"In a turbulant age, the only dependable advantage is a superior capacity for reinventing your business model before circumstances force you to. Achieving such strategic resilience isn't easy. Four tough challenges stand in the way." The Quest for Resilience, by Gary Hamel and Liisa Valikangas
Since my earlier posts engaging the nexus of "flows, architectures, and resiliency," there has been a great deal of "cross-blogging" regarding resiliency with some nice tie-ups at The Enterprise Resilience Management Blog:
- Resilience and Organizational Culture--engages Marc Safranski at Zenpundit by making the key point that "the resilience of an organization depends only in part on its willingness to adopt new technologies. Resilience also depends on the ability of people--leaders, line managers and staff--to create a resilient culture."
- Service-Oriented-Architecture (SOA)--engages with Tom Barnett in delving more deeply into how SOA will be a critical component in enabling resiliency, with Tom quoted as writing "...perhaps the most compelling impact of SOA is how it stands to rewrite the rules on IT governance and organisational structure. In most organisations, IT managers tend to be linked with the specific applications they support. Because SOA delivers the promise of solutions that transcend lines of businesses--and the organisations themselves--IT managers , newly decoupled from applications they manage, will have a broader view of the potential they can deliver."
- Institution Building vs. Nation Building--emphasizes that the "Development-in-a-Box" solution-delivery vehicle transcends a singular description, such as an either institution-building or nation building argument. As the site comments, "this is really a false dichotomy and trying to make the distinction is unhelpful in achieving the goal of increasing development and improving lives."
- SOA, Resiliency and Consiliency--makes a point that discussions of resiliency theory can quickly escape what is practical in terms of a deliverable resilience management framework. At this blog, when discussing logistics, my intention is also to remain within practical territory.
The FAR matrix I created some time ago reflects my personal effort to provide some practical frameworks and information that business professionals, primarily logistics professionals, can apply to their everyday work environment. I hope that the many people who downloaded the matrix have found it useful in framing their work in new ways. Of course, such frameworks and ideas don't have to be my own and I am glad to pass on information regarding other people's work--such as that by Tom Barnett, Steve DeAngelis and Dr. Cavinato.
In this post, I want to discuss the "essence of resilience" via a Harvard Business Review article from 2003 titled, "The Quest for Resilience," and written by Gary Hamel and Liisa Valikangas. Although I obtained this article via a leadership and change management course at Michigan State's Broad School, the article is available for download at a cost of $6 in PDF format. I am sure that Mr. DeAngelis and his team are familiar with this article, but if they are not, I believe they will really appreciate its content along with the rest of my readers.
The article starts off by reflecting on the state of industry and why resilience management is necessary, noting that "in the past, executives had the luxury of assuming that business models were more or less immortal. Companies always had to work to get better, of course, but they seldom had to get different--not at their core, not in their essence. Today, getting different is the imperative."
The authors here argue that changes in the environment should not only trigger changes in the tactics of a business model, but also trigger transformations in the business model strategy itself. In this sense, "continued success no longer hinges on momentum," but "rides on resilience--on the ability to dynamically reinvent business models and strategies as circumstances change." Furthermore, "it is about continuously anticipating and adjusting to deep, secular trends that can permanently impair the earning power of a core business."
Zero Trauma (or weathering the system perturbation)
In today's many industries, it is common to find "the turnaround" and "turnaround artists" worshipped for their successes and methods--in Japan, the example is Carlos Ghosn, who is lionized in books, magazines, TV shows and even comics and was a recipient of the Japan Medal in 2004. However, as Hamel and Valikangas note, "however celebrated, a turnaround is a testament to a company's lack of resilience. A turnaround is transformation tragically delayed."
They suggest that, "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."
By using the term innate resilience, Hamel and Valikangas are targeting the essence of firms and thus, in their view, "the quest for resilience can't start with an inventory of best practices...Instead, it must begin with an aspiration: zero trauma." For the purposes of linking this article's concepts to that of Mr. DeAngelis and Mr. Barnett, I would equate "trauma" for an entity as a "system perturbation," which is defined by Mr. Barnett as:
"A system-level definition of crisis and instability in the age of globalization; a new ordering principle that has already begun to transform the military and U.S. security policy; also a particular event that forces us to rethink everything. The terrorist attacks of 9/11 served as the first great "existence proof" for this concept, but there have and will be others over time (some are purposeful, like the Bush Administration's Big Bang strategy of fomenting political change in the Middle East by toppling Saddam Hussein's regime in 2003, but others will be accidents, like the SARS epidemic or the Asian tsunamis of December 2004). As a system perturbation, 9/11 placed the world's security rule set in flux and created a demand for new rules. Preemption is the big new rule. By creating that new rule, 9/11 changed America forever and through that process altered global history."
For Hamel and Valikangas, "in a truly resilient organization, there is plenty of excitement, but there is no trauma," no system perturbation. In other words, when system perturbations occur they will be weathered by the resilient while sending non-resilient entity into a tailspin.
The Four Challenges in Reaching Resilience
The authors emphasize that an entity seeking resilience should be familiar with vocabulary appropriate for turbulent times: revolution, renewal, and resilience.
Revolution: Whether newcomer or old timer, a company needs an unconventional strategy to produce unconventional financial returns.
Renewal: Strategic renewal is creative reconstruction. It requires innovation with respect to one's traditional business model.
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.
With these in mind, the rest of the article addresses overcoming the following four challenges, whose definitions are repeated in full here:
Cognitive: 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 change are likely to affect its current success.
Strategic: Resilience requires alternatives as well as awareness--the ability to create a plethora of new options as compelling alternatives to dying strategies.
Political: An organization must be able to divert resources from yesterday's products and programs to tomorrow's. This doesn't mean funding flights of fancy; it means building an ability to support a broad portfolio of breakout experiments with the necessary capital and talent.
Ideological: Few organizations question the doctrine of optimization. But 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.
Posing the question, as the authors do, of "Why care to become resilient?" the authors allude to several reasons but point out a concept similar to Barnett's "a future worth creating:"
"There is a final, noneconomic, reason to care about institutional longevity, and therefore resilience. Institutions are vessels into which we as human beings pour our energies, our passions, and our wisdom. Given this, it is not surprising that we often hope to be survived by the organizations we serve. For if our genes constitute the legacy of our individual, biological selves, our institutions constitute the legacy of our collective, purposeful selves. Like our children, they are our progeny. It is no wonder that we hope they will do well and be well treated by our successors. This hope for the future implies a reciprocal responsibility--that we be good stewards of the institutions we have inherited from our forebears. 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 continual renewal."
The authors qualify this sentiment by stating afterwards that "institutions deserve to endure only if they are capable of withstanding the onslaught of new institutions." Of course, in the conversation driven by Steve and Tom, the focus is on a range of entities and not just institutions. However, a word substitution in this case does not diminish the sentiment.
The Threat of Denial
Denial inhibits leaders from responding to the signs that all is not well with an organization or entity. The longer the denial takes root, the more likely an entity is headed towards a turnaround scenario versus weathering a particular system perturbation. In the authors' words, "denial puts the work of renewal on hold, and with each passing month, the cost goes up. To be resilient, an organization must dramatically reduce the time it takes to go from "that can't be true" to "we must face the world as it is."
To reduce this time lapse, there are three things leaders should make a habit of doing:
- Visit the places where change happens first.
- Filter out the filterers.
- Face up to the inevitability of strategy decay.
I recommend reading the article for a deeper discussion of each, but it is strategy decay where the authors place most of their focus. They list four reasons, summarized here, for why strategies decay:
- Over time they get replicated:
- Does your strategy defy industry norms in any important ways?
- Do we possess any competitive advantages that are truly unique?
- Is our financial performance becoming less exceptional and more average?
- Good strategies get supplanted by better strategies:
- Are there discontinuities (social, technical, or political) that could significantly reduce the economic power of our current business model?
- Are there nascent business models that might render ours irrelevant?
- Do we have strategies in place to co-opt or neutralize these forces of change?
- Strategies get exhausted as markets become saturated, customers get bored, or optimization programs reach the point of diminishing returns:
- Is the pace of improvement in key performance metrics (cost per unit or marketing expense per new customer, for example) slowing down?
- Are our markets getting saturated; are our customers becoming more fickle?
- Is our company's growth rate decelerating, or about to start doing so?
- Strategies get eviscerated:
- To what extent do our margins depend on customer ignorance or inertia?
- How quickly, and in what ways, are customers gaining additional bargaining power?
- Do our productivity improvements fall to the bottom line, or are we forced to give them back to customers in the form of lower prices or better products and services at the same price?
Valuing Variety
The essence of the authors' point in this section is that extremely diverse environments require an equally diverse set of strategies and tactics towards becoming resilient; "if the range of strategic alternatives your company is exploring is significantly narrower than the breadth of change in the environment, your business is going to be a victim of turbulence."
Liberating Resources
The authors' emphasize that "institutions falter when they invest too much in "what is" and too little in "what could be." Basically, this is a result of firms' "persistent failure to distinguish between new ideas and risky ideas that reinforcing their tendency to overinvest in the past." Thus, "allocational rigidities are the enemy of resilience."
One of the keys is for leaders to not mistake operational efficiency for strategic efficiency--"a company can "maximize the efficiency of its existing programs and processes and yet fail to find and fund the unconventional ideas and initiatives that might yield an even higher return."
A nice wrap-up for this section of the article is in the authors' words that "to be resilient, businesses must minimize their propensity to overfund legacy strategies."
Embracing Paradox
This section is dedicated to dispelling the notion that optimization is a satisfactory end-state, stating that "an accelerating pace of change demands an accelerating pace of strategic evolution, which can be achieved only if a company cares as much about resilience as it does about optimization." The authors further go on to describe what an instilled sense of resilience means, writing that "resilience will become something like an automatic process only when companies dedicate as much energy to laying the groundwork for perpetual renewal as they have to building the foundations for operational efficiency." At this point, please refer back to Steve's points on resiliency and organizational culture which I feel reflect the authors' points.
Cultivating the Ultimate Advantage
The authors wrap-up their article with some final sentiments that deserve repeating here in full. I am sure the Enterra team will appreciate the military reference:
"Battlefield commanders talk about "getting inside the enemy's decision cycle." If you can retrieve, interpret, and act upon battlefield intelligence faster than your adversary, they contend, you will be perpetually on the offensive, acting rather than reacting...Any company that can make sense of its environment, generate strategic options, and realign its resources faster than its rivals will enjoy a decisive advantage. This is the essence of resilience."
COMMENTARY: One thing for me to note: the FAR matrix in and of itself has no strategic direction; it is only a framework integrating other frameworks. Personally, I am fond of the strategy map formulations related to Drs. Robert Kaplan and David Norton's work on the Balanced Scorecard in providing a framework for developing strategic direction and targeting strategic resilience.
This will hopefully be an ongoing discussion, and as Steve DeAngelis has alluded to before, this cross-blogging on resilience that Enterra has engaged in is a form of developing resilience in the deployment of their DiB framework. Practices and input will, and must, continue to be captured and cultivated on the web and off the web, and although I feel I have contributed to Enterra's discussion on resilience, they have contributed just as much if not more to my discussion and thinking on logistics. As a result, my own personal resilience in terms of navigating my career and life is strengthened--a very cool aspect of blogging here that I never fully expected.
Cheers to cross-blogging!
NOTE: For some more on SOA and other firms' approach to the product, see the articles below:
Business Integration and Customer Focus: The Force Multipliers
Service-Oriented Enterprise: The Future of Tomorrow's Company
BPM and SOA: Are the Communities Starting to Merge?
