Change is a fact of life in business. From the steam engine to the smartphone, firms have always had to co-evolve with technologies, customers and markets. Today, pressures from forces like climate change, the artificial intelligence revolution, global conflicts, trade tensions and political polarization have only increased the pace and complexity of the changes we face.
How can businesses prepare for inevitable yet sometimes unforeseeable disruptions? Are there trade-offs between building long-term resilience and maximizing short-term performance? The Frontiers of Business: Building Business Resilience conference capped our 2024 Grand Challenge on navigating uncertainty and managing risk with stimulating discussions on what business resilience looks like in a world of rapid change. Here are three lessons we heard.
“The essence of human resilience is to be concerned with the future more than the past.” That summation, offered by Kathleen M. Sutcliffe, Johns Hopkins University Bloomberg Distinguished Professor, applies as much to firms as to individuals. What is a business if not an expression of hope for the future? In this context, the imperative to focus on long-term value creation is not at odds with resiliency, noted Christian Lundblad, Richard “Dick” Levin Distinguished Professor of Finance and senior associate dean for faculty and research at UNC Kenan-Flagler Business School. In fact, as risks and their consequences become more extreme, it only becomes more beneficial to envision, prepare for and take steps to mitigate those risks.
Firms have lots of choices for building resiliency. One lesson highlighted by Kevin Lavender, executive vice president and head of commercial banking at Fifth Third Bank, is to listen to diverse perspectives and keep your options open.
Firms have lots of choices for building resiliency. One lesson highlighted by Kevin Lavender, executive vice president and head of commercial banking at Fifth Third Bank, is to listen to diverse perspectives and keep your options open. For example, in decisions around onshoring versus offshoring, the optimal strategy may change over time, but firms that maintain some capacity both domestically and abroad will be better positioned to respond when the balance shifts. Similarly, having a bit more stock in storage sure would have helped companies avoid a lot of headaches during the pandemic, when the downsides of the just-in-time supply chain became painfully apparent. Thinking expansively about what the future may hold can help firms prepare to weather what comes.
The flip side of flexibility and backups, of course, is redundancy and cost. Even resiliency itself can have downsides, potentially leading organizations to become overly optimistic or take on too much risk, Sutcliffe noted. Focusing on resilience not as a trait but as an action we take – a constant state of planning and responding before, during and after a crisis – can help to cultivate the right mindset to make wise decisions when circumstances change or the costs become too high.
While proactively considering and preparing for disruptions is essential, no amount of data or scenario-building can cover every possible eventuality. Accepting reality is key to resilience, and to do that requires us to live with uncertainty and be willing to improvise. Learning from experience is also crucial, since each crisis poses a unique set of challenges that can help companies better prepare for the next one.
Lundblad posited that one of the most dangerous impulses firms can have in the face of uncertainty is to sit on the sidelines and wait for clarity.
Lundblad posited that one of the most dangerous impulses firms can have in the face of uncertainty is to sit on the sidelines and wait for clarity. For example, those that adopt a wait-and-see approach with AI are likely to be left behind. He emphasized the need to be both bold and humble – recognizing that taking action can help to mitigate risk, as long as you remain attuned to circumstances and open to changing course.
This can play out differently in different business contexts. Small businesses, for example, face challenges competing in an environment that favors scale, yet they also have the advantage of greater agility. Using a maritime analogy, William Toole, deputy for the North Carolina Department of the Secretary of State, noted that small boats are faster and more agile, but also more apt to flip over. Firms that act fast to seize opportunities also must be prepared to get wet – and ready to bounce back.
Steve Malik, chairman and owner of the NC Courage, emphasized the central role of risk in enabling business growth: “Every time you say risk, I hear reward,” he quipped. To navigate the tension between risk and reward, he stressed that business leaders must consider the scope of the reward – both financial and otherwise – know what they can afford to lose, and assess how they might mitigate the risk or at least quantify the uncertainty involved.
Resilient business ecosystems are good for everyone. Maintaining strong employment and growing our communities requires healthy businesses that can weather the ups and downs. The decisions that firms make are central to building business resilience, but these decisions are not made in a vacuum. The broader context of business resilience illuminates important roles for government, workers, educators and other players across society.
The Honorable Sarah Bloom Raskin – partner at Kaya Partners, Colin W. Brown Distinguished Professor of the Practice of Law at Duke University, and former deputy secretary for the U.S. Treasury Department – highlighted how systemic factors can influence the capability for individuals and organizations to be resilient.
The Honorable Sarah Bloom Raskin – partner at Kaya Partners, Colin W. Brown Distinguished Professor of the Practice of Law at Duke University, and former deputy secretary for the U.S. Treasury Department – highlighted how systemic factors can influence the capability for individuals and organizations to be resilient. It is important to recognize who has the power to make the decisions and who bears the costs when things go awry. The risks and rewards can accrue to different players in the private sector versus the public sector, and not everyone has a say in what risks are taken on their behalf.
Regulation, one mechanism for reallocating or constraining risks, can be a double-edged sword, Lavender noted, sometimes imposing unnecessary burdens and costs, and other times very much needed. To thread this needle, collaborations and open discussions among private sector, government and public stakeholders can help to determine where regulation is likely to be most helpful and where voluntary guidelines may be more appropriate.
Incentives also matter. In a discussion of healthcare consolidation, Lisa Grabert, research professor at Georgetown University and visiting research professor at Marquette University, pointed out that if we want to change healthcare systems – for example, to focus more on benefiting patients in rural communities or reducing vulnerabilities to cyberattacks – we must change the payment structures involved. For this, it is essential to identify the players who are in a position to drive change and the right carrots and sticks to employ.
In the workforce and in the educational pipeline, individuals can contribute to business resilience by raising issues, being open to change and seizing opportunities to keep moving forward. Finally, investments in societal infrastructure – such as roads, internet connectivity and public education – as well as holistic support for small and local businesses can lay a firm foundation for fostering resilient individuals, companies and communities.