COVID-19 shows the importance of business resilience, both “passive” and “active.” These capabilities enable companies to meet present and future crises.
Companies know how to respond to challenges resulting from the competitive environment, such as the appearance of a new technology or reaching capacity in your production. These are things you prepare for in business school.
But large-scale disruptive events are another matter. When crises come from the broader environment — whether political, cultural, economic, or physical — companies are often unprepared. For example, companies struggled in the face of financial shocks like the 2008-2009 recession and natural disasters such as storms.
Now, the health crisis linked to COVID-19 has underscored companies’ vulnerability to such external disruptions. This crisis has spared no company, regardless of size or industry. Companies seem almost to be helpless.
This is why, now more than ever, organizational resilience is appearing as a capacity that any company must seek to develop. Resilience is the ability to cope with unforeseen dangers, to learn from them and to rebound after managing them.
Our research, based on an extensive literature review, shows that companies that develop a capability for resilience are able to cope with disruptive events from the broader environment. Indeed, company responses to the COVID-19 health crisis show such resilience in real time.
While it may be too late to develop resilience in this crisis, it’s worth investing in this capability for the future.
What is business resilience?
Organizations can have two types of resilience: passive and active. Passive resilience involves temporary changes in the face of a crisis, in the form of minor shifts to organizational routines. Active resilience means developing new resources and competences, in order to enable a lasting organizational transformation. Ultimately, it can mean avoiding shocks – not just reducing their impact.
Passive resilience: Reducing the impact of a crisis
Organizations have passive resilience when they are able to absorb a shock — like an external crisis — without implementing significant changes. They temporarily shift their patterns of action in order to adapt to the situation. But after the shock passes, they return to their original state. The goal during the shock is generally to reduce losses; the company’s minor adaptations will not maintain prior levels of revenue.
For example: During the COVID-19 health crisis, companies often had to close their buildings to the public. Many restauranteurs and retailers modified their sales methods by collecting orders over the Internet and providing delivery services. They changed routines to remotely manage customers, payments, and order preparation. These changes reduced the impact of the crisis, but they weren’t intended to be permanent and generally only partly addressed losses.
Active resilience: Avoiding the crisis
Organizations that are able to avoid shocks — not just reduce their impact — have active resilience. Active resilience is proactive and involves more significant changes. Organizations develop new activities that will enable them to overcome current and future crises, possibly without economic losses. These organizations modify resources and competencies, truly transforming their activities.
For example: In France, Lemoine, a manufacturer of cotton swabs and make-up discs, transformed its production to make swabs for COVID testing. Applications Laser Sud-Ouest, which specialized in the laser cutting of various materials, refocused on manufacturing glass screens to be placed on the counters of sales outlets. Without these changes, the company would have closed; its activity had stopped due to insufficient orders.
How to develop resilience
Flexibility and adaptability are central to both forms of resilience, but even more important for active resilience. Active resilience is fundamentally about overhauling the activities and mission of the company. These changes should make it possible to bypass future crises by eliminating organizational weaknesses.
These elements help build active resilience:
Managerial creativity and entrepreneurial spirit. Managers need to be capable of finding solutions to get by in the new reality. Companies should establish an entrepreneurial culture as a way to encourage innovation in normal times and crisis.
Leadership. Leaders must be able to reassure and mobilize the entire team. Maintaining team spirit is essential in order to enable cooperation.
Flexible structure. The company structure must be flexible enough to promote the rapid and efficient transformation of organizational activities. In times of crisis, decisions must be made quickly to avoid wasting time and money. Only a flexible structure allows rapid implementation.
Active resilience may be strategic (such as activities diversification) and/or organizational (such as greater agility).
Crisis can facilitate resilience
Normally, organizations develop the two levels of resilience — passive and active — as part of a sequence. When organizations face a crisis, they try to reduce its impact through passive resilience, modifying routines. The experience reveals fundamental organizational weaknesses that the companies then seek to overcome. These broader changes build active resilience — useful ahead of a new disruptive event.
However, the crisis of Covid-19 was so brutal than it interrupted all the activities inside firms. Facing disaster, some companies have immediately developed active resilience.
Resilience is about the system
During an epidemic, resilience is not only the business of individual companies; it concerns all actors in society. Everyone in society has different resources and needs; their interactions enable mutual support and broad, society-wide resilience.
The COVID-19 health crisis showed the resilience of individual businesses but also their ability to contribute to collective resilience. A story from Canada shows the interrelationship:
In Quebec, vodka distiller Cirka reoriented its production to produce hand sanitizer, for use by health professionals and hospitals. Circa could change its production because of similarities that exist in the early stages of making spirits and disinfectants. However, Cirka still needed certain ingredients (glycerin, hydrogen peroxide, bottles for the gel), which it did not have and ultimately collected through a call for donations. The government also committed to providing the company with resources to modify facilities to support this new production.
Such new actions enable firms to continue their business, but also enabled to fulfill their social role. In this way, during this epidemic, companies knew how to be themselves a source of resilience for society.
Read the article: Altintas, G. 2020. The dynamic capability for resilience: Having the aptitude to deal with disruptive macro-environmental events. Management & Avenir, 115(1), 113-133.
About the Author
Dr. Gülsün Altintas is a lecturer at IAE Valenciennes where she teaches strategy and organizational theory. She is a member of the CRISS (Centre de Recherche Interdisciplinaire en Sciences de la Société) laboratory of the Polytechnic University of Hauts-de-France (UPHF). Her research focuses on dynamic capabilities and resilience. Her main works have been published in M@n@gement, Management International, Management & Avenir as well as in the Revue Internationale PME.