Organisational Resilience Theory and Practice · 5. Organisational resilience theory and practice - TODAY 6. Personal resilience and leadership Each webinar is supported by materials

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Business Model Design • Process Improvement • Change Management

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Organisational Resilience Theory and Practice

Bevington Resilience Series

May 2020

US, Australia and NZ patents apply to XeP3, Canadian patents pending© Copyright Bevington Group. All rights reserved.US, Australia and NZ patents apply to XeP3, Canadian patents pending© Copyright Bevington Group. All rights reserved.US, Australia and NZ patents apply to XeP3, Canadian patents pending© Copyright Bevington Group. All rights reserved.

❑ Bevington Group is a specialist productivity services provider with deep expertise in Operating Model Design and Process Reengineering

❑ In response to the COVID-19 crisis (or GVC – Global Viral Crisis) the Bevington Group has prepared an initial series of six webinars to provide valuable management and leadership information on the response

❑ All the webinars reference leading research and practice

❑ The webinars in the series are

1. Strategies and tactics for turbulent times (introducing the core concept of a “Balanced Response”)

2. Short-term actions that can be taken to get you through the crisis

3. Restructuring for cost and capacity

4. Productivity improvement for cost and capacity

5. Organisational resilience theory and practice - TODAY

6. Personal resilience and leadership

❑ Each webinar is supported by materials published at www.bevingtongroup.com under the Articles tab

The Bevington Resilience series – An overview

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http://www.bevingtongroup.com/


❑ Markets are suffering, the world is in a state of high anxiety, supply chains are being disrupted and many companies are already being driven into deep losses

❑ In short, we are in the middle of the most extreme economic turbulence of our lifetimes. At the same time, many of our loved ones are at risk. Yet now, more than ever, we need to take rational and disciplined actions

❑ In an earlier article and webinar* we have described a “Balanced Response”, which considers research on learnings from the GFC, and recommends the best approach for responding to such an extreme scenario

❑ Subsequent presentations provided practical advice on some early actions you might take, before moving promptly on to structure and productivity improvement methods for both cost management and capacity creation

❑ The final two presentations will focus on the critical topic of resilience, at an organisationaland personal level, starting with how we can prepare our businesses for known scenarios and best adapt to unexpected events (as we are all dealing with now)

The series should be taken in context of the “Balanced Response” described in the first webinar on “Strategies and tactics for turbulent times”

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* Visit www.bevingtongroup.com/articles or search for “turbulence” from our home page

http://www.bevingtongroup.com/articles


Definitions of resilience regularly address 4 core concepts (Bhamra, 2019)

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Source: Bhamra, R. (2019). Organisational Resilience: Concepts, Integration, and Practice. S.l.: CRC PRESS.

Vulnerability

Where can it go wrong?

Survivability

Can you get over it?

Return to stable operations

Can you stabilise?

Adaption to a new reality

Can you evolve?


The COVID-19 crisis has exposed a very broad range of “vulnerabilities”

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Tightly bound supply chains

e.g. supply chains with no local alternatives

Outsourced and offshored critical services

e.g. without a backup (or matched) capability onshore

Long and inflexible service contracts

Heavy reliance on narrowly trained personnel

e.g. cross-training weakness

Limited safety stock Narrow sources of revenue

No ability to scale up or down

e.g. fixed workforce, bandwidth, technologies or

critical supplies

Heavily bureaucratic processes

e.g. multiple signoffs and decisions by committee


So, resilience must go way beyond traditional risk planning – and two common themes regularly appear in the literature

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Fortifying the organisationIncreasing organisational

adaptability

❑ Traditional Risk Planning

❑ Sense and Respond Systems

❑ Financial reserves

❑ Non-financial reserves

❑ Firebreaks

❑ Agile organisation model design (a balancing act)

❑ Sensing, Scaling, Swarming

❑ Mission leadership

❑ De-bureaucratised decision-making

❑ Strategy 1 / Strategy 2 thinking

Definitions of resilience usually encompass – survival, return to a stable state and adaptation

Source: Bhamra, R. (2019). Organisational Resilience: Concepts, Integration, and Practice. S.l.: CRC PRESS.


Classic organisational and program risk management can be an effective way of addressing known dangers

▪ Risks are defined

▪ Probability and impact assessed

▪ Mitigating actions taken

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Traditional risk planning has proven useful – but only in a limited way

What is less commonly understood is that there are really only four broad actions you can take to address a known risk

1. Reduce the probability – pragmatic investment here could avoid big problems and costs

2. Reduce the impact – which means fortifying the organisation (e.g. think about buildings in an earthquake zone that are strengthened to enable them to survive a major quake; or having a balance sheet that can withstand a financial earthquake in debt markets)

3. Build a contingency plan – for example, think of a back-up data centre, or a plan to switch off services that are burning cash in a financial crisis

4. Build the capability to notice the problem early – the more chance you have of seeing the problem coming, the more likely you are to be able to do something about it

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Simply put, traditional risk planning is important but insufficient for the task of building resilience and adaptability

Just because we know how to do risk management does not mean we do it well

Harris Scarfe faced known risks including the growth of online shopping and a low growth retail environment, yet they were not able to plan for and mitigate these risks

Similarly, the Japanese electrical authorities understood that earthquakes were a risk, yet they did not properly fortify the Fukushima nuclear power plant because they did not fully think through an earthquake’s consequences (i.e. a tsunami taking out a low-lying backup generator)


Fundamentally, improving organisational adaptation means improving your “Operating Model” – the link between business strategy and execution

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Strategy Execution

Technology

transformation

Business

transformation

Small Quick Win

projects

Regulatory reforms

Other projects

Clarity on creating

value

Organisation goals

and objectives

Functional

accountability model

Understanding of

customer and market

Aligned functions

Operating Model


If you want to improve your adaptability, research from Zolli and Healy would indicate the following uncomfortable truths

▪ SOURCING – Offshored supply chains without redundancies are more fragile

▪ MANAGEMENT DISCIPLINE – Organisations that can make faster decisions in local contexts do better because they can make faster and more appropriate decisions in relation to their market context

▪ FINANCIAL STRUCTURE – Firebreaks between organisational units are important to ensure that contagion does not spread, e.g. corporate structures that mean one unit going bankrupt will not bring down the whole enterprise

▪ INFORMATION – The ability to sense changes in markets or other contexts is key - adaptive organisations can “smell a change in the air” early

▪ FUNCTIONAL DESIGN – The “corporate centre” needs to be lean and focused on the allocation of “crisis” resources to the leadership teams that most need it (and can realistically benefit from it)

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Effectively, you can examine each element of the Operating Model and ask “what makes it vulnerable or resilient?” for example…

These attributes can be considered when you review your strategy, business model and operating model

Source: Zolli, A and Healy A. (2013). Resilience: Why Things Bounce BackRetrieved from: https://hbr.org/2014/05/why-you-need-a-resilience-strategy-now


Fiskel (2003) discusses 4 elements of organisational resilience

Diversity

To create more ideas

Efficiency

To execute in an economically sound way

Adaptability

So the organisation can respond to new pressures

Cohesion

So even loosely connected parts can support each other

Source: Fiskel, J. (2003). Designing Resilient, Sustainable Systems. Environmental Science and Technology, 37(23), 5330–5339. https://doi.org/10.1021/es0344819


However, we know that resilience and cost effectiveness need to be balanced

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1. Nicholas Bloom of Stanford Business School conducted a 2014 study which clearly showed that decentralised enterprises can do much better in tough times – because of more appropriate local decisioning

2. This does not mean a total free hand for decentralised units – McDonald’s is decentralised by country and even down to the decision making at individual store level

There are strict disciplines which must be employed

4. Nestle operates a similar model with the Japanese arm operating very differently from the Australian division, yet they both share lessons and experience, taking advantage of scale where appropriate

3. This is a “loose-tight” model often deployed to ensure that the advantages of scale and scope are utilised (e.g. procurement, health and safety standards, systems and processes), without losing the local adaptive potential


Looser connections and diversity are associated with resilience – but too much of either takes you over the edge into greater fragility

Being connected, but not too connected

Being diverse, but not too diverse

Being able to couple with other systems

when it helps

Being able to decouple from them

when it hurts

These systems use “sensing, scaling and swarming tactics” to increase their resilience and such patterns let networks gather andtransmit information in new ways, enabling them to respond to threats and opportunities (e.g. immune system or terrorist cells)

Widely varied people, who are collaborating effectively, makes systems more resilient

Yet, too much variety makes the system so inefficient it is, ironically, fragile. There must be ways to connect the diversity and point it to a collective objective

Resilience is often found in having just the right amounts of these properties:

Resilience is found in positive systems, such as the immune system, and negative ones, such as terror networks:


Three important aspects of a response are highlighted by Zolli and Healy

Sensing SwarmingScaling

✓ Organisations that see the problem for what it is early tend to do better

✓ For example, Nokia (rather than Ericsson) was the first to recognise the risks in a plant failure in Philips network

✓ Nokia was the first to pull resources off other projects and business lines to solve the problems – even before they knew how to organise

✓ Nokia teams swarmed by building Agile groups to solve different aspects of the problem with Philips resources

✓ Ericson was left out and suffered a $2.58bn hit (USD)

The human immune system at it’s best – senses, scales (antibodies) and swarms (the problem region of the body)

Source: Zolli, A and Healy A. (2013). Resilience: Why Things Bounce BackRetrieved from: https://hbr.org/2014/05/why-you-need-a-resilience-strategy-now


Leaders should consider a move to a Mission Directed Leadership approach

Ensure people have the authority to act

Ensure teams have the information they need

People have the skills to detect changes in critical systems and processes

Trust needs to be maintained – transparency is key for this

Mission Directed Leadership Key elements of MDL model

Ensure staff members understand and buy-in to the “mission”

Mission Directed Leadership

Command and Control

Provide a clear decision making framework (with clear distinction on rules and guidelines, and training)


Past geopolitical crises have provided insights into how to manage people

“Doveryai, no proveryai” – “Trust but verify” – Ronald Reagan

The U.S. Airforce has a mantra that is based on the OODA Loop: Observe; Orient; Decide; Act.

“Time is the dominant parameter. The pilot who goes through the OODA cycle in the shortest time prevails because his opponent is caught responding to situations that have already changed” – Harry Hillaker, chief designer of the F-16

The OODA loop has been translated into a business strategy that handles any application that requires a quick response to confusing, unforeseen or evolving conditions


Some “cultures” are inherently more adaptive and therefore resilient (Siemieniuch et al, 2019)

Source: Siemieniuch, C.E., Sinclair, M., Henshaw, M., & Hubbard, E.M. (2019). Designing both Systems and Systems of Systems to Exhibit Resilience. In: Bhamra, R. (Eds.) Organisational Resilience Concepts, Integration, and Practice (pp. 175-198). S.l.: CRC PRESS.

A common and well understood goal

Transparency about problems and ways of

working

Mistakes seen as learning opportunities

A willingness to share the credit and benefits

for success

A common understanding of terms

and usage

Speedy and efficient execution of promises

Strong personal relationships

Recognition of the “favour bank” (bending the rules and banking a

favour)

Comfortable with change

Always seeking improvements

Open-minded but disciplined


And leaders make all the difference to activating the culture

Without leadership semi-autonomous teams will become “disconnected”

Leaders ensure seamless technologies for

communication and information flow

They lead scenario planning for “normal’ and “extreme”

conditions

They ensure appropriate empowerment and

devolution of responsibility (but not a free for all)

They avoid unnecessary fragility by ensuring that processes are properly

resourced

They are open in communications

They ensure clear roles and accountabilities

They encourage and enable learning


On a positive note, we can seek to make our organisations “anti-fragile”(a term coined and popularised by business philosopher Nicholas Taleb)

His proposition is that a stress-rest pattern makes systems, organisations and people stronger

Strength comes from over-compensating from adversity

To have a complex and anti-fragile system, the components parts can (indeed should) be fragile so the system can learn and evolve

Evolution has it’s own form of creative destruction

Hence, exposing your kids to stressors, exposing your body to stressors (e.g. lifting weights) or exposing your organisation to stressors (e.g. adapting rapidly to enter new markets) can all have benefits

However, he also pointed out the extraordinary value of barbell thinking – or creating alternative strategies to deal with “long tail events”

Reference: Taleb, N. (2012). Antifragile: Things That Gain From DisorderSee also: https://hbr.org/2013/06/make-your-organization-anti-fr.html


Strategy Side 2Create options for entirely

new offers or business models(our opportunity)

Strategy Side 1 Strategies to optimise and

extend today’s business(our strength)

The rise of ‘Barbell’ thinking (Taleb)

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Barbell thinking presumes that in a rapidly changing world, organisations with options for different models will be those that survive. Those organisations that don’t have the right balance and focus

too much on today’s business are those that go into accelerated decline when the environment changes rapidly.


❑ Leaders should assume that there can always be a worse problem than happened in the past (Fukushima was built to withstand the biggest earthquake there had ever been – before the one that wiped it out)

❑ This extra strength might at first seem inefficient – but the smart organisational designer can tell the difference between strength and capability to manage, “long tailed risk” vs genuine inefficiency

❑ Volatility is good for creating resilience, as it helps us find weaknesses and problems before they become too large. They help us clean out the system (think of small fires preventing a massive forest fire)

❑ Also, options might cost money, but they increase your resilience (e.g. one company had the options on 50% of rental “diggers” at the time of the Brisbane River flooding)

❑ Finally, trial and error, and a willingness to fail, are fundamental to our adaptive capacity

Leaders need to think differently about designing the organisation for long-tail events

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Contact details and disclaimer

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Contact points for any questions or clarification of the content of this report can be directed to:

Report authors

Roger Perry +61 3 9663 5522 [email protected]

Jan Kautsky +61 419 432 404 [email protected]

Other enquiries can be directed to

Bevington Group Office

+61 3 9663 5522 [email protected]

Bevington Group is a specialist consultancy providing the following services:

This report has been prepared in good faith on the basis of information provided by client staff and other sources of information available at the date of publication without any independent verification. It is the responsibility of the client management to ensure that their staff provide accurate information and that management are not aware of any issues that may impact the usefulness of the data for its intended purpose. Bevington Consulting Pty Ltd does not guarantee or warrant the accuracy, reliability, completeness or currency of the information in this report. Readers are responsible for their interpretation and actions based on the content of this publication. Bevington Consulting will not be liable for any loss, damage, cost or expense incurred or arising by reason of any person or organisation using or relying on information in this report for purposes other than its intended purpose.

Disclaimer:

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Organisational Resilience Theory and Practice · 5. Organisational resilience theory and practice - TODAY 6. Personal resilience and leadership Each webinar is supported by materials