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View: Deeper bonds with the workforce, decentralisation and understanding change build company resilience

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Raffaella Sadun teaches at Harvard Business School. Speaking to Srijana Mitra Das, she discusses factors that make companies more resilient and able to thrive, even during uncertain events:

Q. How can firms develop resilience while facing unexpected occurrences?
A. The global pandemic has confirmed the importance of creating high-performance organisations, where people work with you because they are motivated to give their best, rather than having a transactional relationship. With so much uncertainty, which is hard to manage even with incentives, the most resilient companies are the ones which have been able to leverage deeper bonds with their workforce. Last summer, companies that successfully reopened in the US had given great thought to providing support to their employees. That included emotional support, spending time communicating and mitigating anxieties, even sending gift baskets. It became clear that for resilient companies, the workeremployer relationship has to be nurtured.

Q. How does this help resilience?
A. If you have a workforce that is aligned with you and believes in what you’re doing, any crisis can be withstood. With such a dynamic, you don’t need to give people elaborate instructions — the beauty of this model is that people are so motivated, decentralisation happens smoothly. That makes it much easier to build resilience.

Q. What is the importance of decentralisation?
A. We’ve analysed companies which performed the best during the Great Recession of 2007-09. Companies which were more decentralised prior to the Great Recession were able to deal much more effectively with the drop in demand that happened then. We saw a strong association between being more decentralised and churn ing products more quickly. In a more decentralised company, you have managers who are in touch with customers directly. They can understand changes in the needs of customers and be more responsive and reactive to them. Under uncertainty, it’s very important to capture signals which are noisy and local — it’s harder for central headquarters to do this.

Of course, decentralisation has an inherent risk of losing coordination, but through the Great Recession, we found the benefits outweighed the cost. This is very important, especially for developing countries where there is generally a deficit of decentralisation in companies.

Q. Can you elaborate on the importance of ‘noisy signals’ during unclear events?
A. The global crisis has heightened uncertainty at multiple levels. Initially, we were worried about supply constraints. The rush at supermarkets in many nations showed us this. Then, the uncertainty showed in changed consumption patterns — we’re still in a phase where things can change radically while the information companies have at hand isn’t adequate. We must expand sources of information and, in this context, noisy signals in an industry, which includes signals from competitors, can be very valuable.

In the US, we’ve seen competing firms getting together to better understand worker safety or collaborate to relocate workers. Joining hands to make sense of an uncertain situation is preferable to the usual way of doing business.

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Resilient companies support their supply chain through uncertainty

Q. Why do you emphasise the importance of sustaining a company’s entire ecosystem in such events?
A. We’ve found that more resilient companies realised they had a responsibility not only to their direct customers, but to their entire supply chain. Such companies have actively supported their intermediate suppliers in this phase — L’Oreal, for example, understood the difficulties hairdressers were facing. So, they created support systems including online training programs for them to survive the crisis and build value-addition. The most resilient companies have depended on such collaboration to make their way out of a tough situation — this is harder than it seems because it takes a lot of trust and effort.

Q. Does experimentation help during uncertainty?
A. In any situation, experimentation is important. If you approach the world in a scientific manner, you’re able to compare different decisions with counterfactuals and have a more structured decisionmaking process. You need to consider the sources of uncertainty you’re dealing with and how your experiment helps address these. Experimentation is not a panacea by itself. It’s very powerful when combined with a system of thinking that feeds its results into a broader decision-making process.

Companies need to delve deeper into understanding the changes taking place now. For companies facing a situation where demand is changing — such as from in-person to online purchases — understanding what customers are looking for, like sa fety and convenience, is vital because it’s likely such changes will persist even after the pandemic. In some cases, macro shifts are changing the fundamental nature of businesses, including how value is created and captured. Analysing counterfactuals for companies is not a luxury now — it’s essential. Experimentation is better for developing resilience than being resistant to understanding change.

(Views expressed are personal)

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