The resilience of companies to absorb shocks and use them to build something new has always been a competitive advantage. One that has only strengthened itself in the digital present. In Asia, in particular, leading companies are turning pandemic-induced changes into opportunities for future value creation. This is also due to the long-cultivated roots of being agile, adaptive, and determined in the face of adversity and uncertainty.
New German describes “business resilience” as the ability of a company to continue to generate profit over cyclical and structural changes in supply and demand. And it will become the key to survival for many businesses as Covid-19 has widened the gap between those at the top of the economic profit performance curve and those at the bottom.
The new economic reality has become more volatile, uncertain, more complex, and more ambiguous. More than ever, companies need to make decisions under risk and uncertainty, continuously learn and adapt.
This situation is often referred to as the VUCA world. The term VUCA, initially used by the US Army in the 1990s, is an acronym for the English words Volatility, Uncertainty, Complexity, and Ambiguity. While VUCA was still representative of the new operational reality of the 90s for the military, it describes the increasingly difficult framework conditions within which companies operate.
We recently saw volatility, i.e., fluctuations, in the chain reaction that fueled the video game retailer GameStop’s stock market ups and downs. Neither as an insider tip nor as a solid stock market value, the share was driven up in a concerted action agreed on Reddit by small investors to damage a hedge fund. As a result, the stock market value plummeted again, as expected, only to rise again for a short time when many others jumped on the hype.
Each of us has experienced the factor of insecurity first-hand in the last few months. What happens after the lockdown? How and at what speed will the economy reopen and recover? Is there another lockdown coming? This uncertainty leads to reluctance and negative expectations on the part of consumers and ultimately decision-makers in companies.
An example of the complexity is the temporary chip bottleneck in the automotive industry. It could not be resolved quickly because the orders were based on incorrect assumptions, and other customers reserved larger quantities. Therefore, the production capacities, which Corona temporarily restricted, were not sufficient. In addition, there were logistics bottlenecks due to the recovery of the economies. And if the Suez Canal is also blocked …
We have long seen an ambiguity in severe uncertainty in the economic indicators and forecasts. An absolute cacophony of the opinions of different experts comes together and promises us inflation or warns of stagflation or even deflation. The periods that can still be foreseen with a certain degree of confidence are getting shorter and shorter.
At first glance, VUCA paints a very gloomy picture, as it is a macroeconomic description of the state of a new, challenging reality. But the answer for companies could also be VUCA, only that the acronym here stands for Vision, Understanding, Clarity, and Agility.
Resilient companies make tough but clear decisions early and are ready to break with the long-serving. In addition, companies have to adapt much faster to change cycles in response to the new framework conditions. You have to move faster to get back on the growth path accordingly. That also means not restricting investments but reinvesting them sensibly.
Of course, digital technology and leadership also play an essential role. Every third digital pioneer in German medium-sized companies is already relying on innovation with external digitization units. Most of these agile “innovation hubs” are supposed to create new customer experiences, digitally transform the business model and ward off external disruptions.
Despite all the external unplayability, the inner vision must not be missing in the end. Companies need a stakeholder-oriented view of the economy and its development and new demands that arise from it.
Simply reducing business resilience to resilience in the narrower sense does not go far enough, because unfortunately, companies all too often look inward; on self-preservation, efficiency, and cost reduction. These are all short-term effects where the customers seem to be standing in the way. A long-term survival strategy, or even a growth strategy, looks different.
Adaptability is a much more appropriate characteristic of the term, achieved through new thinking, openness, dynamism, flexibility, speed, and adaptive skills. Not only must production or your processes remain adaptable, but also the business focus and vision.
As a first step, companies must continue to work on abandoning silos and top-down structures. Purpose and customers must be the focus. And no, everything does not always have to be adapted to the new economic reality at once. But companies have to start and ideally start in an area that is already willing to change. Further, agile and adaptive processes could be the first to find their way here. With the first sense of achievement, the “project” is then expanded. Experience has shown that it makes little sense when companies fight against resistance. The majority of the workforce comes along voluntarily after a while because the reorganization is simply better. In the end, there will still be blockers, but they will voluntarily leave the company as hard as it sounds.
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