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Rufat Azizov

Degree:

EMBA

Location:

Azerbaijan

Industry:

Steel Manufacturing

Year:

Jan 2019 - Sept 2020

By Rufat Azizov

Architecture of Business Resilience

In the course of the last 7-8 months, we have used multiple words that start with “Re” for instance, RESHAPE, REIMAGINE, RESILIENCE, REBOUND, REPACK, RECOVERY. I genuinely enjoyed RESILIENCE because it nearly covers all these terms. Business resilience is the ability to recover from crisis, rapidly adapt to new conditions, respond to all types of risks, ensure business continuity, and move forward. Executives should think about how to build long – term resilience strategy across the entire organization rather than tactically fighting against Covid-19.

How to build a resilience strategy? What is the logic or universal formula for resilience? There are many examples of how resilience during the pandemic has required the co-existence of opposite views and actions.  For example, the current situation requires social distancing to protect yourself and others from the coronavirus, but it also demands social connectedness. As resilient people are generally socially connected, they are positive people that have a social impact system to support others. Similarly, uncertainty pushes us to communicate more, get advice, support others with our opinions, many daily webinars, articles, but on the other hand, each of us needs to focus on our problems, core business, objectives, and issues as well. Again, the co-existence of opposite ends, unfocused communications, and focus on core objectives are merged.

In this article I present my own framework called “Layers of business resilience”, which I have designed taking into account lessons from strategy and innovation at the Saïd Business School and further enriched from my professional experience as CEO of a steel  manufacturing business in Azerbaijan and my involvement in retail, education, and social businesses.

The framework (Figure 1) identifies three layers of resilience, that inform respectively the aim and mission of organizations, and the organizational capabilities and strategic choices required to implement them.

Figure 1: Layers of business resilience

Figure 1: Layers of business resilience

Purposefulness Business vs. Profit Maximization

Nobody denies that businesses are founded and exist to create profits for shareholders. However, it seems this fundamental hypothesis is challenged today. Being open with employees, empowering them to build company strategy and shared values, treating customers not just as buyers but also as a long-term partners, supporting them during the crisis, providing technical expertise, communicating and compromising contract terms with suppliers in case of delays, could be considered a substantial investment to the company trust and resilience.

Furthermore, considering the interest of broader stakeholders will play an essential role in the post-pandemic. Living in uncertainty, being away from the daily routine, slowing down life speed, having more time with families, seeing close people dying from Covid-19, is making people more sensitive to the world health, environment, sanitation, clean water, air and many others.

In the business context, a purposeful and meaningful mindset delivered across all parts of the organization will be definitely appreciated by community stakeholders and add shareholder value in the long-term. For example, while building electrical systems of the new plant using energy-efficient transformers may be expensive, it is meaningful business. Executives can speak to banks, tax regulators, or other agencies to support them with this costly investment. Instead of cost cutting, put more effort into delivering meaningful business. Briefly, two opposite mindsets, purposefulness and profit maximization, can co-exist and add resilience to businesses.

Exploit Core vs. Explore Opportunities

Organizations should exploit current resources and capabilities for efficiency and, in parallel, explore new opportunities through innovation. The most successful companies are able to connect an exploit and explore mindset to be ambidextrous. The pandemic has increased the demand for ambidextrous thinking. While talking to executives, I have observed two opinions, some executives heavily focused on current core businesses, cutting innovative initiatives and awaiting stability in the world, while others were uncertainly searching for new opportunities to be derived from the pandemic.

To be resilient, exploitation (focus on core business) and exploration (innovation initiatives) mindset need to be integrated. Media contents and competitors’ investments will push entrepreneurs to innovative projects, but the CFO spreadsheets will command to cut innovation initiatives and focus on core and wait. Indeed this is a broader issue of metrics. Executives are measured with metrics and reporting standards focused on short terminism. However, structured exploratory mindset is key to ensure long-term success.

To connect these two opposite ends, executives before embracing new opportunities should carefully assess how they align with their strategic intent, operational capability, and customer evolving expectations. Innovation happens through steps that include the identification of new ideas, connecting them to the core business and embedding them into broader value ecosystem outside the organization.

This activity takes time. However, in crisis, we do not have time, so urgency is pushing us to be increasingly agile in our decision, external engagement, and crisis response. Therefore, to be successfully resilient, one needs to ensure the connection of structured transformation and agility.

A solid personal experience for me was external engagement with the University of Oxford, Saïd Business School, related to EMBA groups. Being systematic, having traditional rules and procedures, at first glance, all these make the university to be a heavy organization with 800-year experience. However, agile external communication of SBS, collecting and analysing different needs and expectations of students, urgent dedicated communication was genuinely professional. As a result, decisions were made that satisfied most of the diversified expectations and meeting university policies.

Business Confidentiality vs. Open Collaboration

Competitive advantage, experience-based diligence, business confidentiality, and intellectual properties are central subjects that business leaders consider while externally engaged with other stakeholders. However, the uncertainty and the rise of a single global enemy, Covid-19, encouraged companies to open collaboration. Business leaders started to talk more with stakeholders, including suppliers, customers, state agencies, competitors, and employees.

In our personal experience at the steel manufacturing company, after we did not agree on the price with billet supplier for our rebar rolling mill factory, we decided to discuss the whole production process on the second meeting, and likewise reviewed transportation and cost engineering. Two companies shared experience on how to optimize electricity, labour, processing, and transportation cost then decided on optimal quantities and price for the billet. We were very open in our discussions with banks showing sales plans, capacities, and technologies. It was also essential to receive their professional advice regarding financial forecasts, consulting services and the Covid-19 support loan.

Furthermore, we communicated with customer companies, visited stocks, discussed and re-designed sales plans, and payment plans mutually. I believe that it is possible to find ways of mutual collaborations while commercial secrecy will not suffer from that, in contrast, it is an opportunity for future growth as well. In fact, it is possible to ensure the co-existence of opposite views, such as confidentiality and open collaboration with stakeholder that creates resilience.

Time to Investment vs. Cost Reduction

Although we usually come across the famous phrase “crisis is a good time to invest”, executives generally cut investment budgets or postpone projects. As a matter of fact, most business leaders focus on current core businesses and wait for the old normal to come back. What about the opportunities created by the crisis? How is the company going to catch up with existing facilities in case of sudden high demand in the post-pandemic period? Bearing these entire in mind, executives must weigh cutting costs consequences, try to connect opposite two ends, investments and cost-cutting. Undoubtedly, cost-cutting is a must to maintain the core business, but cost-cutting shouldn’t be the goal in crisis.

In 2016, when oil prices crashed, local currencies in many emerging markets devalued, we have invested in the first steel colour coating line in Azerbaijan. This project started at the end of 2016 and started production at the beginning of 2018. As soon as the crisis finished, we were ready to produce new products, we were prepared with new capacities, resources, and capabilities to capture growth. As a result, one year was enough to substitute 28% of imported pre-painted steel to the country and become a local market leader. Co-existence of opposite thinking, finding optimum for investments, and cost-cutting is one of the elements of a resilience strategy.

The economy of Scales vs. Modular Mini-Plants

Microeconomics courses mention the importance of economy of scale that favours large-scale production of standard products to reduce cost. However, from my personal experience, in Unimetal & Prometal Group, mini-plants bring more resilience to manufacturing businesses in crisis periods. Having mini-plants such as melt shop, steel rolling mill, pipes production, steel colour coating line, and roofing materials factory, which are also independent, makes it easy to change plans every day, stop and maintain the plant, produce what is required today.

For instance, due to extended lockdown, many people started to move from buildings (skyscrapers) to small homes, bungalows, and cottages with outdoor facilities, most probably, this tendency is likely to continue in the future. In fact, it means a significant change in the construction materials market, which we are already observing in terms of decreasing demand for high-quality rebar (used for high-rise buildings), whereas the demand for steel roof tiles is increasing. Therefore, having two independent mini-plants makes us resilient in ambiguous times. Independent mini-plants for a variety of products strategy build flexibility into the planning cycle and set multiple paths. At first, glance, considering financial efficiency and CFO forecasts, it is not feasible to have small capacities and numerous product types instead of standard products.

However, modern automated small production lines with low labour cost, dynamic supply chain, continuously improving value constellation in all processes, experience, and diligent strategy allows us to connect to opposite approaches, i.e. as economy of scale and modular mini-plants that create business resilience in any crises. Therefore, objectives for future projects should shift from the economy of scales to resilience mindset that builds on the optimum of the two opposites of efficiency and modular mini-plants.

Localize vs Globalize

The supply chain of the most production companies seriously suffered from the pandemic. Companies depending on China’s raw material supply possibly experienced the worst year for the last 20 years. Therefore, in the post-pandemic period, companies will try to localize the supply chain. Moreover, it could be the end of globalization of supply-chain. Logically everything is right, but if we think about capital investments of shipping companies and access capacities in China, total localization of supply-chain does not seem real.

On the other hand, China is a big market, and for companies it will not be easy to leave this massive market. Furthermore, huge investments and significant automation are required elements for companies to come closer to customers and maintain a cost-effective approach at all times. Executives should be careful with total localization initiatives and try to connect what is possible to localize and what should stay global.

For example, in the STEM education business for kids, we were supplying some material parts for practical lessons from the USA and China. Because of the crisis, we did some optimizations to curriculums to use local resources, so crisis encouraged us to think locally using a globally branded curriculum. To upgrade supply-chain resilience, we consolidated processes. At the same time, we redesigned lessons for the online setup that created a chance to explore new customers outside across the country that included the re-design of required efforts, time and investment, but it made us more resilient.

Actually, thinking back to the pre-COVID era, these localization and globalization opportunities always existed, but the crisis pushed us to immediate innovations. Mutual connection of two opposite terms localization and globalization in business seems to be another element of resilience.

To conclude, business resilience has an architecture that mutually integrates opposite thinking and actions. Thus, resilience has the same architecture as innovation. Successful executives should be able to define and ensure the co-existence of opposite views to build a long-term resilient organization. Furthermore, the proposed resilience mindset challenges some existing fundamental economics, business management, and project feasibility terms like the economy of scales, profit maximization, cost minimization, financial efficiency, and shareholder economy.

I found these approaches well thread into the curriculum of many initiatives of the EMBA at Saïd Business School. Specifically, learning modules on Innovation Strategy, Systempreneurship, Artificial Intelligence, as well as initiatives like GOTO Oxford, the engagement with businesses in crisis through Oxford University Innovation and LIBER projects have been great opportunities to build a business resilience mindset. I trust this can provide a great example for inspiring also other business schools to revisit their programs and build more focus on resilience elements, developing leaders with a purposeful, meaningful, collaborative, and exploratory business mindset.

 

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