- January 12, 2023
- Posted by: Muhammad Shoaib
- Category: Thought Leadership
Long-term resilience – a new meaning for business
Written exclusively for PICG
by Memosh Khawaja, CEO & President – PICG
Long term planning and building resilience into a business plan is not uncommon practice, however, it is typically carried out on the basis of known sources of financial risks and opportunities. While the last few decades have been gentler in terms of the speed and nature of external disruptions coming in the way of businesses, the last few years have shown us that disruption is shaping up to take a new meaning. The frequency of disruptions has increased, the nature of disruptions has broadened, and the impact of these disruptions has amplified. COVID-19, climate-related disasters, social-equity based uprisings, supply chain disruptions – all in a short period of time – point to the fact that this recent trend is by no means going to change in the near future.
It is important to understand why this is happening before we turn to the way forward. We must realize that the global business ecosystem solely focused on growth via wealth creation, built over the last few generations, has reached a tipping point, causing an unprecedented wave of disruptions. While industrialization and technological advancements pushed boundaries to deliver care, convenience and creating more wealth, they have also given way to unforeseen or ignored impacts on health, social equity, climate and natural resources.
As governments, regulators and global agencies scramble to reset the roadmap for global long term sustainability, businesses are also expected to play a key role. The Edelman Trust barometer report, published in January 2020, revealed that 56% of the respondents believed capitalism was doing more harm than good globally. The same survey also reported 92% of respondents expected businesses to speak out on the impact related issues.
So why should businesses care about what impact they have on society and environment, especially if they have thrived successfully without it for decades, managing any push back from regulators, societies or activists by means of paying a small cost for doing business? It is only now that leading companies are realizing that these external factors are ricocheting back on their own business and its economic value in a significant way to challenge their existence. It is clear to them that as the ecosystem evolves, if they resist, not only will they find themselves on the wrong side of history but also at a significant competitive disadvantage.
Approach to long-term resilience
When boards and leadership sit down to make long term strategies and plans, they must put these through stress tests against the rising risks and opportunities that are forming part of the global business ecosystem, particularly those related to environment and social equity. Businesses have to answer which side of the disruption pendulum they are on, between high risk and high opportunity. Are they party to the problem or to the solution? Are they in the right business? And are they doing their business right? Is their business creating value just for its shareholders or also for all its stakeholders and the society?
There are three levels of stress-tests that a business should undertake, to determine the extent of resilience its long term plans offers. The first level is to test out the core purpose of business. How far is the core business value proposition stepping on the known risks associated with environment and social equity? Or alternatively, how strongly is the business purpose geared towards playing a positive role in the new ecosystem? Successful businesses will put nature and humanity at the center of their core purpose, and their governance practices will reflect that.
The second test business must put their plans through is on their business model. How do they carry out their purpose and mission in terms of their operational strategies? Testing out the portfolio and the innovation and investment plan in terms of its climate footprint, resource intensity and social equity impact is of particular importance.
The third level of testing which is becoming critically important is related to stakeholder inclusion. No business is too large or too small to remain isolated, and successful business leaders realize that their success in the evolving business ecosystem is dependent upon effective stakeholder relationships. Stakeholders push and pull businesses to remain agile and resilient and therefore form an integral component of business sustainability.
To sum up, shareholders and investors are no longer going to accept long-term business plans devoid of consideration of risks and opportunities against the new level of disruption, hence, critical now for businesses to capture their resilience for the long-term with its new meaning.