There is no doubt that risk is inherent to business and that managers should always be prepared for the unexpected. In today’s world, preparation and prevention are even more important given the complex nature of supply chains, consistently changing consumer expectations and the developing technology landscape.
Put a global financial crisis and struggling national economies into the mix and you’ve got a ripe environment for a shift in the business mind set – a shift in focus towards long-term business resilience, rather than short-term fire fighting.
The importance of being proactive and having the right measures in place to maintain resilience and manage the unexpected are well-known concepts for many businesses. Few, however, put these into practice. Even when businesses do put measures in place, many build complex business continuity plans that remain on the shelf and do not keep pace with the world today.
In fact, according to a recent Source business resilience survey of 106 C-suite executives from the retail, manufacturing and professional services sectors, 75% of respondents see significant room for improvement in their business continuity management, and 68% believe that they need to invest more money in making their businesses more resilient.
This made me wonder, if business resilience is the answer to companies successfully adapting to the ever-changing world, why aren’t more organisations truly resilient?
I think one of the answers is the inherent tension in the corporate world between the pressure to deliver on short-term expectations and the importance of having a long-term view when it comes to investing in building a truly resilient company.
This could be quite a complex dilemma to have, as what I mean by business resilience includes not only the ability of enterprises to adapt to a continuously changing business environment, but also to be able to quickly restore operations after a disaster or continue to function despite operational problems.
Despite its complexity, I believe that this dilemma can be resolved, and one possible solution is to put the right incentives in place for businesses.
For example, apart from their quarterly financial performance, companies could be evaluated on their preparedness to successfully address “black swan” events with minimum disruption to their operations – i.e. a purely financial index, such as the S&P 500, could become the S&P 500 of Financial Performance and Business Resilience. Given that such evaluation will reflect the future resilience of the business in question, it would be expected that the market value of the company will be consequently affected. This would provide a strong incentive for every management team to look for ways to successfully manage long-term thinking whilst ensuring that short-term targets are still met.
Perhaps today, this solution may seem impossible or even utopian to implement, but as businesses face a much riskier world, shareholders should be thinking about putting the right incentives in place to encourage management and protect their investment in the long-term.