Organizational resilience is defined as the ability of an organization to thrive, adapt, and expand during times of uncertainty.
The past few years have indeed consisted of several “shock events” globally, in rapid succession. Businesses with organizational resilience have survived epidemics, wars, and financial crises across the world.
The researchers at the Harvard Business Review found that the successful businesses that they analyzed following each recession fell into four main camps:
Overall, prevention-focused businesses seem to place too much emphasis on loss minimization and cost-cutting. Unfortunately, this includes a reduction in advancing R&D, developing new business, or capitalizing on other investments. This mindset of providing the same quality of goods and services simply by cost cutting, instead of operating more efficiently, often results in a loss in customer satisfaction.
Promotion-focused businesses, on the other hand, concentrate on investments that increase value, in an offensive move. However, garnering upside benefits can also be too ambitious, due to the aggressive nature of promoting change. Initiatives are optimistically yet blindly followed, and organizations should aim to avoid this sort of tunnel vision—promotion-focused organizations may be blindsided by unfavorable financial results.
Pragmatic businesses combine defense and offense, by trying to cut costs while increasing value. This is typically done by combining three defensive approaches (employee reduction, operational efficiency improvement, or both) with three offensive approaches (new market development, investment in new assets, or both). The nine possible combinations yielded from these approaches ranges from worst to best in terms of organizational resilience following a global crisis or shock event.
Progressive businesses outperform their pragmatic counterparts by almost four percent. Why? They select the best defensive moves. Instead of only reducing employee numbers, they focus more on operational efficiency improvement. On the offensive side, they are far more generous. They make greater investments and create more new business prospects.
Below, we’ll unpack some of the best defensive and offensive approaches that your organization can take, to ensure resilience during times of uncertainty.
Successful organizations worldwide implemented the digital transformation of important processes—operational, management, and supporting processes—long before the latest global shock event. Implementing sound technology solutions to improvement efficiency in daily tasks not only reduces time and effort, but also reduces redundancy and the risk of loss, enables agility, and provides visibility over processes. This gives any business an edge over competitors and improves organizational resiliency.
With recent global crises, many businesses have had to temporarily close their doors—some fortunately only physically, and not in the metaphorical sense. With manual and face-to-face interaction being impossible for some time during the various shock events of 2020-2022, or due to downscaling of office space for budgetary reasons, businesses have had to rapidly adapt to enabling remote work, with several technology adjustments and a shift to cloud storage. Organizations that are unable to do so are not nearly as resilient as their counterparts.
With the need for processes to be visible and knowledge to be distributed to relevant stakeholders highlighted in these times of uncertainty, organizations that have comprehensive knowledge distribution and exceptional approval strategies for processes are far more resilient. When there is visibility over activities, organizations can identify successful approaches and detect issues earlier, and then follow various defensive and offensive processes to survive crises.
As mentioned previously, focusing solely on cost reduction does not guarantee success. However, with inflation being at a record high across the globe, your business should certainly examine its expenditure more closely, and identify which processes are too time-consuming and costly.
With the closer examination of expenditure, your business will certainly need to analyze and manage direct and indirect spend more thoroughly. If your organization still utilizes manual spend management processes, you can greatly improve resilience during difficult economic periods by digitally transforming these and investing in a cloud-based spend management system.
A spend management software solution such as Fraxion supports organizational resilience by combining improvements from both approaches: offense and defense. With the workforce at an all-time low, its streamlined capabilities provide your organization with the opportunity to have less employees spend less time and cost your company less money while carrying out functions that are important for the survival of your business.
Spend management software is stored on the cloud, making it accessible from any device, in any location. Whether your company is carrying out flexible remote work policies, or whether its business as usual, cloud-based systems allow you to be agile and more responsive to crises in real-time.
With cloud-based spend management systems, any software worth its salt will also be available for mobile devices. The Fraxion Mobile app, for example, is available for Android and iOS devices, and enables your employees to create and submit requisitions for approval, as well as allow for mobile approvals by the relevant stakeholders. This gives your organization the modernization it needs to keep up and be resilient during periods of difficulty and unpredictability.
Organizational resilience has been shown to be greatly improved when businesses are able to improve operational efficiency and reduce costs. With a spend management system in place, you can save time and money by cutting out labor-intensive manual spend processes. In addition, a good spend management system also ensures purchasing authorization and allows for complete visibility over budget versus actual spend for the relevant stakeholders, as well as early risk detection with real-time view of budget impact at decision points.
With budget visibility greatly improved, a spend management system can also enable you to fine-tune your approval workflows and provide transparent audit trails of all user activity on the system. Spend management software provides different levels of approval groups and thresholds, with internal policy controls, configurable to your business rules and delegation of authority—eliminating rogue spending and advancing resilience. The accountability that these systems ensure, promotes a cost conscious and responsible spending culture company-wide.
The ability to analyze and report on current and historical spending empowers business leaders to make informed decisions. From identifying saving opportunities, understanding where risk exists and where tighter control is required, to gaining more spend predictability for budgeting and forecasting, having these capabilities in your arsenal during times of uncertainty can give you the edge to prosper. Spend analytics and reporting tools embedded in spend management systems underpin organizational resilience by empowering business leaders with the data to make astute decisions to reduce the right costs and protect reserves.
Do you need assistance with making your organization as resilient as possible, to survive these times of uncertainty?
Contact our team for a demonstration of how our capabilities can be tailored to seamlessly integrate with your organization’s processes to drive efficiencies, visibility and spend management.
Although it has been over two years since the sudden onset of the Covid-19 pandemic, infections and hospitalizations still occur as part of a new norm, with infection waves surging every few months.
The resultant restrictions, place a potential burden on businesses to continue with their daily operations, particularly with the rapid increase in remote working. .
In addition, many businesses are still recovering from the global supply chain setbacks of 2021, and many organizations without flexibility in vendor management and alternate sourcing have seen a decline in profit margins.
The recovery from post-pandemic increased government spending may continue for some time, with inflation and a rising US dollar having a global impact. [1].
Policymakers appear to have shifted to a more cautious approach to budgetary policy with the goal of bringing inflation under control[2]. These measures are leading to further concerns around a potential economic slowdown
War and the prolonged, armed conflict between political communities interferes considerably with normal economic activity. Although war may create an opportunistic upside for some businesses , it generally has devastating monetary consequences.
War can lead to further inflationary pressure due to increased government spending as well as shortages of goods and services and the price hikes of commodities, such as oil.
While businesses may not be directly affected by conflict, wars often lead to changes in monetary regimes, particularly if funded by increasing the supply of money, which leads to hyperinflation [3].
When governments are at war with one another, the national debt is also likely to rise, as military departments get clearance to borrow larger amounts than typically budgeted for, for patriotic effort. In addition, plunging gross domestic product (GDP) due to loss of tourism and investments further impedes economic growth [4]. On average, the economic cost of war in the ten most violence-affected countries globally equates to 41% of their GDP [5].
All businesses are affected by conflict-induced restrictions on trade, and limited market access, no matter the industry they operate within. Having organizational resilience means that the propensity to act in times of security-related crises may mitigate imminent financial risk.
After the Great Recession of 2007, authors from the Harvard Business Review began an analysis of corporate performance across 4,700 businesses, during the three previous recessions—the early 1980s recession, the early 1990s recession, and the early 2000s recession. Their study found startling trends per recession period:
As of the first quarter of 2022, inflation in the United States has been at its highest since the 1970s, before the great recession of the early 1980s. In June, the consumer price index (CPI) increased by 9.1% year-on-year, and the producer price index (PPI) by over 11%. Petrol, diesel, and natural gas costs 200% of what it did in 2020, ocean shipping costs have increased by almost 500%, and the average cost for road freight is also on the rise [7].
These figures may indicate a shaky economic boom that is not sustainable—many are calling it a slowdown, with some declaring it the beginning of a bust; a typical recession that starts at the peak of the business cycle, as the boom is seemingly ending.
Although the United States is not yet in stagflation—a slowdown or stagnation in economic growth, in the presence of ongoing high inflation—all predictions point to this beginning towards the end of this year and gaining momentum during 2023. With firmer control over monetary policy, the demand for goods and services is being restrained; this is also affected by higher interest rates [8]. This has a direct effect on sales for most companies.
As David Malpass, the World Bank President, states, “The war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are hammering growth. For many countries, recession will be hard to avoid.” [9]
[1] H. Schneider, “Gusher of pandemic aid averted global depression, but left a bad hangover,” Reuters, Washington, 2022.
[2] S. Silbiger, “Central banks will fail to tame inflation without better fiscal policy, study says,” Reuters, Jackson Hole, 2022.
[3] E. Lakomaa, “The history of business and war: introduction,” Scandinavian Economic History Review, vol. 65, no. 3, pp. 224-230, 2017.
[4] T. Pettinger, “Economic impact of war,” Economics Help, Oxford, 2022.
[5]Institute for Economics & Peace, “Economic Value of Peace 2021: Measuring the global economic impact of violence and conflict,” Sydney, 2021.
[6] R. Gulati, N. Nohria and F. Wohlgezogen, “Roaring Out of Recession,” 2010.
[7] S. Görner, A. Govindarajan, E. Greenberg, A. Kelkar, J. Kelleher, I. Kristensen, L. Liu, A. Padhi, A. Panas and Z. Silverman, “Somethings' coming: How US companies can build resilience, survive a downturn, ad thrive in the next cycle,” McKinsey & Company, 2022.
[8] B. Conerly, “Stagflation: Causes And When It Will Come,” Forbes, 2022.
[9] The World Bank, “Stagflation Risk Rises Amid Sharp Slowdown in Growth,” Washington, 2022.
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