Most companies live fast and die young. A study in 1983 by Royal Dutch/Shell found only 40 corporations over 100 years old. In contrast, they found that one-third of the Fortune 500s from 1970 were, at that time, already gone.
What differentiates success and failure, resilience and collapse? The Royal Dutch/Shell study emphasizes shared purpose and values, tolerance of new ideas, financial reserves, and situational awareness.
More recently, Ceridian Corporation collected best thinking and strategies to publish an executive briefing on organizational resilience. They highlighted the paradox that successful, resilient organizations are those that are able to respond to two conflicting imperatives:
- managing for performance and growth, which requires consistency, efficiency, eliminating waste, and maximizing short-term results
- managing for adaptation, which requires foresight, innovation, experimentation, and improvisation, with an eye on long-term benefits
Most organizations pay great attention to the first imperative but little to the second. Start-ups often excel at improvisation and innovation but founder on the shoals of consistent performance and efficiency. About half of all new companies fail during their first five years.
Each mode requires a different skill set and organizational design. Moving nimbly between them is a tricky dynamic balancing act. Disruptions can come from anywhere – from within, from competitors, infrastructure or supply chain crises, or from human or natural disasters. The financial crisis has riveted current attention, but it’s just one of many disruptions organizations must cope with daily. Planning for disruption means shifting from “just-in-time” production and efficiency to “just-in-case” resilience.
We draw from these two studies, and others, to develop what we call the six habits of highly resilient organizations.
1. Resilient organizations actively attend to their environments.
Monitoring internal and external indicators of change is a means of identifying disruptions in advance. Resilient organizations seek out potentially disturbing information and test it against current assumptions and mental models. They work to detect the unexpected so they can respond quickly enough to exploit opportunity or prevent irreversible damage. In short, they anticipate to be prepared.
“[T]he two questions that keep coming up in almost every speech, panel, and hallway conversation,” reports Arianna Huffington from this year’s World Economic Forum in Davos, “are ‘what went wrong?’ and ‘how did we miss the signals?’ The consensus conclusions: 1) Too much faith in the free market. 2) Too much faith in economic models. 3) Too little transparency. 4) No moral compass.”
2. Resilient organizations prepare themselves and their employees for disruptions.
Attentive preparations build a team that imagines possibilities and displays inventiveness in solving problems. Managers know how and when to allow employees to manage themselves for focused productivity as well as adaptive innovation. Resilient organizations cross-train employees in multiple skills and functions. They know that when people are under pressure, they tend to revert to their most habitual ways of responding.
After the 1993 World Trade Center bombing, Morgan Stanley, the largest employer at the WTC, realized it was operating in a highly symbolic building and began emergency preparedness with detailed plans and drills. On September 11, 2001 it had three recovery sites at the ready where employees could congregate and continue business. They began evacuating about 2700 employees one minute after the first plane hit, and their offices across 22 floors were almost empty when the second plane hit. They lost only six people. According to their 2001 Annual Report, investments in redundant computing and communication technology made after the 1993 WTC bombing also played a significant role in this successful recovery.
3. Resilient organizations build in flexibility.
Even while executing for lean and mean performance, resilient organizations build in cushions against disruptions. The most obvious approach is the development of redundant systems – backup capacity, larger inventories, higher staffing levels, financial reserves, and the like. But those are costly and not always efficient. Flexibility is a better approach.
Engaging suppliers and their networks in devising makeshift solutions to temporary disruptions is a flexibility strategy. So are policies that encourage flexibility in when and where work is done. Employees who are used to telework and virtual workspaces adapt more quickly and are more productive following a crisis. In addition, research shows that flexible work practices contribute to greater employee resilience, productivity, and commitment, and to lower levels of stress.
In 1997, a fire at an Aisin factory in Japan destroyed most of the precision machine tools used to manufacture the P-valve used in rear brakes to prevent skidding. Toyota got 99% of its P-valves from Aisin. As a just-in-time manufacturer, Toyota had only a couple of days’ valves in its plants. While the fire was still burning, Toyota and Aisin immediately collaborated to make emergency requests of their networks of suppliers. Aisin helped other suppliers improvise different production techniques, providing them with detailed plans and technical support. Two days after the fire, the first valves came off the production line, and a week later, Toyota’s production line was back to normal. Two months later, Aisin resumed production at pre-fire levels.
4. Resilient organizations strengthen and extend their communications networks – internally and externally.
A robust and redundant communications infrastructure holds up in a crisis. Social networks among employees at resilient organizations are rich, varied, and visible. People who have trust relationships and personal support systems at work and with friends and family are much more able to cope with stress and change.
Good connections and communications also apply to external relationships with suppliers and customers. A key is to recognize what’s important to meet organizational goals and to listen to those with needed expertise and ideas wherever they are in the value web.
Resilient organizations use networked communications to distribute decision-making. As much as possible, they push decisions down to where they can be made most effectively and thus quickly. This in turn requires good access to information at all levels of the organization.
After Hurricane Andrew devastated Florida in 1992, the state reassessed its preparedness and greatly expanded its planning to include stakeholders from every level of government, as well as organizations in the private sector, non-profits, and faith-based groups. These organizations came together to cooperate and collaborate, addressing the complex problems that none of them could solve by themselves. This Florida “megacommunity” was prepared for Hurricane Katrina, unlike localities on the Gulf Coast. In fact, within hours of Katrina’s landfall, more than 3700 of Florida’s first responders were deployed to affected areas.
5. Resilient organizations encourage innovation and experimentation.
In times of great uncertainty and unpredictability, the success and failure of small-scale experiments can help map a path to the future. Resilient organizations engage in market research, product development, and ongoing operations and service improvements. They invest in small experiments and product trials that carry low costs of failure.
UPS tells its drivers to do whatever it takes to deliver packages on time. They encourage improvisation to solve all the small things that can go wrong every day. At the same time, they have clear rules and regulations, such as always putting their keys in the same place, closing truck doors the same way, making only right turns 90% of the time to save time and fuel, and so on. Those routines, combined with creative improvisation, allowed UPS to deliver packages the day after Hurricane Andrew struck, even to people temporarily living in their cars.
Resilient organizations foster a culture of continuous innovation and ingenuity to solve problems and adapt to challenges. A side benefit is that employees who believe they can influence events that affect their work and lives are more likely to be engaged, committed, and act in positive ways associated with resilience. Some organizations also have internal idea markets to surface new ideas and innovations. Others use “crowdsourcing” to engage people externally in solving a given problem. Eli Lilly’s Innocentive Open Innovation Marketplace is perhaps the best example.
6. Resilient organizations cultivate a culture with clearly shared purpose and values.
When an organization’s sense of purpose is shared by its employees, suppliers and customers, those networks can provide flexibility to help it through a disruption. Engaged employees will seek out opportunities to try new approaches, find creative solutions, and achieve great results.
A University of Michigan study of major airlines in the aftermath of September 11 found that those whose market value rebounded shared two characteristics: (1) they maintained their commitments to employees, and (2) they had adequate financial reserves. Others went bankrupt or out of business. Instead of layoffs or canceling severance packages and employee benefits, the resilient ones did everything they could to preserve employee relationships and loyalty. Financial reserves and a strong sense of purpose and organizational values made that possible.
Business continuity or resilience?
Is organizational resilience just business continuity dressed up for the twenty-first century? It might look that way, but resilience goes further than simply making sure that critical business functions are available after a disruption or disaster.
One of the companies identified in the Royal Dutch/Shell study was Stora Enso, the world’s oldest company. Founded as a copper mining company in 1288, the Swedish entity changed lines of business several times, but it has remained committed to its people, purpose, and values. It survived the Black Plague, mine collapses, and much more. Now it operates as the world’s second largest forest products company. It is included in the Dow Jones Sustainability Index, played a key role in the development of the Chicago Climate Exchange (CCX), and is an active member of the Global Roundtable on Climate Change at Columbia University’s Earth Institute.
Why is a seven-hundred-year old company not well-known and celebrated as an exemplar of corporate resilience?
[Update: See also Design for Resilience.]