Architecture of business resilience

10 minute read

In the course of the last seven-eight months, we have used multiple words that start with ‘re’, for instance, reshape, reimagine, resilience, rebound, repack, and recovery. I genuinely enjoyed ‘resilience’ because it nearly covers all these terms. 

Business resilience is the ability to recover from crisis, rapidly adapt to new conditions, respond to all types of risks, ensure business continuity, and move forward. Executives should think about how to build a long-term resilience strategy across the entire organisation rather than tactically fighting against Covid-19.

How to build a resilience strategy? What is the logic or universal formula for resilience? There are many examples of how resilience during the pandemic has required the co-existence of opposite views and actions. For example, the current situation requires social distancing to protect yourself and others from Covid-19, but it also demands social connectedness. 

As resilient people are generally socially connected, they are positive people who have a social impact system to support others. Similarly, uncertainty pushes us to communicate more, get advice, support others with our opinions, many daily webinars, articles etc. But on the other hand, each of us needs to focus on our problems, core business, objectives, and issues as well. Again, the co-existence of opposite ends, unfocused communications, and the focus on core objectives are merged.

In this article, I present my own framework called ‘Layers of business resilience’, which I have designed taking into account lessons from Strategy and Innovation at Saïd Business School and further enriched from my professional experience as CEO of a steel manufacturing business in Azerbaijan and my involvement in retail, education, and social businesses.

The framework identifies three layers of resilience. These inform, respectively, the aim and mission of organisations, and the organisational capabilities and strategic choices required to implement them.

Purpose vs profit

Purposefulness business vs. profit maximisation

Nobody denies that businesses are founded and exist to create profits for shareholders. However, it seems that this fundamental hypothesis is challenged today. Being open with employees, empowering them to build the company strategy and shared values, treating customers not just as buyers but also as long-term partners, supporting them during the crisis, providing technical expertise, communicating and compromising contract terms with suppliers in case of delays, could be considered a substantial investment to the company’s trust and resilience.

Furthermore, considering the interests of broader stakeholders will play an essential role post-pandemic. Living in uncertainty, being away from the daily routine, slowing down the pace of life, having more time with families, seeing people we’re close to dying from Covid-19, is making people more sensitive to the world health, environment, sanitation, clean water, air and many others.

In the business context, a purposeful and meaningful mindset delivered across all parts of the organisation will be definitely appreciated by community stakeholders and add shareholder value in the long term. For example, while building electrical systems for the new plant using energy-efficient transformers may be expensive, it is meaningful business. 

Executives can speak to banks, tax regulators, or other agencies to support them with this costly investment. Instead of cost-cutting, put more effort into delivering meaningful business. Briefly, two opposite mindsets, purposefulness and profit maximisation, can co-exist and add resilience to businesses.

Exploit core vs. explore opportunities

Organisations should exploit current resources and capabilities for efficiency and, in parallel, explore new opportunities through innovation. The most successful companies are able to connect an’ exploit and explore’ mindset to be ambidextrous. The pandemic has increased the demand for ambidextrous thinking. While talking to executives, I have observed two opinions: some executives heavily focused on current core businesses, cutting innovative initiatives and awaiting stability in the world, while others were uncertainly searching for new opportunities to be derived from the pandemic.

To be resilient, the exploitation (focus on core business) and exploration (innovation initiatives) mindset need to be integrated. Media content and competitors’ investments will push entrepreneurs to innovative projects, but the CFO spreadsheets will command to cut innovation initiatives and focus on core business and wait. Indeed this is a broader issue of metrics. Executives are measured with metrics and reporting standards focused on short terminism. However, structured exploratory mindset is key to ensure long-term success.

To connect these two opposite ends, executives – before embracing new opportunities – should carefully assess how they align with their strategic intent, operational capability, and customer-evolving expectations. Innovation happens through steps that include the identification of new ideas, connecting them to the core business, and embedding them into the broader value ecosystem outside the organisation.

This activity takes time. However, in crisis, we do not have time, so urgency is pushing us to be increasingly agile in our decisions, external engagement, and crisis response. Therefore, to be successfully resilient, one needs to ensure the connection of structured transformation and agility.

A solid personal experience for me was external engagement with the University of Oxford, Saïd Business School, related to EMBA groups. Being systematic, having traditional rules and procedures, at first glance, all these make the University a ‘heavy’ organisation with 800 years of experience. However, agile external communication at the School, collecting and analysing different needs and expectations of students, urgent dedicated communication. was genuinely professional. As a result, decisions were made that satisfied most of the diversified expectations and met university policies.

Business confidentiality vs. open collaboration

Competitive advantage, experience-based diligence, business confidentiality, and intellectual properties are central subjects that business leaders consider while externally engaged with other stakeholders. However, the uncertainty and the rise of a single global enemy, Covid-19, encouraged companies towards open collaboration. Business leaders started to talk more with stakeholders, including suppliers, customers, state agencies, competitors, and employees.

In our personal experience at the steel manufacturing company, after we did not agree on the price with the billet supplier for our rebar rolling mill factory, we decided to discuss the whole production process on the second meeting, and likewise reviewed transportation and cost engineering. Two companies shared experiences about how to optimise electricity, labour, processing, and transportation costs and then decided on optimal quantities and prices for the billet. We were very open in our discussions with banks, showing sales plans, capacities, and technologies. It was also essential to receive their professional advice regarding financial forecasts, consulting services and the Covid-19 support loan.

Furthermore, we communicated with customer companies, visited stocks, discussed and re-designed sales plans, and payment plans mutually. I believe that it is possible to find ways to mutually collaborate without commercial sensitivities being affected. In contrast, it is an opportunity for future growth as well. In fact, it is possible to ensure the co-existence of opposite views, such as confidentiality and open collaboration with the stakeholder that creates resilience.

Time to invest vs. cost reduction

Although we usually come across the famous phrase ‘crisis is a good time to invest’, executives generally cut investment budgets or postpone projects. As a matter of fact, most business leaders focus on current core businesses and wait for the ‘old normal’ to come back. What about the opportunities created by the crisis? How is the company going to catch up with existing facilities in case of sudden high demand in the post-pandemic period? Bearing these entire in mind, executives must weigh cutting costs consequences, and try to connect opposite two ends, investments and cost-cutting. Undoubtedly, cost-cutting is a must to maintain the core business, but cost-cutting shouldn’t be the goal in a crisis.

In 2016, when oil prices crashed, local currencies in many emerging markets devalued, we invested in the first steel colour coating line in Azerbaijan. This project started at the end of 2016 and started production at the beginning of 2018. As soon as the crisis finished, we were ready to produce new products. We were prepared with new capacities, resources, and capabilities to capture growth. As a result, one year was enough to substitute 28% of imported pre-painted steel to the country and become a local market leader. The co-existence of opposite thinking, finding optimum for investments, and cost-cutting is one of the elements of a resilience strategy.

The economy of scale vs. modular mini-plants

Microeconomics courses mention the importance of an economy of scale that favours large-scale production of standard products to reduce cost. However, from my personal experience, in Unimetal & Prometal Group, mini-plants bring more resilience to manufacturing businesses in crisis periods. Having mini-plants, such as a melt shop, steel rolling mill, pipes production, steel colour coating line, and a roofing materials factory, which are also independent, makes it easy to change plans every day, stop and maintain the plant, and produce what is required today.

For instance, due to the extended lockdown, many people started to move from buildings (skyscrapers) to small homes, bungalows, and cottages with outdoor facilities. It is likely that this trend will continue in the future. In fact, it means a significant change in the construction materials market, which we are already observing in terms of decreasing demand for high-quality rebar (used for high-rise buildings), whereas the demand for steel roof tiles is increasing. Therefore, having two independent mini-plants makes us resilient in ambiguous times. 

Independent mini-plants for a 'variety of products strategy' build flexibility into the planning cycle and set multiple paths. At first glance, considering financial efficiency and CFO forecasts, it is not feasible to have small capacities and numerous product types instead of standard products.

However, modern automated small production lines with low labour costs, a dynamic supply chain, continuously improving value constellation in all processes, experience, and a diligent strategy allow us to connect to opposite approaches, i.e. as economy of scale and modular mini-plants that create business resilience in any crises. Therefore, objectives for future projects should shift from the economy of scale to a resilience mindset that builds on the optimum of the two opposites of efficiency and modular mini-plants.

Localise vs. globalise

The supply chain of most production companies seriously suffered from the pandemic. Companies depending on China’s raw material supply possibly experienced the worst year for the last 20 years. Therefore, in the post-pandemic period, companies will try to localise the supply chain. Moreover, it could be the end of the globalisation of the supply chain. Logically everything is right but, if we think about capital investments of shipping companies and access capacities in China, total localisation of the supply chain does not seem real.

On the other hand, China is a big market, and for companies it will not be easy to leave this massive market. Furthermore, huge investments and significant automation are required elements for companies to come closer to customers and maintain a cost-effective approach at all times. Executives should be careful with total localisation initiatives and try to connect what is possible to localise and what should stay global.

For example, in the STEM education business for kids, we were supplying some material parts for practical lessons from the USA and China. Due to the crisis, we made some optimisations to curriculums to use local resources, so the crisis encouraged us to think locally using a globally branded curriculum. To upgrade supply-chain resilience, we consolidated processes. At the same time, we redesigned lessons for the online set-up that created a chance to explore new customers outside across the country. This re-design required effort, time and investment, but it made us more resilient.

Actually, thinking back to the pre-Covid-19 era, these localisation and globalisation opportunities always existed, but the crisis pushed us to immediate innovations. The mutual connection of two opposite terms – localisation and globalisation – in business seems to be another element of resilience.

To conclude, business resilience has an architecture that mutually integrates opposite thinking and actions. Thus, resilience has the same architecture as innovation. Successful executives should be able to define and ensure the co-existence of opposite views to build a long-term, resilient organisation. Furthermore, the proposed resilience mindset challenges some existing fundamental economics, business management, and project feasibility terms, such as economy of scale, profit maximisation, cost minimisation, financial efficiency, and shareholder economy.

I found these approaches well thread into the curriculum of many initiatives of the EMBA at Saïd Business School. Specifically, learning modules on Innovation Strategy, Systempreneurship, Artificial Intelligence, as well as initiatives like GOTO (Global Opportunities and Threats: Oxford), the engagement with businesses in crisis through Oxford University Innovation and Liber projects have been great opportunities to build a business resilience mindset. 

I trust that this can provide a great example for inspiring other business schools to revisit their programmes and build more focus on resilience elements, developing leaders with a purposeful, meaningful, collaborative, and exploratory business mindset.