Shining a Light on Organizational Resilience
In the research we have done into enterprise resilience, we conceptualize it as a balancing act between the vulnerabilities your organization faces (i.e. the risks inherent in your operations) and the capabilities you build to mitigate the impact of these risks. The idea is that you want to build a portfolio of capabilities best suited to your pattern of vulnerabilities.
When folks talk about mitigating risk to disruptions in the supply chain, you hear a lot about capabilities like having multiple suppliers, geographically dispersed manufacturing capacity, supply chain visibility and strong supply chain relationships. I consider these to be supply chain capabilities. But I would argue that these capabilities have been of little help during the COVID-19 crisis. Perhaps having geographically dispersed capacity was of some help, since the virus outbreak spread to different parts of the world at different times, and maybe strong relationships have helped some firms recover faster than their competitors, but the scope of this disruption was so big that successful companies have needed more than these supply chain capabilities to help them recover and thrive.
Other key capabilities that can help during a disruption are market and financial capabilities. In the category of market capabilities, I include customer loyalty and market position. For example, if your customers are willing to wait for your product, perhaps a supply chain disruption means your revenue is simply delayed and not lost. If customers couldn’t go shopping for an iPhone during the quarantine, many of them were willing to wait because they are loyal to Apple and weren’t going to switch brands. That is a capability you can “exploit” during a crisis. Keep in mind though that what passes as customer loyalty during normal times, might not hold in a crisis. I’ve always been a fan of Cottonelle toilet paper and have considered myself a loyal customer, but when the shelves were near empty in March and April, I was buying whatever I could get my hands on! Sorry Kimberly-Clark – customer loyalty only gets you so far when there’s a global toilet paper shortage!
Certainly, it is easy to see that financial strength could also help you weather a storm (both literally and figuratively speaking), or financial weakness could be a detriment. Companies like Hertz that were already financially constrained are going to be the first to declare bankruptcy or go out of business when revenues plummet and/or costs spike due to a disruption. There is simply no cushion to fall back-on.
So beyond the typical supply chain capabilities, these market and financial capabilities can play important roles during wide-spread disruptions. However, what I am seeing is that this pandemic has highlighted the importance of what I will call organizational capabilities. I would posit that the firms with success stories coming out of the COVID-19 pandemic relied most heavily on their organizational capabilities to get them through. Some manufacturers had to quickly ramp-up production to meet increasing demand (think back to Kimberly-Clark). Many retail stores faced shuttering their brick-and-mortar operations but had to quickly increase their on-line fulfillment capacity. Restaurants had to figure out how to quickly switch to take-out-only dining. All these pivots took agile human resources. Many firms had to make quick decisions about whether and how to continue operations in a way that kept their employees safe; or think quickly about how to make new products (e.g. distilleries starting to produce hand sanitizer) or create new markets (e.g. a food manufacturer that supplied restaurants finding ways to market and deliver directly to end-consumers).
These pivots required quick resource mobilization and decision-making, which can be facilitated by flat organizational structures, empowered employees, and a culture that encourages and values innovation and creative problem-solving.
As a supply chain scholar and enthusiast, it pains me a bit to say this, but the answers to supply chain resilience are not all in the domain of the supply chain arena. We need to think enterprise-wide about the capabilities that are created by the marketing and finance functions, and most importantly pay particular attention to the human resource structures and culture we have in place that creates organizational flexibility and agility. Not too many companies had robust pandemic plans in place, so pre-planning for this wasn’t an option. Instead the leaders and managers throughout the organization had to be nimble and able to pivot to their new reality. For most, I believe it came down to the people.
Sources and Further Reading
- Fiksel, J., M. Polyviou, K. Croxton, T. Pettit, “From Risk to Resilience: Learning to Deal with Disruption”, MIT Sloan Management Review, Winter 2015. Derivative pieces published in Delivered and Property and Casualty magazines.
- Croxton, K., “The Yoga of Resilience – It is About Balance,” The Supply Chain Engineer Blog, January 2020. https://thesupplychainengineer.com/the-yoga-of-resilience-it-is-about-balance/
- Croxton, K., A. Knemeyer, M. Polyviou, J. Fiksel, “The Resilient Supply Chain: Competing on the Ability to Come Back from Disaster,” White paper with summary appearing in Inc. Magazine. October 2013. https://www.middlemarketcenter.org/middle-market-academic-research-summaries/the-resilient-supply-chain-competing-on-the-ability-to-come-back-from-disaster