Attributed to Loizos Heracleous, Professor of Strategy at Warwick Business School
As macro factors such as economic trends, public health, war, technology development and the environment continue to present unprecedented surprises and even shocks for organisations, the capability of resilience gains fundamental importance.
Resilience has many dimensions but a shorthand definition for it is that it is the ability to bounce back after unexpected shocks and disruptions; as well as to endure and even thrive in the face of uncertainty.
Many dimensions are important for resilience: financial, operational, technological, reputational, and strategic. Each of these domains has its own requirements and imperatives and a failure in any of them can compromise the resilience of the whole enterprise.
Risk management is essential in all these areas. In operations, for example, companies want to accomplish a reliable supply chain as well as negotiating power over suppliers that comes from concentrating purchases with as few suppliers as possible.
A reliable supply chain, however, implies sufficient diversification of supplies to be able to avoid disruptions if a particular supplier cannot fulfill their orders; so, resilience here implies a delicate balancing act between negotiating power and diversification of sources.
Financial risk management includes avoiding overly ambitious corporate actions, such as an acquisition where a large premium over the market value of the firm is paid, an acquisition in an unrelated field or one where synergies are overestimated (as is usually the case).
It also includes prudent investment of free cash flow and a robust governance process of any substantial expenditure or corporate-level action.
While risk management no doubt contributes to resilience, it is by no means the be-all and end-all. Risk management is more defensive in nature, focusing on creating internal conditions and governance processes where risk can be minimised.
Building resilience on the other hand implies an active stance and purposeful strategic actions, such as building a competitive advantage rooted in capabilities and resources that will endure in the face of shocks and disruptions.
For example, the budget airline Ryanair continues to achieve levels of profitability that are unheard of in the industry and is on track with its extremely ambitious growth plan.
While COVID-19 decimated aviation demand for around 18 months, Ryanair has rebounded even stronger, on the way to achieving its ambitious growth targets with a delay of only around two years as compared to the timescale of its original, pre-COVID-19 plans.
A comparison of operational costs between Ryanair and its competitors reveals that only the Irish carrier has managed to return to its pre-COVID-19 efficiency levels, whereas its competitors still have to contend with higher costs because of actions they had to take during the crisis.
Ryanair has built the highest levels of efficiency in the industry, as well as agility as strategic capabilities that are the roots of its resilience.
In any crisis or disruption its competitors will have to pay a higher price than Ryanair to keep operating or to remain a going concern so that over time Ryanair can bounce back faster and endure a lot longer than competitors.
The Indian healthcare chain Narayana Health is another case in point. During COVID-19 the company was exemplary in its actions.
Avoiding profiteering from the crisis, it has provided vaccines at cost to millions of people, engaged in public awareness and education, and supported public health measures.
When most large healthcare chains in India reported record profits, Narayana Health reported losses during the same period. Yet, after the worst of COVID-19, its share prices rose from 650 rupees in August 2022 to 1,200 rupees in November 2023.
This occurred due to the combined effects of Narayana Health’s reputational, operational, and strategic resilience.
Reputationally, the company’s actions during COVID-19 only reinforced its purpose of providing affordable healthcare to the masses in a nation with immense structural deficiencies in healthcare.
Operationally, its robust supply chain with immense efficiency that derives from technological integration in the healthcare process as well as scale of delivery, supported the company’s actions during COVID-19 and enabled the company to bounce back when demand returned.
In terms of strategy, Narayana Health is perhaps the textbook example of ambidexterity, which is the ability to accomplish competing goals such as low cost and high levels of quality. Ambidexterity at this strategic level is fundamental to resilience since a shock will test competitors much more than it will test an ambidextrous organisation.
To be sure, resilience is not an appropriate descriptor for organisations that endure because of Government regulations erecting barriers to entry or to those that are bailed out by taxpayers’ funds, a commonplace event for financial institutions during recent crises.
Rather, resilience is a badge of leadership accomplishment reserved for organisations in competitive markets that build strategic capabilities through consistent and wise leadership and corporate actions.
In many ways, the road to sustainable competitive advantage through building such capabilities is a parallel road to building resilience.
Professor Loizos Heracleous teaches on the Warwick Executive Diploma in Strategic Leadership & Change at WBS, a part-time Executive Education programme taught at WBS London at The Shard. Find out more about how you can reach the next level of leadership and give your organisation the strategic edge here.
