Business Resilience - Magic Formula for Survival in Crisis

The COVID crisis hit the world without forewarning, causing widespread panic among businesses. The crisis’ disruptive force will likely linger for a long time to come, affecting many industries and almost all companies. While a certain foreboding is typical of many crises, victims are often caught completely off-guard. Whether it’s a financial crisis upsetting the markets, a virus forcing the economy to a screeching halt, or a sudden increase of refugee numbers calling for political action, “What all of these disruptions have in common is that due to their exponential growth, pervasive force, and the rapidity at which the effects unfold, the dimensions of their impact are gigantic. Companies must be equipped to absorb such unexpected occurrences fast and be able to quickly make decisions despite a great level of uncertainty, in effect adapting and sometimes fully re-inventing their operations,” says Vladimir Preveden.

“One thing the coronavirus crisis leaves no doubt about is that it is not enough to focus on resilient leadership the way we have been doing in the past years,” says Christof Stögerer. This is an oversight because, as he puts it, “When it comes to resilience, it is necessary to look at the whole enterprise: its organization, structure, products, partnerships, and cooperations. A crisis shines a light on a company’s weaknesses,” Stögerer explains.

The Exponential Curve of Disruption

Most companies grew big in a world that believed in linear growth. Disruptions, however, are not linear but work in an exponential way.

Companies can only weather such disruptions caused by external circumstances if they manage to deal with them swiftly, don’t get tangled up in their crisis response, and make resilience a central component of their strategy. The experts point out that by waiting for a crisis to make the necessary changes to be strong and resilient in the future, companies will have reacted too late. Preparations are necessary while business is still going smoothly: “Making this huge a transformation under intense time and financial pressure is an enormous challenge and all but impossible during a crisis,” Vladimir Preveden says.

Sheer cost-cutting measures – through staff reductions or selling off business segments – are a testament to a lack of vision: “Reducing costs and relying on loans, as many companies did during the global financial crisis of 2009, is not going to work anymore,” Stögerer emphasizes.

How to Make Your Company Resilient in 5 Steps

1. Liquidity as a Strong Foundation

Strategy: Resilient companies have capital reserves that help them get through a slump, for instance caused by an unexpected drop in revenues. “Maximum growth is not always the way to go; organic growth and a reduction of debt and costs are more advisable,” Preveden says. He points to three levers that can be pulled in order to build up capital reserves: “Firstly, stop earmarking capital reserves for the operative business and don’t pay out a surplus to shareholders through dividends. Instead, build reserves, for instance by investing on the financial market. Secondly, increase equity capital. Thirdly, work to reduce debt structurally and become a debt-free company which (mostly) finances itself.”

Operations: Optimize all cash-relevant processes. Manage cash inflows centrally and organize them according to time horizons. The same applies to cash spent. Resilient companies continuously optimize their investment plans, focusing on investments that yield maximum returns and avoiding less relevant investments.

2. Flexible Structures and Targeting New Markets

“Consumer habits are quick to change: right now, for instance, there is a preference for regional, digital, and contactless shopping,” Stögerer says. Companies have to respond to consumer wishes without delay while simultaneously trying to act autonomously and independent of global markets by

• slimming down headquarters and centralizing functions that operate in a highly effective way, take on management functions, lead the way in the company’s development, ensure in-house synergies, and act as catalysts for cross-functional platform innovations

• offering highly efficient and cost-effective shared services

• decentralizing supply chains that act more autonomously in key target markets in order to safeguard security of supply and the capability to generate revenues even when international borders are closed

• guaranteeing supply for production

• achieving real-time, centrally managed data sovereignty

• planning fixed structures and capacities for maximum continuous usage instead of peak loads and enabling modular organization, through which overhead costs can be increased or decreased as needed

• managing staff according to fields of work, self-organizing in “communities” (agile organization), and providing flexible work methods

3. Opportunity-Embracing Business Models

• Customers: design thinking to achieve customer-centric operations in order to be able to detect and address new and upcoming customer segments early (i.e. before the competition does)

• Sales: strong digital sales structures, contactless in-store retail, focus on profitable customer segments (scrapping less profitable ones) while simultaneously reducing complexity across the entire supply chain

• Customer support: centralized, digital, customer-centered service platforms for both customers and suppliers

• Digitization: implementation of the digital enterprise across all divisions to improve efficiency

• Staff: building know-how regarding new technologies (digital skills) and adapting job descriptions

• Innovation: ambidexterity, i.e. a systematic approach to developing organic and disruptive innovations (both internally and externally)

4. Established Sense of Purpose

• Has the company defined its business purpose and, if so, does it follow it in its day-to-day business? “Particularly if they want to appeal to the generations Z and Y, companies must act with integrity today,” says Vladimir Preveden.

• Are diversity, sustainability, and environmental protection among the company’s core values?

• Has it successfully positioned itself as an “employer of choice” for millennials?

5. True Leadership

• authenticity, empathy, transparency, and unambiguous, direct communication
• vision, analytic skills, and the ability to think exponentially
• fast decision-making through decentralized employee empowerment and a high degree of cross-functional collaboration
• furthering high potentials and developing digital skills across the company

Which Role do Digital Technologies Play in Terms of Resilience?

“The current coronavirus crisis has not only forced companies to employ remote work solutions, which has resulted in a gigantic leap for digitization,” Vladimir Preveden says. “However, if you think that you can check off digitization because you have implemented remote work, think again,” Christof Stögerer adds. Digitization not only enables digital customer interfaces (sales, customer support) but also an increase in efficiency across the whole enterprise (centralizing data, process optimizations, cost reductions) and cross-functional collaboration platforms for staff (both in the office and at remote workplaces). It also gives rise to new business models, particularly ones which have incorporated disruptive innovations offered through start-ups.

What’s more, if digital technologies are meaningfully implemented throughout the entire company, long-established and run-of-the-mill ways of thinking and working often automatically disappear: “For this reason, digitization also contributes to a change of culture, allowing the business to move towards more agility, openness, and collaboration,” Preveden says. What’s also important: “New technological skills (data analysis, new technologies) as well as a good grasp of methods (such as design thinking) must be well established in the company through training existing staff and selecting new staff in a targeted way.”

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