How CFOs can turn resilience planning into a strategic growth advantage
Digital transformation and major world events are driving changes that are enabling well-positioned financial leaders to grow, scale and adapt their businesses better than ever before. Whilst finance groups may previously have been in the background of these changes, a new breed of CFO is now leading from the front. In this short series of articles we look at the detailed transformations happening in specific areas of business and identify the practical tips that are helping businesses to successfully effect change.
What does strategic business resilience mean to your company?
Is it basic operational viability during a disaster? The ability to keep the lights on and keep working when unforeseen events occur?
Is it financial modeling that looks at cause and effect and paints a vision of what the future may look like?
For some forward thinking financial leaders, in 2022, during a period of vast digital transformation and unprecedented world events, resilience means something more.
After twenty-four months of drastic change and unforeseen events – the war in Ukraine, a pandemic and unprecedented global supply chain disruption, to name but three – there is an emerging business case for more strategic resilience planning.
Though global events have played their part in proving this case, perhaps the path had already been charted for many. We are living through a period of large-scale digital transformation. Agile newcomers are using technology to disrupt and challenge incumbents, whilst those very incumbents, in practically every sphere, are now reacting with transformations and initiatives of their own. Firms with a good handle on supply chain management, for example, have been able to use their technology-based advantage to navigate challenges and beat their respective markets.
Resilience planning is a natural beneficiary of this environment. As the pace of wide scale digital transformation increases so does the availability and sophistication of the tools available. The business case for those tools increases as well, as the world shifts around us and, suddenly, there is both available technology and the will to use it proactively. Tools like IBM’s Planning Analytics with Watson, for example, grants businesses the ability to report across silos, looking at both financial and other data, in a more timely, trusted manner than Excel-based planning. The outcome is better, quicker decisions, where the likely impact is fully understood.
Equally, there is increasing evidence that resilience can frequently be a driving force behind a digital transformation. A recent Gartner study found that “the need for resilience drives the business case for the majority of emerging technology deployments” with 64% of enterprises deploying emerging technologies to meet an objective of “enhanced resilience”.
This multifaceted environment has created a ‘resilience spectrum’. At one end, a business may say it is resilient because it has engaged in continuity planning and disaster recovery; they can keep the lights on when something goes wrong. Towards the middle a business may do those things on a more frequent basis, perhaps quarterly, with some testing.
Opportunity exists at the most advanced end of the spectrum, where businesses engage in what we could call ‘strategic resilience planning’. This is the meeting point of a digital transformation, forward-thinking financial leaders and a world which demands more resilience. The resilience aspect of a digital transformation sees a business plan for how it can quickly handle lots of sudden change and in those moments outperform the market.
CFOs who engage in these sorts of resilience activities are creating a mechanism, approach and philosophy where resilience (and therefore unexpected change) can equal strategic growth. Growth everywhere seems an important part of the CFO mindset in 2022. Gartner, for example, surveyed CFOs for their response to a CEO survey. A striking finding was that growth was higher on the CFO agenda than the CEO’s. Growth through resilience then is likely to be an attractive avenue but how, exactly, are successful CFOs finding growth in this area?
Certainty and opportunity in a crisis
The reaction of businesses to the COVID-19 pandemic illustrates a wide range of examples of just how extreme resilience has aided businesses in making strategic changes in times of crisis.
Consider the reaction of firms who provide home delivery. Those who carried out extended planning & analytics (xP&A), to test the resilience levels of surges in demand, or performed a headcount analysis, were able to upscale their delivery force quicker, through advanced workforce planning. This allowed them to react to events quickly and grow their service. By mid-April 2020, for example, Amazon had hired 175,000 new delivery and warehouse staff in the US. In the three months to the end of June, their workforce had grown by 34% year on year.
Businesses who did not do this struggled to meet demand for some time afterwards, with delivery slots quickly sold out whenever they were available. The financial impact of this is likely to have been significant, altering sales, cashflow and future planning, as the businesses in question suddenly experienced an absence of in-person customers and an inability to pivot quickly in order to satisfy demand.
During 2022, two years after the pandemic began, several global airports, airlines and aviation services companies have struggled to service demand during peak periods, due to a shortage of every level of staff; from groundscrew to pilots. Whilst the resilience efforts of these businesses has led to them surviving the pandemic, they are not currently in a position to thrive.
Building a chaos monkey
The exact ‘how’ of strategic resilience – what happens with the new xP&A data available – will differ for each business. In a digital transformation environment, where resilience is seen as an active, dynamic and culturally positive part of the business, anything can happen.
Netflix’s Chaos Monkey, for example, was developed as an extreme, proactive test of resilience. To ensure engineers built systems that could withstand any level of failure, Chaos Monkey would randomly disable parts of Netflix’s production network. The challenge for the engineers was whether the system could withstand any of the randomly targeted ‘attacks’.
The background to why resilience was given such strategic importance stemmed from Netflix’s recognition that the reliability of the service would be a key point for customers in a market that was about to become vastly competitive. Poor resilience in this area directly linked to sales-based planning. Cinemagoers may remember the iconic “we don’t crash… ever” scene from another disruptive technology at the time: Facebook, as told by The Social Network.
Businesses, particularly SaaS companies, may have the same level of resilience need within their network or systems, but it is perhaps more common to find direct parallels to the above in headcount, supply chain, cashflow, OpEx and CapEx. In these or other areas can your own ‘chaos monkey’ provide or facilitate simulations where impacts to revenue are clearly show, placed on manager’s desks and instantly reforecast, including where there would be a need to change cost structures to adapt to financial results? It’s this level of detail where resilience planning becomes a growth strategy.
Chaos Monkey was first deployed in 2011 and clearly, since then, Netflix have had a significant amount of success, built partially on the back of significant reliability improvements to their product in the company’s early days.
This is the upper end of the ‘resilience spectrum’. When viewed as an opportunity, the options for strategic growth are vast. Chaos Monkey, for example, became Simian Army, a whole suite of resilience tools and birthed chaos engineering, an entirely new approach to the field of systems resilience.
Financial leaders stand at the gateway to this approach, tasked with delivering growth. Where could your dynamic, strategically deployed, real time resilience planning take your business?
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