The Resilience Dimension

If we would have studied a Strategy Execution framework, such as the Balanced Scorecard, before 2009, we might have noticed that it focused only on the Performance dimension. The strategic performance, of course, not operational.

It was only after the subprime mortgage crisis (mainly during 2008-2009) when the Risk dimension has joined Performance. In face of the obvious, people have realized that we need to keep both balls in the air, as dropping any of them would equally break our act. Or our company.

Consultants, academics, and practitioners were all satisfied with this, for a while. Ten years later, the COVID-19 crisis exploded. It has been a true Black Swan, not regarding the pandemic event itself, but regarding the disproportionate economic effects, like supply chain disruptions, regional or entire industries lockdowns, and major consumer behavioral shifts.

Many people have realized that something was missing. Risk-focused initiatives could not have mitigated this kind of dramatic, global-impact events. We were supposed to be able to pivot our companies, but very few succeeded.

The pandemic shock has pushed many companies outside their comfort zone. Some have simply closed out and even laid-off employees, but others have realized that they are able to shift, sometimes dramatically, and convert their businesses, even in record time.

Pubs have converted into convenience stores, gyms have switching to equipment rental, apparel, beverage or cosmetics companies have pivoted to produce face masks or hand sanitizer, 3-D printing manufacturers and various plastics manufacturing companies have turned to medical face visors production, vacuum cleaner and automotive companies have partially converted to ventilators production, and so on. And they succeeded to do all that surprisingly fast, within weeks or months, throughout the early months of 2020.

How could they do it? Part of the answer emerges from several concepts described in the book Your Strategy Needs a Strategy, published five years ago by Martin Reeves and his BCG Henderson Institute team: Adaptability, Renewal and Ambidexterity. But there is more to that.

Versatile companies have dexterous CEOs, able to lead their teams to instantly design, prototype and convert to producing something completely new, in record time. They also run on a platform of flexible and versatile capabilities, onto which they could quickly plug-in newly required ones, succeeding to pivot in a hard turn, as the sailors say.

Such companies work with redundant suppliers, both remote, as well as local. They have easy-converting retail business lines, switching from pubs to groceries, or from restaurants to home delivery. They combine office-space working with remote, work-from-home options. All this, and many other examples, spell only one word: Resilience, our third needed dimension, complementing the dimensions of Performance and Risk.

Measuring our Fragility

Unfortunately, we cannot measure the propensity of Black Swan events, as we do for Strategic Objectives' exposure to relevant Risk Events, using Key Risk Indicators (KRIs) to measure likelihood and impact.

At the same time, we may regard Fragility as the opposite of Resilience, as inspired by the ideas of Nassim Nicholas Taleb [2]. For calculating a Fragility exposure to a weighted cocktail of reference Black Swan events, we need to take a survivability approach, determining how unachievable would each Strategic Objective be, in case such event would occur. From here to employing Key Fragility Indicators (KFIs) is only one more step.

Remember, it does not make any sense to estimate the occurrence probability of Black Swan events. Nor to build scenarios for them, since they are unpredictable. Nevertheless, it seems obvious that it is no longer enough to modulate the Performance only by Risk. We also need to do it by Resilience.

What about Business Continuity?

Does Business Continuity Planning work for Black Swan events, as in the case of the COVID-19 crisis effects? The problem is that we can only plan for future things that we know about, even only as probabilities. But how can we talk about business continuity for a company that must completely shut down, do to imposed restrictions, irrespective of where it operates?

It seems that Business Resilience is a concept different from Business Continuity. For instance, a resilient company may quickly reopen as a convenience store, when authorities are forcing it to shut down as a pub. Or, reconvert to fitness equipment rental, when they must shut down as a gym. Or, turn to remote, online video-consultations and drug prescriptions, when the patients do not require in-person ambulatory medical consultations. Or, learn to switch from fallen-demand garment manufacturing to producing disposable medical masks and hospital full-body suits. Such examples have been virtually endless in the early 2020. And this is certainly not Business Continuity (as described by some frameworks), it is Business Resilience.

In such context, Continuity means continuing the business-as-usual, even if foreseeable events force us to shut down parts of our infrastructure or undermine our capabilities system.

Resilience is the deliberately-designed ability to pivot on the business lines and their supporting models, to reroute business flows, and to redefine the business-as-usual (replacing or reshaping some operational processes and their supporting capabilities), if forced to do so by unforeseeable events.

The lasting shifts of Business Pivoting

Let us look at some examples of pivoting, as some of them may remain as lasting shifts in the business environment and the consumer behavior.

? With so many restaurants shut down and the perspective of several billion people stuck at home for months, during the coronavirus crisis, home cooking has become the mainstream source for lunches and dinners. You do not have the required cooking skills or experience with diverse recipes? The 'all cooking ingredients in a box', delivered to your door, for hundreds of recipes, have been around for a while, but you might not have noticed them.

Blue Apron, a food-delivery service, struggled for months to convince investors that people would pay $60 a box for all the ingredients they need to make home-cooked meals. But the firm saw its stock price skyrocket more than 500 percent in April 2020, amid a flurry of new interest. The company said it is hiring workers at its fulfillment centers, to meet the wave of home-cooking sharp-rising demand.

? You might have noticed that over the past couple of years Airbnb has moved from private rooms, apartments & houses short-term rental to Experiences, so their hosts became city guides, local dishes cooking teachers, traditional art performers and so on, providing tourists with unique and memorable experiences, at their destinations.

Guess what? Forced by the pandemic, in early 2020, Airbnb has quickly invented the Online Experiences that their hosts are sharing live to virtual tourists over the Internet.

? In some cases, we could employ one of our capabilities or core competencies for a completely different purpose than initially intended. Take the example of this London bakery, Bread Ahead. With their distribution to hotels & restaurants brought down by the coronavirus crisis, they have turned to online bakery courses. And if you think that many people, locked down in their houses, would be interested to bake their own bread on croissants at home, you would be certainly right.

Do you think that Bread Ahead will discontinue the online courses, or throw away their impressive list of new online courses subscribers, once the pandemic will be over? I don't think so.

? When your business is providing online dinner reservations for restaurants all over the world, like?OpenTable,?Yelp, or?Resy do, the pandemic and the restaurants forced to close have been business-killer news.

But not for?Tock, an online dinner booking app, launched in 2015. Because?Nick Kokonas, Tock's founder, quickly realized that some of their 3,000 restaurant customers in 28 countries are pivoting to pickup & home delivery, he did the same. He launched Tock to Go in record time (less than a week), allowing any of Tock's restaurants to provide pickup or home delivery, with orders placed over the Internet. Way to go, Nick!

? During the first months of 2020, we had to watched replay after replay of past years' sport events on Eurosport or ESPN. But then something happened. We have started to see live events, brought to prime time, like cycling races, except that the cyclists were not on the streets, but pedaling at home on special bikes bolted to the floor. It is the online Zwift virtual racing platform, which is the Virtual Reality version of the real cycling. Therefore, we could see how the coronavirus crisis has brought eRacing onto the front stage, complementing the real sport events.

? It is obvious that, even with low-touch principles enforced, we still need to touch surfaces the other people have touched before us, like door handles, bus handlebars, shopping carts or baskets, and so on.

What about rented cars or shared bikes? The rental companies must disinfect them every time before a new customer started using them, but the bike sharing company Wheels did something different. They had to pause their high demand shared bikes service in March 2020 but have reopened it after they have covered the bike handles with a self-disinfecting material. The NanoSeptic surfaces utilize mineral nano-crystals which create a powerful oxidation reaction. The surface continually oxidizes organic contaminants that may also carry viruses. Unlike traditional disinfectants and cleaners, the NanoSeptic surface uses no chemicals, and the surfaces do not release anything, due to the molecularly bonding of the nano-crystals.

? When was the last time you have attended, as patient, a health consultation in a brick-and-mortar medical clinic? Why do I say brick-and-mortar? Because we could see, during the early months of 2020, a sudden jump in health consultations provided online, through video-call. The clinics offering these consultations have quickly moved onto a click-and-mortar business model, otherwise used only by retail companies.

One example is the private clinics network Regina Maria. They have launched their Virtual Clinic in May 2020, in less than a month. It is an integrated application (appointment setting, video-call, payment) that also works on mobile platforms, as well as embedding the Microsoft Teams video-conferencing application.

Now, here is the most interesting part. This health network normally covers one country (Romania), but what they have surprisingly noticed was that shortly after launching the Virtual Clinic, they have received online appointment requests from some of the four million Romanians living in other countries (mainly in the EU). They have totaled 30% of all their online appointments.

? If you own a chain of fast-food restaurants, each of your kitchens are part of one of your restaurant locations. But what if your restaurants must close, or they operate in pickup-only mode, or you just want to focus on the many work-from-home customers, suddenly created by the pandemic? What do you do?

You open a network of virtual kitchens, which are, in fact, real kitchens, but not part of any restaurant location. Then, you partner with delivery companies and integrate your online ordering system with theirs. Soon after, your online ordering may be booming, and the change could last for long after the lifting of the restrictions. Take the example of the Fatburger fast-food chain in the United States. Just click their new Order Online button.

? The travel industry might learn something from the 2020 pandemic crisis. Apart from the cleanliness and health-protecting measures, we might all learn (service providers and customers) that the virtual experience can compensate, at some extent, for the impossibility to visit in person a tourist destination. Take the example of DiscoverPuertoRico, the Official Tourism Website for Puerto Rico. Today, they provide you with a Virtual Vacation on the island, with live tour guides, recorded tours, virtual museums, live Latino dancing classes, make-at-home Puerto Rican recipes and even live online cooking demonstrations.

These are a couple of examples of Resilience and Business Pivoting, but I think that you have been able to discover more of them, somewhere near you, during the 2020 coronavirus pandemic crisis.

The Low Touch Economy

It is not just about the economy, as the effects of the pandemic have propagated throughout the society in general. Have you read Isaac Asimov's The Naked Sun novel? It describes a future of humankind in which reclusion and holographic virtual contact replaced face-to-face contact. Well, we are not there yet, but forcefully heading that way, due to the 2020 once-in-a-century-pandemic and its probable future occurrences.

The concept imagined by Philippe De Ridder, of Board of Innovation, is the Low Touch Economy. It describes the context of a possible post-pandemic new normal, where the personal contact, throughout most industries, goes down to a safety level. Many of the pivoting examples are doing exactly that. It may be interesting to look at what Martin Lindstrom tells us about this, through the lenses of consumer behavior. He is the author of several acclaimed book, including the New York Times bestseller Buyology [3]:

“Just like 9/11, the coronavirus is causing a major behavioral change in our society. The victims? The airline industry, cruise ships, malls, department stores, concerts, bricks-&-mortar retail, sporting events, restaurant buffets, every kind of business that depends on crowded spaces. These venues once seemed permanent, reliable elements in our lives, but with the hit of a Negative Somatic Marker, they are likely to be changed and be replaced … forever” [4].

Handling Turbulence & Chaos

How can we manage the Resilience? In their book Chaotics[5], Prof. Philip Kotler and John Caslione are proposing a solution: the Chaotics Management System, “capable to detect, analyze, and respond to turbulence and its chaos”. A system that consists of the following three components:

1.???Detect turbulence by developing an Early-Warning System

2.???Respond to chaos by building key scenarios and by assessing risks

3.???Select Strategy [choices] based on scenarios and risks prioritization

An important note here is that their proposed turbulence handling is not the same thing as neither Scenario Planning, nor Risk Management, although their described components use both terms (scenarios and risks).

The new Horizons of Growth

Another solution comes from McKinsey, based on the adaptation of their Three Horizons of Growth (THG) [6]. They call it the Five Frames Horizons [7] (multiple time horizons, using five frames), to better accommodate the fast-changing variables of the uncertain short-term future, by blending Tactics and Strategy. They suggest to approach the future planning by ‘identifying the options and actions needed to act tactically and strategically’. They have zoomed-in into the first THG horizon, by defining Tactical (not Strategic), timeframes for:

{ 1 } one week (two, four, and seven days), as the first frame horizon,

{ 2 } one month (two and four weeks), as the second frame horizon

{ 3 } one semester (one and two quarters), as the third frame horizon

Further, they have retained the second horizon from THG (one and two years), shifting it into the fourth frame horizon { 4 }, and redefined the third THG horizon as the new normal, shifting it into the fifth frame horizon { 5 }, beyond two years into the future.

So, this framework suggests the adoption of a tactical approach (employing some short-term, emergency-driven projects, as well as shifting strategic initiatives to near-term goals and decision points) for the first THG horizon (one week to one semester), dealing with the most pressing priorities of business survivability.

They complement it by a strategic approach for the 2-3 THG horizons (from six months to 2-3 years), dealing with the capabilities and the staircase of growth for building the right-to-win in new business arenas.

As in the THG case, resources should be allocated in a weighted priority. For instance: 70% for { 1-3 }, 20% for { 4 }, and 10% for { 5 }.

Like the Chaotics Management System, they also recommend "creating a set of indicators aggregated into a?control tower?that serves as an Early-Warning System to signal which scenario is emerging … this requires a sentinel that can see the signals first, combined with a plan that is flexible and ready to act on the trigger points".

The Pivoting Capabilities

Pivoting means the reconfiguration of one or more capabilities, in order to support a new business model, without requiring a significant effort in doing so. Like the reconfiguration of gym equipment to home rental, in case the gym venue has been required to close down. Like the home or curve drive-in delivery of dishes, otherwise served in the restaurant that had to close due to pandemic constraints. And so on. But not all the capabilities in our Capabilities System can allow us to pivot.

The first thought that crosses our mind, at this point, may be "Which are our pivoting and non-pivoting capabilities?"

Let's do it like this: On the top of the diagram below, there are some examples of Unforeseeable Constraints sources. In most cases, we cannot even call them Black Swan events, as we are aware of those threats, but the unforeseeable part is

1. When will they occur
2. How badly will they affect us and
3. What are their ripple-effect consequences

For instance, we knew about a possible pandemic, but we didn't know When will it hit us, How badly and with What consequences that we never thought of.

Step two. List within the ten areas of the Capabilities System those capabilities that support your current business model. Then, go through them, one by one, and ask this question: "If any of the above constraints will occur, can we reconfigure this capability for a new business model that would allow us to mitigate that constraint?" If the answer is Yes, add it to your list of Pivoting Capabilities that you should develop and take care of, because your business's survival may one day depend on them.

Calculating KFIs and Fragility Exposure

Let's get more technical. So, there are three attributes of a Strategic Objective: Performance, Risk and Resilience. The equivalent of the Risk Exposure for Resilience is the Fragility Exposure, but the way we quantify this is different from Risk, where the basis are the Risk Events that can be associated with a Strategic Objective.

Remember, it doesn't make any sense to estimate the occurrence probability of Black Swan events. Nor to build scenarios for them, since they're unpredictable. However, it seems obvious that it's no longer enough to modulate the BSC Performance only by Risk. We also need to do it by Resilience.

The Fragility Exposure for a Strategic Objective is calculated based on its KFI - Key Fragility Indicators. The basis of the KFIs definition are the Capabilities that are represented in the Coherence Gaps associated with that Strategic Objective.?

As a reminder, a Strategic Objective is built based on a number of Strategic Gaps. If a Strategic Gap is defined between a Required Capability and an Existing Capability, it is called a Coherence Gap (coherence between our Strategic Choices and the Capabilities required to support them). When we succeed to close all the Strategic Gaps that have been used for defining a Strategic Objective, then that objective is achieved.

So, doing this backwards ...

Strategic Objective > Coherence Gaps Coherence Gaps > Capabilities

As described in more detail above (in The Pivoting Capabilities section), we can evaluate a Capability in regard to supporting the transformation of our Business Model, therefore in regard to how well does it support Business Pivoting. We can use a number of Influence Factors drivers categories in this multi-criteria evaluation: Political, Economical, Social, etc. In this way, we can calculate Capability's Pivoting Score.?

A Capability that allows pivoting for all possible unforeseeable constraint drivers considered gets a score of 1 (maximum Pivoting). A Capability that doesn't allow any pivoting gets a score of 0 (minimum Pivoting). Further on, a Coherence Gap inherits the Pivoting Score of the Capability it is defined for, contributing to the calculation of a Strategic Objective's Fragility Exposure, via the KFIs.

The trickiest part is the transformation of Capabilities' pivoting score into KFIs. The simplest solution is to translate each Coherence Gap into one KFI. However, for objectives that encompass many Coherence Gaps, the calculation of Fragility becomes quite complex. That is why we sometimes choose to aggregate several Coherence Gaps under one KFI. But you can start with 1 Coherence Gap = 1 Key Fragility Indicator.

For example, if a Strategic Objective has two Coherence Gaps associated with it, we will have two KFIs for it. So far, we have never used the weighted average for the Fragility Exposure calculation, but it is possible, in theory. Use simple average, for the beginning.

Let's say that the Capability-1 has a Pivoting Score of 0.5 (supports Business Pivoting for half of the unforeseeable constraint drivers) and the Capability-2 has a Pivoting Score of 0.8 (remains relevant for 80% of the unforeseeable constraint drivers). So, we will have KFI-1 with a value of 50% and KFI-2 with a value of 80%, with an average at 65%, which is Strategic Objective's Fragility Exposure (100% - no Fragility, 0% maximum Fragility).

Further on, we expect to observe a certain dynamic for the unforeseeable constraint drivers, in fewer or more categories. This means that the values of the KFIs will vary in time and so will our Strategic Objectives' Fragility Exposure.

Hope that I have stirred your curiosity on this topic :-) Any kind of feedback is welcome.

Reference reading:

[1] Your Strategy Needs a Strategy: How to Choose and Execute the Right Approach, Martin Reeves, Knut Haanaes, Janmejaya Sinha, HBR Press (2015)

[2] The Black Swan: The Impact of the Highly Improbable, Nassim Nicholas Taleb, Penguin (2007), Antifragile: Things That Gain from Disorder, Nassim Nicholas Taleb, Penguin (2012)

[3] Buyology: Truth and Lies about Why We Buy, Martin Lindstrom, Paco Underhill, Broadway Books (2008)

[5] Chaotics: The Business of Managing and Marketing in the Age of Turbulence, Philip Kotler & John A. Caslione, AMACOM (2009)?

[6] The Alchemy of Growth: Practical Insights for Building the Enduring Enterprise, Mehrdad Baghai, Stephen Coley, David White, Basic Books (2000), The Granularity of Growth: How to Identify the Sources of Growth and Drive Enduring Company Performance, Patrick Viguerie, Sven Smit, Mehrdad Baghai, Wiley (2008)

[7] Getting ahead of the next stage of the coronavirus crisis, McKinsey & Company, Strategy & Corporate Finance, Our Insights (April 2020)