Business often feels like a contact sport. Your competitors want to rough you up, blitz you with unexpected new products, undercut your prices, gang up on you via alliances or mergers and hammer away at your stock price. Organizations are bound to get the occasional bump and bruise—or worse. The important thing is a company’s ability to minimize the damage, recover fast and quickly get back in the game with new strategies, business models and products. That’s what business “resilience” is all about.
When couched in sports metaphors like these, resilience sounds fairly simple. It’s not, of course. In fact, an analysis by Booz Allen Hamilton finds that only 17% of organizations are resilient, meaning that they are “highly adaptable to external market shifts, yet focused on and aligned behind a coherent business strategy” (Neilson, Pasternack and Van Nuys, 2005, p. 85).
Resilience is something that even the best companies will need to perfect as we proceed into an already turbulent 21st century. The ultimate goal of resilience, write Gary Hamel and Liisa Valikangas (2003) in Harvard Business Review, is creating “a company where revolutionary change happens in lightning-quick, evolutionary steps—with no calamitous surprises, no convulsive reorganizations, no colossal write-offs and no indiscriminate, across-the-board layoffs” (p. 54). They argue that just as manufacturers routinely shoot for zero defects, resilient organizations should shoot for “zero trauma.”
To be resilient, an organization needs to have a certain kind of corporate culture, one that supports the three components of resilience capacity, as laid out by University of Texas researchers Cynthia Lengnick-Hall and Tammy Beck (2005). First, a company needs to have “cognitive resilience,” which means that the organization has a deep understanding of what’s happening around it. It not only notices how things are changing but makes sense of those changes and formulates responses. Such cultures help organizational members resist the all-too-human proclivity to live in denial about unwelcome truths. It helps if workers have a strong sense of the core identity and values of the organization so they know how to behave in times of change or even crisis.
Second, companies need “behavioral resilience,” meaning that they don’t react in a simple, knee-jerk fashion when something unexpected occurs. This makes a range of actions possible. To the degree there are ingrained habits, those habits lead the firm to “open communication channels, create interpersonal ties, and seek multiple sources of information when uncertainty increases” (p. 751).
Third, there’s “contextual resilience,” which depends a lot on internal social connections. Interpersonal networks often help companies rapidly cope with and respond to changes. It turns out that resilient people have a knack for getting others to help them out in times of need (Lengnick-Hall and Beck, 2005).
Although information flows freely in resilient organizations, people tend to be clear about who is responsible for making which kinds of decisions. Decisions are not second-guessed once they’ve been made. And such organizations are more likely to distinguish among high, adequate and low performers (Neilson, Pasternack and Van Nuys, 2005).
Resilient organizations also tend to be unusually innovative. In fact, among such companies, there’s been a 235% increase in the emphasis on innovation over the last 20 years, according to research conducted by Patrick Reinmoeller and Nicole van Baardwijk (2005). These organizations also have dramatically boosted their commitment to knowledge management, trying to leverage their collective know-how. They seek new knowledge both within and outside their organizations, and they work hard to increase entrepreneurial behaviors. In short, resilience means taking multiple paths to innovation.
Hamel and Valikangas make a similar point. They argue that too many companies rely on “innovation ghettos” such as incubators and skunk works, where much research and development have traditionally been conducted. Because these ghettos are cut off from the main business, most of them don’t produce much in the way of innovations that boost the bottom line.
They argue that it’s wiser to involve all employees in the search for and development of innovations. Variety is key. “Our experience suggests that a reasonably large company or business unit—having $5 to $10 billion in revenues, say—should generate at least 100 ground-breaking experiments every year, with each one absorbing between $10,000 and $20,000 in first-stage investment funds” (p. 60).
Hamel and Valikangas also suggest that employers could set up semi-free markets within their organizations for funding innovation. They note that there can be hundreds or even thousands of people who control budgets in large corporations. If they’re allowed to invest a small proportion of those budgets—say 1% to 5%—in strategy experiments, then corporate capital would be allowed to flow to the best rather than just the most politically connected innovations.
The idea, ultimately, is to become more resilient than the competition, both in terms of recovering from mistakes and reacting to new opportunities. In the 21st century, sheer brute force and size are becoming much less important than speed and renewal.
For more information on adapting to changes, see HRI’s Managing Change Knowledge Center. This contains, among other things, a recently updated and published highlight report. Also see HRI’s Creativity and Innovation Knowledge Center.
Documents used in the preparation of this TrendWatcher:
Hamel, Gary, and Liisa Valikangas. “The Quest for Resilience.” Harvard Business Review ( September 2003): 52–63.
Lengnick-Hall, Cynthia A., and Tammy E. Beck. “Adaptive Fit Versus Robust Transformation: How Organizations Respond to Environmental Change.” Journal of Management ( October 2005): 738–757.
Neilson, Gary L., Bruce A. Pasternack, and Karen E. Van Nuys. “The Passive-Aggressive Organization.” Harvard Business Review (October 2005) : 83–92.
Reinmoeller, Patrick, and Nicole van Baardwijk. “The Link Between Diversity and Resilience.” MIT Sloan Management Review (Summer 2005): 61–65.