Boat and tree in a storm
For over a century, the primary focus in business has been on efficiency. Whether it is cost-reduction, profit-maximization, growth, shareholder value, “lean,” or “six sigma,” the mantra has been to do more with less. This has brought many businesses to great heights and has generated tremendous wealth for their owners. But it has also resulted in organizations that are fragile and vulnerable. Organizations that get into problems as soon as something out of the ordinary happens. After a year of Covid-19, we can see the results of this.
Of course, not everything can be foreseen. And of course some types of business have been hit beyond imagination and beyond what one can reasonably prepare for. However, if more of them had made resilience instead of efficiency their bottomline, they would have been stronger in the face of adversity. With crisis being one of the most important drivers of change, there is no better time to start replacing—or at least complementing—efficiency by resilience as primary bottomline.
The Efficiency Paradigm
Ever since Frederick Winslow Taylor’s engineering approach to management and his Principles of Scientific Management from 1911, business has been largely about improving efficiency. One might even argue that the entire capitalist system as inherited from Adam Smith’s The Wealth of Nations from 1776, is based on the idea of efficiency. Both rely on the ideas of specialization, division of labor, and scale advantages. Where Smith has laid the foundations, Taylor has given us the instruments to become true masters of efficiency.
Today, the efficiency paradigm is known by various names and it appears in many different types and variations. Cost reduction or cost-cutting is the most obvious type—even though it often goes in disguise baring names such as “corporate restructuring” or “reorganization.” Profit-maximization, together with shareholder value maximization comprise another type, placing the emphasis on enlarging the net results of a business: profit or shareholder value.
Growth is another example. With its peak in the 1970s with the Boston Consulting Group’s “Growth-Share Matrix” (or simply BCG-Matrix, the one with the cash cows, dogs, stars and question marks), strategy meant a single thing: become the biggest. The reason? Learning and scale efficiencies, leading to the best—most efficient—way of creating products and services.
Coming from a slightly different angle, there is also the quality management movement that started over 70 years ago with Toyota’s “total quality management,” “continuous improvement” or “just in time” production system. Via “business process re-engineering” in the early 1990s, we find it in many variations today, most notably “lean”, “six sigma,” and “lean six sigma.” All these approaches are based on the ideas of waste and variability reduction to create processes and products more efficiently. To do more with less.
Obviously, the principles and practices above have produced great results: high quality products and services, smart and innovative ways of production, iconic brands, jobs for many people, great wealth, and so on.
But there is a downside. And a substantial one: removing all “slack” from an organization makes it not only very efficient. It also makes it very fragile and vulnerable. The slightest delay, problem, or hick-up somewhere in the value chain has immediate and sometimes dramatic consequences for a company’s ability to create and deliver its products and services.
This is why our body has built in so many “redundancies.” We have two arms, two legs, two lungs, two kidneys, two eyes and two ears. And we have tremendous over-capacity in our brain, our muscles, our bones, our fat, our lungs, our blood, and more. Efficiency-wise this might be superflous and if we were managing our body in the same way as we are managing our organizations, all of that were long gone.
But there is a reason for all this redundancy. It makes us resilient. Or, as Nassim Nicholas Taleb calls it, it makes us antifragile. Given that our species already survives and thrives a bit longer than there are organizations, a focus on resilience seems to be the better choice in the long-run.
The Resiliency Paradigm
A resilient organization is an organization that survives and thrives in the face of adversity. Indeed, survives and thrives. Not only can resilient organizations withstand the shocks caused by internal and external crises. They even become stronger because of this.
This ability to become stronger and thrive after a crisis is exactly what Taleb means with the term antifragile. It is not just that we are unfragile, we are antifragile, meaning that our bodies and minds become stronger and stronger over time exactly because we learn and adapt based on the things we experience.
This applies to organizations as well. From a bird’s eye view, there are two main components of resiliency: robustness and responsiveness. A robust organization is one that is hardly affected by the crisis that is hitting it. The organization is so strong that there is limited impact. A responsive organization is one that bounces back after being hit be a crisis. While it may be significantly impacted, it is capable of rapidly returning to its original state—or beyond. In terms of a metaphor, if a robust organization can be seen as a bowling ball, a responsive organization is a space hopper.
Applied to organizations, resiliency can be defined as the ability of an organization to anticipate, understand, prevent, contain, recover, and learn timely and systematically from any crisis and thereby ensure stable and sustainable performance.
As this definition shows, resiliency requires a broad set of competences: anticipating, understanding, preventing, containing, recovering and learning from crisis. It also requires an organization to this in a timely and systematic way. Because only then can we expect them to achieve stable and sustainable performance.
From the definition of resilience, and from the discussion of antifragility above, the main benefits for business are clear. Resilient organizations outperform non-resilient (fragile) organizations when it concerns the survival and thriving in the face of adversity. That in itself is a sufficient reason why more organizations should want to focus more on resiliency instead of efficiency.
But there are more advantages. Research by scholars such as Yossi Sheffi, Karl Weick, Kathleen Sutcliffe, Erica Seville, David Hurst, Guia Beatrice Pirotti, Markus Venzin and their many colleagues has shown that there are substantial other benefits.
As it turns out, organizations that are built around the principles of resiliency are more flexible, better functioning organizations, with better and more stable long-term performance. And they are also nicer to work for, thereby being more attractive as employer.
With efficiency being the core principle of our businesses for over a century, the benefits of resiliency sound almost too good to be true. We are so immersed in the efficiency paradigm that we hardly believe things could be different. But research tells us they can be different—and better.
And practice tells us they probably should be different too. Most directly because we are still in the middle of the largest global crisis in peace time. Being able to survive and thrive in response to this crisis is key for many organizations. And new crises will undoubtedly come. We can’t predict when and what they will be, but there is no doubt that there always will be a next crisis—whether internally or externally imposed.
A final reason why now is the time to start making changes is the very fact that we are still in a crisis. As referred to in an earlier article, crises are great drivers of change. They show change is possible, they create momentum and they require change anyway. Smart organizations and smart leaders use this opportunity to embrace resilience as their new paradigm for success.