The Resilient Company: 3 Qualities to Succeed in the Post-COVID-19 World
Part 1 of 3: The learning organization
The world was already very complicated for business leaders until February this year.
In presentations to senior managers and boards, I used to list a set of 12 major megatrends that are redefining how companies operate and create value.
These megatrends include issues like artificial intelligence and the smart machine age, climate change, increasing stakeholders’ expectations about the role of business in society, and the arrival of new generations in the job market with new values and aspirations.
With the spread of COVID-19, all these transformations have become relatively small.
Although many experts have warned for years about the risk of a major global pandemic, the truth is that nobody expected an unprecedented turnaround like this, and virtually no risk management model contemplated this “black swan.”
The world just stopped.
It is still unclear which world will emerge after COVID-19. There is much speculation for all tastes and, of course, only time will tell.
There is room for optimism. It is possible that we will come out of this crisis with: less political polarization within countries; greater cooperation between people across countries to deal with the global challenges of our time; restored public trust in science and experts instead of the individual truths fueled by social networks; and appreciation of a simpler lifestyle.
What seems to be sure is that this will be a remarkable period in everyone’s life, from which a new “normal” will be established.
For companies everywhere, what we have at the moment is basically an exercise of endurance and perseverance.
Consequently, the most important issue for business leaders, now and in the years to come, is to create resilient organizations.
That is, companies with the ability to anticipate and react quickly to major changes –including crises like this one — and not only survive these transformations, but also adapt and emerge better than before.
Resilience, therefore, is the ability to grow with adversity and succeed in a world of uncertainty.
And a company built to be resilient is designed to last indefinitely.
This characteristic will be absolutely critical in a 21st century in which companies will undergo a succession of shocks caused by unanticipated factors such as the current pandemic, or by the enormous technological, environmental and social transformations underway.
This complete unpredictability, resulting from the equation “changes at high-speed + interconnected world”, is already — and will be more and more — the hallmark of our time.
As Peter Drucker said, “the greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic.”
A perfect way to not succeed in a world like this is to set up the company as if it were still in the “business as usual” of the 20th century. That is: rigid, pyramidal, hierarchical, linear, empty, meaningless, and ruled by internal procedures based on an illusory belief in impartial and rational decisions.
In other words, the recipe for failure is to continue viewing the company as if it were a big machine in which resources of all kinds are put — including human resources — with the sole objective of producing financial outcomes with the maximum efficiency possible.
This type of company could sometimes work well in a static environment that rewards repetition, scale and efficiency (and in which it competes with other businesses with the same mindset and practices). However, it is the prescription for disaster in an extremely dynamic and increasingly humanized world that will likely emerge post-COVID-19.
And what are the attributes of a resilient company?
There are, of course, financial and operational issues involved. This crisis showed, for instance, that it is necessary to adopt a more conservative cash management than that advocated by many financiers, that it is necessary to set up supply chains that prioritize redundancy and backups instead of the current obsession with efficiency and cost minimization, and that it is necessary implement a robust IT infrastructure that enables quick digitization of the main processes.
As human organizations, however, the more relevant element of a resilient company is undoubtedly the cultural one.
A company needs to be not only financially and operationally prepared for adversities, but above all culturally-ready.
A resilient company has three fundamental qualities.
It learns continuously, is ethical (in the sense that it establishes long-term win-win relationships with its stakeholders), and authentically pursues a broader purpose beyond profits.
In this text, I’ll discuss the virtues of the learning organization. In the next two, respectively, I’ll describe the qualities of the ethical company and the company with purpose.
The learning organization
In a knowledge society characterized by change, if people and companies are not learning on a daily basis, then by definition they are already becoming obsolete.
It is important to highlight that the term “learning” has a much broader connotation than just staying updated or being exposed to new knowledge.
“Learning” means: 1) knowing what is wrong in the company’s day-to-day regarding its operations, commercial and ethical issues, etc. (and, of course, quickly fix these problems); and, 2) being able to innovate constantly.
It is impossible to create a “learning organization” by decree. It is necessary to develop the conditions for this virtue to flourish.
There are three main attributes to create a company that learns continuously.
The first, which is the basis for the other two, is psychological safety.
Psychological safety means creating an environment in which people are not afraid — and even feel they have a duty — to share their concerns, report errors or unethical behaviors, and contribute with new ideas.
The objective of psychological safety is very simple: to drive the fear out of the organization so that people can simply be themselves.
That is, to eliminate the fear of people exposing themselves, diverging from the group, questioning their superiors, suffering retaliation, looking incompetent, being labeled as problematic and, obviously, being fired.
When people think about saying something in everyday business, there is a frequent doubt between opening speaking out or being silent. In most companies, there is a widespread perception that it is safer to stay quiet.
If the individual does not speak, he or she is not at risk. That’s why “no one has ever been fired for being silent” is a popular quote in the corporate world.
And this is why bad news does not go up through the ranks. Errors are not reported and, as a result, the organization simply does not learn how it can continuously improve.
It is obvious that this type of behavior is even more disastrous in times of crisis and major changes. These are exactly the moments in which problems need to be reported immediately under penalty of severely affecting the survival of the organization.
To deal with crises, senior leaders need to know what is happening in their companies. And to know what’s really going on, you need an environment with high psychological safety.
Otherwise, the bad news will not reach the top (or they will arrive too late).
It is essential, therefore, to get rid of the culture of fear if the company really wants to become resilient.
There are dozens, if not hundreds, of scientific studies showing that in psychologically safe environments: i) problems are reported more frequently; ii) errors are corrected more quickly; and iii) people resort less to workarounds (situations in which employees get the job done by ways that create bigger problems for the organization in the future).
The other important aspect of psychological safety, which connects with the second attribute of a learning organization, is that in a culture of fear it’s not just bad news that doesn’t circulate. Potentially good ideas also don’t circulate.
That is, without psychological security there is no experimentation, and without experimentation there is no innovation, which is the second key element of the learning organization.
It is unnecessary to write extensively about the importance of innovation in a world like ours. Innovation is an always relevant topic that becomes absolutely critical for the survival of companies in times of great changes such as the this one.
To create an environment conducive to experimentation, a lot of people say that it is necessary to tolerate failures. Actually, companies have to go further: they must even celebrate unsuccessful initiatives as long as they learn something from them.
This is perhaps the main differential of the cutting-edge companies of the 21st Century: they understand that failures are an inseparable part of learning in their journey towards excellence. After all, the path to success is not a straight line.
There are companies like W.L. Gore, for example, that even celebrate failed projects at parties with beer and champagne, while others like X Development (a Google company), even pay bonuses to people who participated in these fiascos.
Everything is done so that attempts to innovate are valued and, consequently, employees play to win instead of playing to self-preserve and not lose.
Another thing that makes people play to win is the third characteristic of a learning organization: the creation of an environment that activates the intrinsic motivation that is latent in the vast majority of people, so that they feel self-motivated to do their best every day.
This will make all members of the organization strive to perform their activities with excellence for personal pleasure, making work a prize in itself and not a means to win a prize.
Intrinsic motivation is even more important in times of crisis where, on the one hand, people tend to become more paralyzed and, on the other, the company tends to be more dependent on individual initiative (once it becomes more difficult to closely monitor what people are doing remotely).
According to numerous scientific evidence, people feel more self-motivated in environments that provide high autonomy, opportunities for personal development, and healthy personal relationships with a sense of community.
And that is why companies should invest in new practices such as self-management and maximum flexibility at work so that people can focus on activities they believe are aligned with their strengths.
To stand out as a learning organization, therefore, companies need to change the focus of incentive systems.
They need to put much greater emphasis on generating high intrinsic motivation in their employees. At the same time, they should give increasingly less weight to the traditional “carrot and stick” approach based on financial rewards and threats of punishment.
The figure below summarizes the three fundamental qualities of a learning organization.
In the upcoming articles, I will address the other virtues of resilient companies.
Prof. Dr. Alexandre Di Miceli is a professional speaker, business thinker and founding partner of Direzione, a top management consultancy that provides state-of-the-art knowledge on corporate governance, ethical culture, leadership, diversity, and company purpose.
He is the author of “The Virtuous Barrel: How to Transform Corporate Scandals into Good Businesses” as well as of the best-selling books on corporate governance and business ethics in Brazil, including “Corporate Governance in Brazil and in the World”, “Behavioral Business Ethics: Solutions for Management in the 21st Century”, and “Corporate Governance: The Essentials for Leaders”.
I thank Prof. Dr. Angela Donaggio her valuable comments and suggestions.