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How to create resilient business strategies in a volatile, uncertain world

Tarun Kher, Partner
Risk and Advisory Services

26 October 2021

The pandemic brought on several challenges including a business environment that is fragile and unpredictable. What has emanated is the fact that the world is a very volatile, uncertain, complex, and ambiguous (VUCA) place. The strategies for business growth and diversification have been re-assessed with the business models being modified to create better business value. While most organisations have formalised their business continuity and disaster recovery plans, they are being put to the test as businesses resume operations post the lockdowns.

The concept of VUCA originated from the armed forces of the United States and is now applied to depict the challenges and complexities associated with the ever-evolving business dynamics. Over time, business models have changed significantly, with global collaborations, technical know-how being shared entailing rapid innovation, business excellence and customer satisfaction garnering utmost priority, resulting in a complete transformation as to how businesses operate.

To survive in this unpredictable environment, businesses need to be incredibly resilient. While it is impossible to predict the future, there are many strategies that businesses can adopt as a force majeure. Some of the strategies/ best practices that business leaders can look at to help companies create business resilience from within are:

1. Business resilience forecasting and planning processes

Unpredictability in demand patterns can often disrupt supply chain management processes and the economies of scale associated with the re-order levels. Key managerial personnel agree that significant lead times in the delivery of end products and services to the customers coupled with a lack of business resilience are strongly correlated. Reducing fulfilment time is key to customer delight and satisfaction.

2. Integration of financial ERP vis-a-vis application systems and technology

Integration of critical applications such as fixed assets management, inventory management, human resource management system etc. is key in creating business resilience. In the VUCA world, information technology interfaces are essential to harness cross-functional synergies with diverse team strength to respond efficiently to potential challenges.

3. Progressive research, development and innovation

Companies that are successful in the VUCA world are the ones that can keep pace with progressive innovation, thereby identifying new and efficient techniques to meet customers' demands. Continuous research and development in offering best-in-class end products and services while benchmarking with global technical know-how through collaborations should be embedded in a company's culture.

4. Rationalise operating costs

In the VUCA world, most businesses will find it extremely difficult to achieve their erstwhile levels of performance and profitability. Businesses shutting down, industrial labour relocating to their base locations, significant downward fluctuation in demand and consequent sales orders have adversely impacted the production. Therefore, a review of fixed and variable operating costs is imperative, to identify the unavoidable costs required for business sustenance, which further needs to be optimised.

5. Cash flow preservation

The threat of global economies moving towards recession is persistent in a VUCA world. Cash flows are the lifeline of any business and business strategies aimed towards creating resilience should augur in terms of enhancing the liquidity spread through effective working capital management. Businesses must strategise to discount bills receivables and defer capital expenditure and explore the extension of any credit facility from the existing bankers.

6. Communicate with the customers, vendors and employees

In these economically difficult times, it is pertinent for businesses to effectively communicate with the three most important stakeholders i.e., customers, vendors, and employees to renegotiate the commercial terms of their engagement viz. request for reduction of collectable days/ ageing of receivables, an extension of credit period from the vendors and support from the employees for deferment of their annual appraisal/ bonus pay-outs.

7. Responsive business culture and tone at the top

Businesses should endeavour to transform the organisation's culture to be more responsive. The values of corporate governance, tone at the top, code of ethical business conduct are essential towards creating a resilient business environment. Recruiting capable staff, aligning their roles and responsibilities with complete segregation of duties, and empowering them to perform are the key facets for being more responsive and of a business strategy for this evolving VUCA world.

8. Human resource wealth creation

Organisational growth and stability will prosper if the vision and mission statements are communicated effectively to the employees, who are key assets for the business. Businesses should invest in leadership development programmes for C-suite positions and training the next level in skills and attributes that will help set up the corporate culture they are trying to build.

Next Steps

Inevitably, supply chains are always going to face new challenges in the VUCA times. It is how businesses ensure sustainability as they step towards the unforeseeable future that will ultimately determine their ability to accomplish business goals and objectives. While the points above can seem daunting, if taken one at a time and in order of priority, they can create a robust business strategy aimed towards growth and resilience.

All these strategies, if adopted in time, will create enhanced value for a business and solve the most critical challenges, thus making it easier for businesses to emerge bruised but certainly alive.