Resilient Organizations

How to Survive, Thrive and Create Opportunities Through Crisis and Change

Erica Seville

• Publisher: Kogan Page
• Year: 2016
• ISBN:
  9780749478568
• Edition: 1
• Topic: Business
• Subtopic: Management
• Index: Business

What differentiates resilient organizations from those that are not? Do we need to wait until a crisis strikes to see how resilient an organization is? Resilient Organizations draws on primary research to reveal the answers to these questions and provides practical ideas and actions to make your own organization more resilient. Organizational resilience is about creating organizations with the agility to adapt to unexpected challenges and the capacity to seize opportunity out of adversity. Dr Erica Seville, founder of the Resilient Organizations research programme, provides readers with the essential knowledge required to enable organizations to thrive in a world of change and uncertainty. Drawing on a decade of research, her team have identified 13 indicators to diagnose an organization's resilience. Resilient Organizations draws out the top five ingredients and shows how organization resilience is a capability that can and must be proactively fostered and maintained over time. Using case studies, diagnostic tools and key actions and initiatives to develop and maintain organizational resilience, Resilient Organizations is essential reading for everyone tasked with developing strong organizations that can survive and thrive in crisis and change - from risk, resilience and business continuity professionals to leadership and management teams.

01

The case for resilience

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Swiss Air was once one of the most admired airlines in the world. Famous for its punctuality and superior service, it was also considered to be so financially stable that it was nicknamed ‘the flying bank’.

But that all changed.

Not long after the 11 September 2001 terror attacks, Swiss Air’s planes were suddenly grounded on tarmacs around the world.¹ Forty thousand passengers were stranded and hundreds of staff made jobless. There wasn’t enough cash to pay for fuel or landing fees. Swiss Air had run out of money.

What led to this spectacular collapse of a once highly successful and stable organization? The 11 September terror attacks created unprecedented disruption to the aviation industry – but although this may have been the trigger for Swiss Air’s demise, it certainly wasn’t the cause.

Problems for Swiss Air started in the late 1990s, when the airline board decided to follow an aggressive borrowing and acquisition policy called the ‘Hunter Strategy’. As a mid-sized carrier, Swiss Air had found that it was neither big enough to be a market leader nor small enough to fit into a niche. Based in Switzerland, the airline had high operating costs, and, because Switzerland is not a member of the European Union, Swiss Air did not have the freedom to expand alone across Europe. Swiss Air started looking for solutions. Initially it started joining global alliances, but after a few years decided to try another strategy – buying stakes in a string of other European airlines.

Swiss Air had leveraged itself up with debt, and the airlines it had purchased weren’t performing well. Its survival was in the balance – and then the 11 September attacks occurred. As disruption rippled through the aviation industry, Swiss Air recorded losses of CHF 65 million (USD 41m) in just 10 days.² Swissair simply couldn’t handle the hit – the ‘flying bank’ was all out of cash. Over the course of a decade, the company had gone from a source of national pride to notoriety as one of the most spectacular corporate collapses. Was this a case of bad luck or bad management? In its attempts to deal with one set of problems, Swiss Air had reduced its ability to deal with shock events. It had failed to manage its resilience as a strategic asset.

So often when we think about resilience, we think of the moment of crisis. But resilience comes from deeper within an organization’s history. Over many years, Swiss Air had developed a culture and style of management that effectively prevented discussion of differences. One past employee described how everything was fine as long as your opinion remained the same as that of the group. Challenging the mainstream thinking with different views was almost impossible.

Ineffective and suboptimal group decision making negatively affected the health of Swiss Air and, ultimately, its resilience. For Swiss Air, it may have been the disruption following the 11 September attacks that tipped the company over the edge, but the culture it had developed over the previous decade had led the organization to the cliff’s edge.

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Over the past decade, I have co-led Resilient Organisations,³ a public-good research programme based in New Zealand. Together with John Vargo and a team of 35 fantastic researchers, we seek to understand what helps and hinders an organization’s resilience. For 12 years, our research has focused on organizations of all shapes and sizes. We have discovered that, whether an organization is a large multinational, a small business, a government agency, a charity, a sports club or a co-operative, the principles of organizational resilience remain the same.

Within the research community, excitement is building. We are starting to unlock the mysteries as to what enables some organizations to thrive in the face of adversity, while others wilt and fail. We have managed to identify a suite of leading indicators that can diagnose how resilient an organization is likely to be in the face of future crises, and have also developed tools for measuring and monitoring levels of resilience over time.

There is still a long way to go to build a complete picture of what drives an organization’s resilience, but the good news is that we now know that any organization can become more resilient if it wants to. In this book I will translate for you what the latest research is telling us about what makes organizations resilient, turning it into tangible, practical advice that you can implement in your own organization, starting today.

Becoming future-ready

All organizations go through natural business cycles. The one certainty is that at some time during its life, every organization is likely to face a disruptive crisis. Be it a natural disaster, a reputational crisis, problems within the supply chain or an issue affecting its people, organizational crises happen more often than we think.

In the late 1990s, Deborah Pretty from Oxford Metrica started looking at the frequency of crises striking large corporations.⁴ Taking five years’ worth of share price data on the largest 1,000 companies in the world, she analysed the percentage that experienced a crisis severe enough to cause a sudden fall in their share price. Looking for share prices that fell by 30 per cent or more within a month, her findings were staggering. More than 40 per cent of the world’s largest companies had experienced such a crisis within just five years. One of our researchers, Amy Stephenson,⁵ surveyed businesses in Auckland, New Zealand and found similarly high rates of crises, with 41 per cent of organizations reporting that they had experienced a crisis within the last five years.

Many people seem to think that crises are rare events, but they are not. If your organization has a 40 per cent chance of experiencing a crisis sometime in the next five years, shouldn’t you take the resilience of your organization seriously?

Crises impact organizations on a daily basis. In just 10 years, for example, one firm I know experienced four very different crises: a major employment dispute; power struggles within the leadership team for strategic control; damage to its premises requiring sudden and permanent evacuation; and then the breakaway of a group of staff to set up a rival firm. This firm’s experience is not an outlier and these types of event are not unusual – they are happening to organizations every day. If handled poorly, they have the ability to bring an organization to its knees.

But change and disruption are not always negative – they can also be invigorating for an organization. Renewal can bring the injection of new skills and perspectives. Existential crises can lead to an organization re-evaluating its goals, taking a fresh look at its operating environment and finding new opportunities to explore.

Our challenge for the 21st century is to create organizations that are future-ready, with an inbuilt capacity not only to weather the storms of change, but to be able to thrive in such environments. We need organizations that proactively identify and manage the risks that can be anticipated, but also invest in capabilities to cope with events that cannot be anticipated. We need organizations that are capable of sensing changes in their operating environment, can quickly grasp the implications of those changes for their organization, and are agile and strategic in their response. These will be the organizations that thrive in the rapidly changing environments of the future.

It is possible to proactively develop such a resilience capability within any organization.

The time for change

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In March 2000, lightning struck a high-voltage line in New Mexico, causing a fire at the Royal Philips Electronics manufacturing plant.⁶ The fire was relatively minor – and was put out in just 10 minutes. The problem wasn’t the fire itself so much as the smoke and dust generated while putting out the fire. Computer chips don’t tend to like getting dirty. The smoke and dust had just contaminated a stockpile of product waiting to be shipped – millions of tiny computer chips for use in mobile phones.

At the time, Phillips had two very high-profile customers for its computer chips – Nokia and arch-rival Ericsson. Phillips surveyed the damage and initially estimated that production would be...