An introduction to making your business more resilient to change
When observing a river, how it’s changing might be totally imperceptible to us. Day to day, it might look much the same – but we know it’s constantly evolving.
The river’s banks, for instance, are crumbling and widening, and its channel is always deepening. Over time, or perhaps even in one violent burst, changes become visible.
Similarly, how a business, industry or economy is changing may elude us. But, much like a river, change is happening to us and our businesses all the time.
According to KPMG, 96 per cent of organisations “are in some phase of transformation” and nearly half have completed at least one transformation initiative in the preceding two years.
In the background, the short to medium-term outlook among many financial leaders has darkened somewhat. One in three European CFOs expects a decline in trading in the next six months. It’s particularly worrying as almost half (48 per cent) of businesses have “low resilience”, according to the insurer Aviva.
In times like these, resilience is more critical than ever. While it’s not always possible to know where change could lead, you can make yourself, your workers and your company become more resilient and pliable.
Factors to consider when building resilience
Resilient organisations need resilient people. So, it’s worrying that employee stress is at an all-time high, according to statistics from the Health and Safety Executive. In 2019-20, 17.9m working days were lost due to work-related stress.
Creating adequate support for stressed, burnt-out employees is a key part of building organisational resilience. You can prevent burn out by monitoring employees closely, offering support and discouraging presenteeism.
Half of all small businesses hold a cash buffer of less than one month, according to JP Morgan Chase. To deal with change, you need a viable financial cushion. Adaptation takes time – and with an SME funding gap of £22bn in the UK, external lenders can’t always be counted on.
A good rule of thumb here is “three months’ working capital in an accessible bank account”, according to Starling Bank. Working capital is the cash you have on hand and short-term debts owed to you, minus short-term liabilities that you owe to other people.
The portmanteau “intrapreneurship” is somewhat clunky, but it captures something vitally important for business resilience: internal innovation.
By including employees when resolving issues, you can create meaning and also uncover the sort of valuable innovation that only on the ground expertise can spot.
By fostering a culture of employee innovation, you make organisational change and change management easier. Employees will not only be open to change, they will be more likely to help achieve it.
The first step is to create, what IBM’s head of engineering Sushain Pandit calls, “the space-time” necessary for staff to work creatively.
“Every month, we ask our staff to give a rating of between one and ten, and also to provide some comments about how the workplace could be improved. It gives us information on how our employees are feeling and if they say they are struggling or feeling stressed, then we can take measures to address that.”
Sarah Penn, CEO of Outstanding Branding
The cold hard facts
Burnout is a rising problem in the UK. A recent study into Google search data revealed a 24 per cent spike in searches for terms around burnout last year.
Exhausted employees will damage your organisation’s resilience.
As Danny Brooks, founder and CEO of VHR Technical Recruitment, explained, presenteeism is “easy to spot”. “Look for anyone who makes a point of coming in early and leaving late, anyone who’s always taking on extra work and anyone who prioritises work over their own wellbeing.”
Common mistakes when building business resilience
Amid any sort of change or crisis, businesses instinctively tighten the purse strings. A Bank of England survey found that business investment fell by an average of 32 per cent last year as the coronavirus crisis took hold.
That’s not necessarily wrong, of course: as discussed earlier, financial prudence is a critical building block of business resilience. But at the same time, don’t let reflexive parsimony crowd out your strategic vision.
High-street bakery chain Greggs decided to open new stores despite posting a first financial loss in 37 years. The strategy was spurred on by the number of empty sites coming onto the market at reduced prices as a result of economic downturn.
While you may not have Greggs’ financial muscle, it’s an important lesson to not totally curtail ambition in a crisis. Opportunities are out there to be seized.
In business, scholars and thinkers speak of a “corporate immune system”. As American entrepreneur Salim Ismail puts it, an organisation’s immune system “naturally rises out of systems, procedures and employee mindsets. It does its best to keep the system running smoothly by the status quo.”
Again, not necessarily a bad thing. But like its human equivalent, it can become hyperactive and fail to tell the difference between a threat and an innovative opportunity.
What’s required is strategic flexibility on the part of you and other managers. Let employees take manageable risks without fear of breaking a rule.
The ability to anticipate is a key part of spotting change and adapting to it. In business, forecasts are a big part of decision making. How humans do this, however, is actually quite complex and, unsurprisingly, prone to error.
As the cognitive neuroscientist Tali Sharot explains: “Inferences about what will occur in the future are critical to decision making, enabling us to prepare our actions so as to avoid harm and gain reward.”
But this vital work is hampered by “a pervasive bias towards overestimating the likelihood of positive events and underestimating the likelihood of negative events.”
To overcome this, deliberately think about worst-case scenarios or times when things have gone wrong. This healthy pessimism stops decision-makers from acting on an impulsive optimism that tends to underestimate costs and timelines.
“When you’re focused on a narrow path, there are really good things happening that you don’t pay attention to.”
Lance Forman, owner of H. Forman and Son
The cold hard facts
If you’ve suitably protected your cash position, an economic downturn offers a rare chance to outmanoeuvre or outpace your competition.
Seek opportunities to invest prudently or possibly consider growth by acquisition. Suppliers might also be more willing to negotiate on price and terms. Whatever you do, the right answer, as any sports coach defending a lead knows, is to keep playing.
Quick wins in making your business more resilient
Set up a framework for managing shocks
The National Basketball Association has been lauded for its rapid response to the coronavirus pandemic. Back in February 2020, before coronavirus was on many people’s radar, the league sent a memo to all teams and staff on preparations for the disease’s spread.
The league’s quick response was down to its adherence to a pre-agreed crisis response framework. Crucially, team leaders and managers had input on the framework, too.
Arriving at this common understanding is vital since it creates unity in crisis response. Think about potential upheaval and plan ahead. Generally speaking, you can bucket crises in the following five categories: Financial crisis, personnel crisis, organisational crisis, technological crisis and natural crisis
Map out your supply chain
You are likely familiar with your first tier of suppliers, but perhaps have a less solid grasp of suppliers all the way down your supply chain – research indicates 40 per cent of businesses have no information on second-tier suppliers.
All of your suppliers are businesses prone to risk just like you. They can be disrupted, caught up in a scandal over labour practices or lose a key supplier. While these risks can’t be strictly avoided, knowing who and where your suppliers are can help you approach any issues more strategically.
The power of networking
Businesses that establish external networks are more resilient to challenges and shocks. The reason why is simple: A problem shared is a problem halved, as the phrase goes.
We can’t tell the future and that person we’ve grown a relationship with might just be precisely the help we need to react to a market change or a crisis, so start building your network.
“When the COVID lockdown happened, we formed a ‘virtual war room’ and modelled multiple scenarios with sensitivities which in turn has given us a very focussed direction of travel. It means we are leading into the recovery and resurgence phase, not following.”
Barry Leahey, MD of Playdale Playgrounds
The cold hard facts
There are lots of ways you can meet other business owners and make valuable contacts. Social media is a good, low-effort start. LinkedIn, for instance, has countless groups for businesses of all sizes and niches.
But there’s no real substitute for in-person events. As the Norway Inn’s general manager Steven Hawke explained, there’s value in stepping out of the business not just mentally, but also physically.