Across all industries of business, resilience is consistently essential for global success and organization longevity. In 2022, the COVID-19 pandemic has cemented resilience as not only important but essential. Any crisis, such as the COVID-19 pandemic, creates a source of pressure to improve performance and efficiency as well as gain a competitive edge in the industry. This external pressure increases the need for a business to transform in order to secure long-term outcomes and continued success. Resilience has been shown to create long-lasting value in businesses, helping companies to out-perform competitors both in response to crises and in times of stability.
Business transformation is a critical aspect of resilience, and yet it is often misunderstood, overlooked, or carried out incorrectly or inefficiently. Yet when a business is successfully transformed, the impact on resilience, long-term performance, and customer retention is undeniable. The impact of a new crisis will be lowered, as the business will be able to mitigate the negative consequences while monopolizing on new opportunities the crisis may create. Additionally, resilient transformation significantly decreases the time taken for a business to recover from a crisis, and the extent of this recovery will be improved to allow the success of the company to grow despite a change in circumstances.
In the face of uncertainty, transformation is necessary for business success. This transformation consists of changes across multiple areas, including operating models, processes, and organizational culture. Insights into successful business transformation can be found by examining businesses that have consistently transformed successfully and out-performed peers in the industry. These businesses make up the top percentile of business transformations in terms of percentage increase in industry performance. In an analysis of these businesses, there are several key factors that stand out as being crucial to the success of resilient transformation, as well as demonstrating exactly why transformation is the key to creating resilience.
Pre-emptive business transformation in the face of crisis or industry volatility offers access to a range of advantages against the competition. Resilience creates the advantage of anticipation of future crises, allowing swift recognition of threats that may impact business in the future. This allows advance preparation before the impact of the crisis is felt, reducing the initial negative impact of the crisis. This “cushioning” effect increases the chance that a business will be minimally affected once a crisis begins, and improves the net recovery speed following the crisis.
In the time following the initial impact of uncertain or unprecedented times, a resilient business will be influential in re-shaping industry dynamics and taking advantage of new circumstances to reach success. This process increases the extent of recovery and has the potential to allow greater success than would have been accessible pre-crisis.
There is undeniable evidence that the likelihood of resilience being built via business transformation drops sharply if these changes are not made early. If transformation is begun immediately when there is a crisis, the chance of increased company debt drops by 20% when compared to a transformation that takes place a year or more following a crisis. Beginning transformation early allows traction to be established early on as changes in the operating model, business strategy, and internal processes are implemented. Additionally, a transformation that takes place a year or more after a crisis is less likely to be growth-oriented. The global environment is dynamic, with significant uncertainty. This points toward significant benefits for businesses from planning for crisis and pre-emptive resilience transformation. Resilience creates a wide range of benefits across the global economic cycle in both the short and long term.
In times when the pressure of a crisis is removed, focus on resilience may be seen as unnecessary by organization leaders. Even a company that has successfully implemented transformation for resilience in a past crisis may shift the focus away from this change when stability increases.
Neglecting resilience once a crisis has been resolved results in the value of the resilient transformation decreasing, making the transformation less likely to reduce debt and accelerate growth. A long-term strategy for resilient transformation will instead allow these benefits to be consistently reaped by the organization, both increasing profits and improving resilience in the likely cause of a future crisis. Future crises are inevitable - whether this may be a pandemic, financial crisis, or local or global political change - and therefore making resilience a pillar of business and focusing on strategic long-term change guarantees optimal positioning for out-performing competitors. Companies that display general resilience are shown to out-perform competitors in the industry during crisis quarters more than 80% of the time.
An example of a company that has achieved general resilience through continued transformation is the multinational conglomerate holding organization Berkshire Hathaway. Since 1995, Berkshire Hathaway has consistently outperformed in approximately 88% of crisis quarters experienced by the organization. The sustainable success of Berkshire Hathaway over this extended period of time clearly demonstrates the value of continuing to prioritize resilience transformation even in “good times”.
Many start-ups and businesses mistakenly focus primarily on cost reduction when looking at areas to focus on transformation. If only cost reduction is focused on, there may be an initial increase in profit which will falsely point to a successful transformation, but the resilience of the business is likely to decline in the future. This is because, in change programmes - especially those driven by crisis - most of the value created by resilience is shown to be the impact on differential growth.
When a large-scale change programme is designed to accelerate growth during a future crisis, the performance of the business improves along with resilience. This manifests in more flexible business modules and products, as well as a forward-thinking organizational culture, which allows companies to flourish despite more difficult external circumstances by focusing on new opportunities for growth.
It is undeniable that creating transformational change on a large scale initially requires a sizable financial commitment. This can naturally create a predisposition for business leaders to increase corporate debt in order to fund transformation. However, this course of action serves to reduce the average resilience of a business.
A business that is highly leveraged will be more susceptible to financial loss during a crisis, due to the higher fixed costs associated with servicing corporate debt. When in this position, a business will have limited scope to tap into debt markets in order to acquire assets. In uncertain times, a reputable investor will prefer the outlook of a company that has a lower debt level. This preference will compound the problem for the business which initially chose to increase corporate debt for transformation funding.
Reducing the intensity of an organization’s fixed assets serves to increase recovery speed and adaptability in a time of crisis or uncertainty. This then allows the financial focus to be shifted away from fixed assets, and towards variable expenses. Resilient transformations that aim to reduce the debt load of a business will then allow the financial impact of a future crisis to be reduced. If both of these factors are incorporated together, the chances of successful resilient transformation are increased to almost 70%.
A widely-known example of successful resilient transformation utilizing debt reduction is The New York Times. Initially surpassing 200% enterprise value in the financial crisis which took place in the mid-2010s, The New York Times responded by restructuring business operations, selling business segments, and freeing up capital. This allowed the organization to reduce debt, as well as invest significantly in the digital subscription aspect. Before the 2010s ended, The New York Times was not only successfully free of debt but had also increased digital revenue above 800 million. This clearly demonstrates the advantages of reducing servicing debt, which allows a “cushioning” effect in future crises such as the drop in advertising revenue in the COVID-19 pandemic.
While resilience has always been necessary for long-term success, the wide-reaching effects of the COVID-19 pandemic have emphasized the need for resilient transformation of businesses in order to secure success in the long term. Many business leaders and start-ups now seek to transform organizations for resilience out of necessity, but continuing to build the business culture, processes, and organization to sustain these results in the future is an essential part of this transformation. Growth decreased debt, increased flexibility and wide-reaching global success will result from resilient transformation for any business that prioritizes future planning - and this may be the key to long-term success.
In a time of unprecedented global uncertainty, planning for the future may seem redundant – but in reality, planning has never been more essential.
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