Bill Murray, senior researcher and advisor, Leading Edge Forum, discusses how manufacturing organizations can achieve antifragility.
The current pandemic has been the biggest catalyst for digital transformation in the last five years and has tested the agility of businesses like no other in modern memory. What it has also shown, though, is how brittle and fragile many organizations are.
Weaknesses in supply chains and brittle operational processes have been made public. “Antifragility,” rather than agility, is the new watch word in business resilience.
Depending upon how resistant a business is against future shocks, it can sit in one of four categories: Fragile, Brittle, Resilient or Antifragile.
- Fragile: In a fragile business, there is an impact on organizational performance/workforce protection immediately after a shock occurs. Organizational failure occurs almost immediately after a shock.
- Brittle: When an organization is brittle, the business operates as normal for a short term, but soon sees the impacts on business performance and workforce protection. Organizational failure occurs shortly after a shock.
- Resilient: Although a significant dip in organizational performance occurs after shock, the resilient business is able to make changes to its service model, core operations and IT systems to enable the organization to return to near normal performance.
- Antifragile: Like resilient, the antifragile organization has to adjust after a shock but then sees a growth to the business/positive response to the changed measure. Antifragile organizations not only respond to shocks but seek and embrace them.
While resilience for manufacturers is the ability to keep generating economic profit through cyclical and structural changes in supply and demand, antifragility is the additional ability to use shocks and volatility to grow revenue and profit, even enter new markets or cause disruption in existing ones. It’s what manufacturing businesses should be aiming for.
The challenge for manufacturing companies is that they are more and more intertwined with their ecosystems, and it’s this fragmentation of the operating model in service of efficiency that brings risk through shocks.
To achieve antifragility, manufacturing organizations should adopt the following framework:
- Manage the shock
Many organizations are already managing the current shock and stabilizing – they have taken care of their staff, switched to remote working, and upgraded and secured their IT infrastructure. They are now starting to think ahead, about adapting to the aftershocks and longer-term transformation. They recognize that they need to make data-driven, informed decisions to take the business forward.
- Adapt to the new normal and aftershocks
We know that the current pandemic will have aftershocks, so we need to adapt our organizations to be flexible. In past crises, organizations that slashed and burned performed worse in the medium- and long-term than those that trimmed and invested smartly. Organizations that cut down their options while stabilizing could perish; those that increase them will adapt and transform best. Investors, foreseeing the aftershocks, are already devising ways to incorporate options more systematically into their valuations.
But those aftershocks also bring us many (and rare) civic and market opportunities. While managing the shock, smart organizations can create options that generate civic progress and competitive advantage. There are already extraordinary (and perhaps double-edged) civic and commercial trends and opportunities emerging from pandemic responses and our forced experimentations and accelerations.
- Transform to an antifragile organization
Moving towards a more resilient and then antifragile organization means adapting processes through more experimentation, decentralizing, diversifying operations and the workforce, and entering novel markets to learn through trading. In turn this means embedding options, with low option prices, in every part of the value chain, including ecosystem partners. All this is enabled by digital mechanisms that operationalize the sense/respond/learn cycle, such as machine learning-driven data flywheels tightly integrated into operational systems, advanced analytics embedded in each line of business and elastic compute and infrastructure that is part of all digital capabilities.
It is important to note that although the three stages are represented sequentially, the success of this model will require businesses to be agile, breaking programs down into manageable pieces. Failing fast is a must, and feedback loops to allow continuous improvement are critical.
We will feel aftershocks after almost any shock. It may also be the case that we create our own aftershocks through the transformation of our organizations. Be careful and have your seismic sensors in place, capturing the data from your test points and responding appropriately.
Once a shock is over, smart manufacturing businesses will look back and consider what worked and what didn’t, in order to prepare for future disruptions around the corner. Aside from rethinking boardroom priorities and the value of efficiency over capacity and quality over availability, some of the emergency measures brought in may benefit the business in the future.
Bill Murray is a senior researcher and advisor for Leading Edge Forum with a wealth of experience in developing digital and business technology strategies, business cases and change programs involving technology disruptions such as consumerization, analytics and cloud-based services. Most recently, Bill has been helping clients develop IoT enabled business propositions and services in Connected Health, Connected Insurance, FMCG and supply chains, and advising on IoT platforms.