recombining existing and new resources to emerge strengthened and even more resourceful to ‘not just survive but thrive’, enabled by a superior resource configuration that enables a firm to develop and sustain new competitive advantages. Edgeman and Wu as well as Hamel and Valikangas particularly refer to resilience as the ‘capacity for continuous reconstruction, to find novel responses through innovation but preserving organizational values, processes, and behaviours’.
Core Capabilities for Resilience
The absorptive path: Redundancy, robustness and agility are thus the essential characteristics of the absorptive path. Redundancy refers to the organization’s readiness and ability to keep resources in reserve—safety stock, backup sites and so on. Robustness refers to the organization’s capability to resist shocks and inherent strengths to reduce its vulnerability. Agility refers to the organization’s ability to provide a quick response when dealing with turbulences while maintaining its strategy and structures (Figure 1).
The adaptive path: Resourcefulness, adaptability and flexibility are the key capabilities here. Resourcefulness refers to the ability to accumulate and raise different, diversified assets and resources—financial, physical, human, technological, organizational and even reputational. Adaptability refers to the firm’s capability to adjust its response and internal processes to changing external conditions. Flexibility is the capability of rapid decision-making processes, quick communications and fast learning to quickly adopt new routines and strategies to the fast-changing conditions.
A few further contemporary papers studied as part of the review of current literature provided deep insights.
In the ‘Quest for Resilience’, Hamel (2003) laments that ‘the World is becoming turbulent faster than organizations are becoming resilient’ and suggests two approaches to understanding organizational challenges to building resilience:
The cognitive challenge: Free of denial, nostalgia or arrogance
The strategic challenge: Resilience requires plethora of alternatives and awareness
The political challenge: Diverting resources from yesterday’s products and programmes to tomorrow’s
The ideological challenge: Creed and thinking that extends beyond optimization, operational excellence and execution
Hamel further suggests why renewal lags decay, asking key questions and implying metrics for the same:
Replication: Are current strategies losing their distinctiveness?
Supplantation: Are current strategies in danger of being superseded?
Exhaustion: Are current strategies reaching the point of exhaustion?
Evisceration: Are customers’ buying power killing our margins?
The paper on ‘Firm’s Resilience to Supply Chain Disruption’ (Ambulkar et al., 2015) studies the two key antecedents to supply chain resilience: resource reconfiguration capabilities and risk management infrastructure. In a manner of speaking, product market disruptions provide probably a complementary and ‘mirror image’ for study. How are the challenges different and what are the similarities that this article can inform the on the product market side? Which resource reconfiguration options can businesses deploy in product market arena to increase firm’s resilience to disruption? Which risk management infrastructure capabilities and inputs are relevant for both absorptive and adaptive stances?
Building Business Resilience to Create Market Value Consistently
So, clearly, we now have some important building blocks to develop business resilience. The questions are: How do we execute on these, balancing the prioritization between the urgent and the important? How do we bring in the different elements of redundancy, robustness and agility (the absorptive path) and resourcefulness, adaptability and flexibility (from the adaptive path), managing all the challenges in a real-time organizational context (as detailed by Hamel above), balancing the short-term needs of today’s shareholders and stakeholders with the longer-term needs of building and leading a sustainable and growing organization of the future?
How can we translate these building blocks of resilience into executable areas of business strategy that de-risks the business of tomorrow by providing elements of a shock absorber but most importantly enables the businesses to readjust, re-calibrate and course-correct to thrive in a new tomorrow by continually delivering customer/market value?
Building Strategic Building Blocks of Resilience to Deliver Customer/Market Value.
An interesting comprehensive study across 1,500 public companies across Europe and America by McKinsey (n.d.) in their article ‘The Emerging Resilients: Achieving “Escape Velocity”’ claims that the time-tested Altman Z-score (initially proposed as an indicator of credit default) can be a powerful indicator of resilience:
‘The Altman Z-Score turns out to be a better directional indicator of post-downturn market performance than does the market itself.’ The Z-score, says the article, helps highlight three outstanding attributes of resilience: margin improvement, revenue growth and optionality (retained additional optional investment opportunities). So, in effect, resilient companies must simultaneously grow on all three parameters of performance—margin improvement, revenue growth and optionality—without one compromising the other. It is clearly a higher standard for sustainable performance.
In June 2022, Sequoia Capital, a storied venture capital firm, in a 50-slide presentation deck has provided detailed advice in an urgent advice and reminder titled ‘Adapting to Endure’. They have called out the current environment as the ‘Crucible Moment’ (a defining moment, though painful that can help chart a new course of significance for the business). This particularly rings so true in our quest for resilience and what it can help achieve.
The Sequoia report provides some grim pictures of 61% of all software, internet and fintech companies trading below pre-pandemic 2020 prices despite many of these companies doubling both revenue and profitability and one-third of them trading below COVID lows, when uncertainty and fear were peaking. They warn that growth at all costs is no longer being rewarded, with focus now shifting to companies with profitability, as cheap capital is no longer coming to the rescue. They end by imploring that medium- to long-term durable growth with improving profitability is always the path sought.
While seeking quick course-correction and developing an increasing cash runaway, they quote Darwin: ‘It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change’ and that it will be ‘survival of the quickest’ in the volatile word ahead. However, they also paint an optimistic and hopeful picture of optimism in difficult times, mentioning also the Chinese saying that in challenge is opportunity.
Clearly, to build a resilient business, organizations must strive to simultaneously address all three levers of performance: revenue growth, margin growth and optionality - a key lever of retained earnings to provide both the needed cushion and go after new opportunities that will most certainly open during disruptive times. As the famous Brazilian car racer Ayrton Senna da Silva once said, ‘You cannot overtake 15 cars in sunny weather … but you can when it’s raining.’
But how is that done? Let us go back to the foundational principles of building resilience through the absorptive and adaptive paths and look at the various strategies that businesses, big and small, across sectors, domains and industries, are using to build their resilience that not just helps them survive and sustain during difficult time but also helps them thrive and build their market value over time because of their sustained performance.
Building Organizational Resilience
While it may seem that the absorptive path strategies may be more appropriate for larger companies and the adaptive strategies more relevant and more doable for the younger, nimbler companies, it is not quite as simple and depends upon the contest, nature of industry and disruptive forces at play.
Larger companies may have the luxury of a bigger bench strength and greater financial prowess and score on the redundancy factor (as we often speak of India’s demographic dividend), but the diversity of different kinds of resources needed and the ability to reconfigure and repurpose teams are also vital factors. Similarly, rules and routines are vital elements to add to the robustness and ‘vmuscle memory, of an organization while the ability to flex and adapt is important too.
So, in general, it is the right contextual mix of absorptive and adaptive paths that really builds resilience of the organization through the strategic building blocks conceptualized in Figure 2. Adaptive organizations must seek to build their robustness and redundancies and the larger, stronger organizations with vast resource strength and well-developed processes must constantly seek to build greater resourcefulness, adaptability and flexibility in their approach.
Combining the Absorptive and Adaptive Paths to Build Resilience.
Some Key Case Studies
Key exemplars from the Indian context across legacy and new-age companies and across sectors bring home some of these points on ‘how resilience builds market and customer value’ quite clearly.
Serum Institute of India
As of 2020, the company was the world’s largest vaccine producer by number of doses produced, manufacturing around 1.5 billion doses of vaccines each year. The products developed included tuberculosis vaccine Tubervac (BCG), Poliovac for poliomyelitis and other vaccinations for the childhood vaccination schedule.
Serum Institute of India’s (SII) decision to mass produce the candidate Covishield in partnership with AstraZeneca before the vaccine was proven effective was made solely to have a head-start on manufacturing and to have enough doses available. If the vaccine worked, SII and the Indian government committed to reserve half the company’s stock of it for India and to supply half to low-income nations through Gavi, a sponsor of immunizations for low-income nations.
This is clearly a strong illustration of a private enterprise having the redundancy (the financial resources and strength at call), the robustness to withstand any shocks or vulnerabilities in its business (say, on account of the vaccine potentially not being approved!) and most importantly the agility to act and respond to turbulences in the environment decisively and with speed.
SpiceJet
The SpiceJet story is a classic in the illustration of business leaders seeing opportunities in adversity. With the airline industry in complete turmoil and the newly acquired SpiceJet literally days away from bankruptcy, the CEO acted strategically and decisively in this phase. The business realized earlier than others that if people could not move in the pandemic, goods will have to. Cargo revenue for the airline shot up to $350 million from $45 million in pre-pandemic times. The cargo business is now being hived off into a separate entity under SpiceXpress, expecting this to be valued at a multiple of four. So even as the core business may have dropped in valuation, the group has created ‘a new asset worth many times more’.
The ability of the business to demonstrate resourcefulness and adapt to the cargo business and logistics demands required remarkable flexibility and risk-taking in a very turbulent time for the industry.
Reliance Meeting the Sudden Critical and Escalating Demand for Medical Grade Oxygen
As the country grappled with an unprecedented new wave of COVID-19 pandemic, RIL acted with speed and alacrity and brought the full force of its resources to play to now produce over 11% of India’s total production of medical grade liquid oxygen, at its refinery-cum-petrochemical facility in Jamnagar and other plants, meeting the needs of nearly every 1 in 10 patients in the country. Traditionally, the conglomerate is not a producer of medical grade liquid oxygen, yet starting from nil before the pandemic, Reliance Industries has now become India’s largest producer of this life-saving resource from a single location. This was achieved through the following:
Refocusing (resourcefulness) several industrial processes at Reliance’s Jamnagar and other facilities for rapid scale-up in production of medical grade liquid oxygen. Augmenting loading and transportation capacities to ensure its swift and safe supply to states and union territories across India.
CSIR Laboratories: Product Innovation at a Government Laboratory
A recent paper ‘Managing Supply Chain Aspect of the COVID-19 Pandemic in India’ (Ray, 2020) described the four challenges faced during the disruption: forecasting surges in demand, identifying best possible raw material and finished goods movement options, reducing the risk of stock-outs or poor-quality supplies, and mitigating predatory and opportunistic pricing by hoarders. The paper details driving product market resilience in response to the pandemic through leveraging of experience in one category of deployment—aerospace to be translatable to something quite different, namely hospital assistive devices—a bi-level positive airway pressure (BiPAP) machine, SwasthVayu, which took 36 days from concept to commercial production when ventilators were a critical challenge.
This was true frugal innovation at nearly gunpoint, illustrating remarkable resourcefulness, adaptability and flexibility.
Swiggy/Dunzo
Here are two examples of new-age businesses which initially slumped and then bounced back, creating entirely new categories of businesses in respond to the need to add customer value.
At Swiggy, a food-delivery business, the problem started with the collapse of consumer demand beginning early March in the early days of the pandemic because of significant worry and anxiety with customers around safety of delivery. This led to a drastic and immediate precipitous fall in revenue/profitability. Through demonstration of business agility, flexibility and leadership actions during the trying periods around manpower rationalization and reallocation and prior philosophy of constant experimentation and innovation, the business responded with a strong product innovation response around an entirely new business line. Technology capability/strengths enabled the business to significantly re-pivot and come out with an entirely new business category and redefine their business. The unexpected business challenges and disruption provided the sudden unanticipated trigger to dive deep into their latent capability and innovate.
Dunzo—from its initial position as a service offering around local delivery of small goods and parcels, Dunzo and the like are now seen to facilitate another entirely category of businesses: ‘quick commerce’.
Bajaj Finserv Markets
Even though a market leader as one of the largest players in the Indian financial services industry, Bajaj Finance is known to constantly plan, many years in advance, and reinvent itself, identifying emerging technology trends and therefore new sources of competition, rather than just other current financial services organizations.
As one of its responses, though planned much in advance, Bajaj Finserv Markets launched its marketplace business, a significant business model innovation, where it distributes not just its own financial services and insurance products but also those of its competition.
This called for tremendous resourcefulness, adaptability and flexibility from the execution team, leaning on the absorptive resource strength and robustness offered by the parent for the needed start-up support. The big advantage gained is really the powerful new lever of growth in a pioneering venture supporting the whole business ecosystem they play in.
Some Strategies for Tough and Uncertain Times
Information Access for Agility and Flexibility
To demonstrate the needed agility and flexibility of response, one needs to have access to real-time information on the business. While most well-run companies have a well-established daily MIS on key performance metrics, Zappos, the online shoe retailer (now an Amazon group company), had in addition instituted information updates on daily cash, cash flow and cash runway report, learning and tracking after the 2008 downturn when they nearly ran out of cash.
Creating Financial Degrees of Freedom, Helping to Improve Margins, Growing Newer Revenue Streams and Cutting Costs
Raising Financial Resources in Preparation
The suggestion here is to raise financial resources (debt or equity), demonstrating resourcefulness and agility to provide businesses the cushion needed in tough market conditions, even on terms which are not the preferred terms. Or in the case of strong companies, with a reputed company and brand like Reliance Industries, tough times were the ideal occasion for them to dilute stakes in their reputed telecom and retail businesses and raise resources and build great partnerships in a rapid series of moves (almost weekly!).
Concentrate and Prioritize Investments in Your Future
As businesses will always have to focus on their future and will never be able to cut their way out of a difficulty, the suggestion here is to strongly prioritize and be strategic in the choices made. For example, Airbnb cut everything and most of the products but invested more in core hosting and longer-term stays. Zappos cut marketing costs but invested in customer service and engineering.
Constraints Can Energize Innovation and Creativity (Frugal Innovation at Scale)
Power of ‘and’ vs either/or thinking
Due to lack of funding, Zappos
Created its own gift card programme
Created its own store credit programme for returns
Extended terms from merchants from net 30–90 days
Focus on Programmes That Drive Revenue Growth, Save Money or Reduce Risk
If it is not one of these, kill the fluff.
Summary
Building resilience in an organization is a continuous process and requires strong focus and management attention across functions and capabilities. It requires the simultaneous ability to understand and forecast risks and build contingencies but simultaneously the ability and willingness to acquire and build the diverse capabilities the organization may need in the future and the lean structures and processes that assist in reconfiguring and repurposing for new programmes, initiatives, business models and even entire new businesses.
In effect, building resilience is so much more than effective risk management—it is a much more proactive effort to reposition the business to a much stronger footing, future-proofing the business against whatever onslaught of the environment.
Continuous building and rebuilding of resilience is needed, as these disruptions are not going to go away. New disruptive forces will constantly emerge, which will test the current business and business model, forcing businesses to respond with speed for their long-term sustainability.
After all, aren’t long-term business sustainability and growth through disruptions really what creates market value? Thus, it is the resilience that truly creates customer and market value.
Footnotes
Acknowledgements
The author would like to thank Professor Dr Rajendra Srivastava, Novartis Professor of Marketing Strategy and Innovation at the Indian School of Business, for guidance provided in the visioning and execution of this article.
Declaration of Conflicting Interests
The author declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.
Funding
The author received no financial support for the research, authorship and/or publication of this article.