Bill Murray, senior researcher and advisor, Leading Edge Forum, looks at how manufacturers can adapt to deal with future shocks.
2020 has tested the metal of manufacturers across the world and the global pandemic, without doubt, has been the biggest catalyst for digital transformation in the last five years. It has tested the agility of businesses like no other in modern memory, and in the process highlighted how brittle and fragile many manufacturers 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 organisational performance/workforce protection immediately after a shock occurs. Organisational failure occurs almost immediately after a shock.
- Brittle: When an organisation is brittle, the business operates as normal for a short time, but soon sees the impacts on business performance and workforce protection. Organisational failure occurs shortly after a shock.
- Resilient: Although a significant dip in organisational performance occurs after shock, a resilient manufacturer can keep generating economic profit through cyclical and structural changes in supply and demand.
- Antifragile: Like resilience, the antifragile organisation must adjust after a shock but then sees a growth to the business/positive response to the changed measure.
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 is what manufacturing businesses should be aiming for.
Of course, manufacturers are part of a wider ecosystem that they are tightly entwined with, so dealing with a shock can be challenging: Supply chains must recover from more frequent volatility, product innovation cannot go without entre- and intrapreneurship; manufacturing processes, often offshored, are increasingly automated through third party services and delivery is increasingly through outsourced and consumerised logistics. But it is important to note that the very flexibility that is built into these complex ecosystems brings agility and productivity during volatility to manufacturing firms.
To achieve antifragility, manufacturing organisations should adopt the following framework:
- Manage the shock
Many organisations are already managing the current shock and stabilising – 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 recognise 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 organisations to be flexible. In past crises, organisations that slashed and burned performed worse in the medium- and long-term than those that trimmed and invested smartly. Organisations that cut down their options while stabilising 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 organisations 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 organisation
Moving towards a more resilient and then antifragile organisation means adapting processes through more experimentation, decentralising, 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 operationalise 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 programmes down into manageable pieces. Failing fast is a must, and feedback loops to allow continuous improvement are critical.
Two levels of response
Whilst the framework above has proven itself to be successful in helping organisations achieve antifragility, it is not enough on its own and manufacturers must consider how deeply they want to embed antifragility in the organisation.
Applied at a basic level, the framework can have both an operational and financial impact in several ways, including:
- Operational – Speed and precision in management decision making will be improved through shorter governance paths. Decision making can also be improved by building a ‘sensing array’ to give early warning of upstream supply chain issues. Introducing quarterly scenario can turn risks into opportunity through first-mover advantage, in areas such as supply chain management and product design.
- Financial – Establishing greater spend transparency and trigger points for key financial decisions such as disinvestment and cutbacks on OPEX spend and CAPEX projects.
But these are just the entry level benefits to be gained. Those manufacturers that choose to take a deep approach to the frameworks can truly take the lead in their sector and through structural change be better prepared for anything the future might throw their way. The three key elements to achieving this are to:
- Organise the business around microenterprises each operating with specific scope and goals
- Make R&D about more than product design and manufacturing methods. R&D should be embedded into every organisational unit – each striving for improvement and to push the envelope.
- Look for ways to expand your opportunities through joint venturing and experimentation in new trading environments.
After the shock
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 organisations. 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 did not, 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.