Companies’ resilience is being tested like never before. Consumer spending has fallen by almost 20% during the spread of COVID-19, with the pandemic disrupting 75% of supply chains.
Priorities are rapidly changing, and the massive shift to remote working poses a major risk to companies’ IT infrastructure. Consequently, approximately 60% of companies expect to report at least a 10% decrease in revenue and earnings in 2020. With such bleak outlook, resilience will be the key driver of value.
In the past few economic downturns, about one in seven companies increased both its sales growth rate and its profit margins. Despite challenging circumstances, successful companies grew their sales by 14 percentage points more and improved their margins by 7 percentage points more than the 44% of companies that declined on both parameters.
Even before COVID-19, companies were struggling to keep pace with technological change, and this has only accelerated since the pandemic began. Indeed, the future of work and life will be more digital than people previously imagined.
With almost every organisation having to depend on data, analytics, digital tools, and automation, digital technologies will constitute an increasingly critical element of business resilience tomorrow.
PHASES OF RESILIENCE
People often overlook the fact that resilience isn’t just about springing back from a crisis, it’s also about springing forward into a new reality.
A resilient company responds immediately to safeguard itself, recovers from adversity and reworks its business to get ahead of rivals in an ever-changing future. Tackling the COVID-19 crisis, for example, requires companies to plan for three phases.
Most have, by now, addressed the immediate priorities of the Respond phase by keeping employees safe, changing their way of working, and dealing with key operational issues such as supply chain disruptions. Their focus now is on the new reality.
During the Recover phase, businesses must develop data-driven sense-and-respond approaches to tackle volatility and must learn to adjust rapidly to fast-changing scenarios.
The process of building resilience also has a critical Reimagine phase, which involves preparing the business for the future. The current situation is almost certain to result in permanent shifts in consumer and employee behaviour, with some businesses irreversibly disrupted.
However, resilient companies will have a clear opportunity to emerge stronger, so they should start laying the foundations by embedding resilience into every aspect of the organisation.
Technological capabilities are instrumental in building resilience, whilst resilient companies are likely to adopt an operating model with an integrated view of the relationship between people and technology. Digital transformation has therefore become more crucial than ever.
As almost every organisation’s dependence on digital technology grows, it’s not an exaggeration to suggest that adopting and managing digital technologies will be critical to business resilience. Done right, a digital transformation will build long-term resilience and stability.
It should also see short-term financial gains, with companies expecting their profit margins to increase, on average, by 12% to 20%. They will generate as much as 50% of the additional profits in the first year, thereby generating the resources needed to fund the rest of the transformation journey.
THREE STEPS TO DEVELOP DIGITAL RESILIENCE
It’s important for companies to build digital resilience when and where they will need it most. Many of them have already increased their investments in secure remote working technology and reduced their capital expenditure to respond to their immediate needs. Most are continuing to invest in strategic priorities to build ongoing resilience, and doubling down on automation.
Companies can also follow a three-step approach to tailor priorities to their specific situation and needs.
Step 1: Address Imperatives to Respond and Recover
The starting point in this three-step process is to address the issues resulting from lockdowns and to support business performance as markets recover.
Many companies struggle in their efforts to respond and recover rapidly. In their initial response, companies must focus on business outcomes that will deliver the most value in the shortest time, which is why efforts to switch to digital marketing and e-commerce and to develop a data-driven supply chain are often high on the agenda.
To accelerate during the recovery, a company must focus on tangible, short-term opportunities, and employees must develop new skills and adapt to new ways of working.
Step 2: Reimagine the Future and Set Ambitions
Once companies have dealt with their immediate priorities, they must turn to their ambitions for the future, and in setting the scope of their ambition companies must identify specific, critical resilience dimensions on which to differentiate themselves.
Two key factors will determine the urgency and need for resilience. One is the expected financial impact and the other is the potential for digital disruption. Companies in industries that face lower levels of financial distress and risk of disruption can afford to take a more focused and financially pragmatic approach to investing in digital resilience.
In sectors where both the potential for digital disruption and the amount of financial distress are high, businesses should treat investing in digital resilience as a matter of urgency. Doing so will allow it to respond to future disruptions even more effectively.
Step 3: Build Sustainable Advantage
Finally, companies must invest in developing sustainable advantage by building long-term resilience. To do that, they need to identify the gaps between their ambitions and their current resilience maturity.
A company must immediately take steps to tackle the areas in which it is exposed. The minimum goal should be to ensure that the company is viable—if not future-ready—in every area. That’s particularly true in the areas of financial strength and cybersecurity, where vulnerability may spell disaster during the next crisis a company faces.
Once a company is viable on every dimension, it can work to become future-ready on the dimensions that it believes are necessary to weather future crises and to differentiate itself in the marketplace.