Any risk or resilience plan needs to be sensitive enough to evaluate all of the critical dependencies and account for the compounding of multiple risks at times of crisis.
1. The CRO finds himself in the hot seat
The CRO learns the hard way that just because a risk is unlikely doesn’t mean it won’t happen.
Joel Taskman took a long look in the mirror before his 8am video call. He felt as if he had aged 10 years in 12 months. As CRO at FooderFodder Appliance Manufacturing, he had lost more sleep than hair as his company faced a crisis, first in lack of supply, then in increasing demand.
As a global manufacturer primarily of commercial-grade kitchen appliances, with a niche luxury consumer kitchen appliance line, Joel’s hands were full before the pandemic assessing a range of organizational, operational, reputational, financial, geopolitical, regulatory, climate change, digital, cyber and talent risks.
Joel and his team had conducted scenario planning, developing risk assessments to rank the top 10 threats based on likelihood and impact, putting together a plan geared to mitigate those risks. He thought FooderFodder’s risk strategy was sound. Unfortunately, a global pandemic didn’t make the top 10 list and he learned the hard way: the past is often a poor predictor of future risks, data-driven risk intelligence is more important than he gave it credit for, and just because a risk is unlikely doesn’t mean it won’t happen — or have a devastating impact.
Joel sat at his home office sit-stand desk, which mostly stayed in the sit position now, put in his ear buds and waved hello to his colleagues who had already joined the call. He thought Sabrina de Haan, FooderFodder’s CSCO, looked tired and a little pale, but he kept that to himself.
Digitally networked supply chains are data-driven and can react to events, enabling near real time changes.
2. The CSCO struggles to contain the crisis within a crisis
The linear, just-in-time supply-chain model may be great in good times, but in bad times it’s highly vulnerable to disruption.
Sabrina sipped her fourth cup of coffee, thinking it may be a good idea to dial back the caffeine when the pandemic crisis was finally over. But not today. She’d been awakened just after 3am by the production manager at FooderFodder’s European factory with yet another cry for help.
Demand for its line of high-end bread makers was suddenly through the roof again and one of its main Asia-Pacific suppliers had only shipped a fraction of the parts needed to keep the next shift going. It was the third time in a week among countless times over the past several months that the supplier had come up short. The production manager had already changed the shop floor production schedule four times in a day and was at his wits’ end.
Although her call with Joel and Maha Menon, FooderFodder’s CHRO, was meant to focus on where to go next and how to build resilience into the organization based on lessons learned, Sabrina felt there was still too much to be done now to think about what was next. “I blame bloody social media,” she said as she explained today’s crisis. “How can we keep up with changing customer demand when every new social-media video glamorizes the DIY gastro addiction?”
“And then there’s the remodeling,” Joel added.
Sabrina sighed audibly. “I thought when the pandemic hit and everyone went into lockdown, we’d have no demand whatsoever. And while our commercial appliance numbers have taken a hit, we can’t manufacture enough to meet demand for every residential kitchen renovation going on around the world. Sales and marketing are texting and emailing constantly with the number of consumers we’re disappointing — or losing — because we aren’t meeting their expectations for personalization, prediction or delivery.”
FooderFodder’s leaders will want to create a structure and a culture that is less top-down and more collaborative.
3. Short-term thinking dims the CHRO’s hope for an agile workforce
Knee-jerk reactions to disruption early make it hard for the organization to pivot quickly to meet demand later.
Maha was thinking with some frustration how a lack of end-to-end visibility across customer segmentation, data and supply chain had created one workforce headache after another for her.
At the onset of the pandemic, production ground to a halt, first because the company couldn’t get the raw materials or parts it needed from third-party suppliers, and then — more importantly in her mind — because whole shifts of workers began to fall ill or refused to come to work because the company couldn’t secure enough personal protective equipment. The same was true for FooderFodder’s distribution centers, resulting in not enough labor to get products they were able to finish out the door.
The COO and CFO responded by immediately laying off 50% of production, logistics and fulfilment workers to mitigate the anticipated negative financial impact. Two months later, Maha’s HR team couldn’t hire people fast enough to keep up with demand from either its retail customers or its own new (and still glitchy) direct-to-consumer ecommerce platform. Twelve months later, they were still playing catch-up.
And although the COO had just warned a new round of layoffs may be coming once the new robotics, shop floor and warehouse automation systems were installed, Maha didn’t hold her breath. At the rate IT and operations were going, it would be years before FooderFodder’s plants and distribution centers were automated to a point where she’d be needing to sort out layoff notices again — at which point she hoped she would have a reskilling/upskilling strategy in place to transform the workers they had into the workers they would need for the future.
Meanwhile, Charles Kumbo, FooderFodder’s CEO, indicated with the vaccine rollouts going so well, he wanted office personnel back in its downtown towers ASAP. Maha suggested a hybrid work model may be the way to go as not everyone was going to feel comfortable returning to an office environment, but Charles wasn’t terribly interested in her opinion on the matter. “Get ‘er done,” was all he said.
Keeping our focus on what humans need to perform at their best, will help you define the organizational changes to achieve resilience across the enterprise.
4. Relationships strengthened during the pandemic begin to fray
A lack of individual resilience creates a disconnect among C-suite executives as they try to build resilience across the enterprise
Sabrina was explaining her supply chain issues when Joel abruptly cut her off: “Sab, I hear what you’re saying, but we’re here to talk about the next, not the now.”
Sabrina hated being called Sab. “With all due respect, Joe,” Sabrina replied pointedly, “We could have had a conversation about the next, if we had anticipated the risks we are dealing with right now — or had some kind of business continuity or disaster recovery plan to help address things earlier in the pandemic. But until we have the ‘now’ risks sorted, I don’t see how we can move on to ‘the next’.”
“And,” Joel replied tartly, “if you had moved faster toward a networked supply chain rather than sticking with linear silos, as my last risk assessment suggested, you might have been able to get a better handle on your supply chain issues.”
“You know I tried,” Sabrina said hotly, “but I couldn’t get nearly enough budget or IT resources to get it off the ground, so we’re stuck with our disconnected, on-premise systems, versus the investment in cloud-enabled solutions I’d been lobbying for. Speaking of which, why is our esteemed CIO not on this call?”
“You know,” Maha said, “I keep hearing the two of you talk about this risk model or that scenario plan or a digital transformation plan that can’t get off the ground, but at no point have I heard you once mention the people — our people.”
“I’m not really sure where you’re going with this, Maha …” Sabrina started to say.
“… Or what our people have to do with resilience,” Joel added. “We’re talking about, or, at least, we’re supposed to be talking about, organizational resilience so that we can get ahead of the risks.”
“But don’t you think organizational resilience needs to start with individual resilience? With the health and wellbeing of our people?” Maha asked.
“Well, of course we want to make sure our people are healthy and safe,” Joel said offhandedly. “But the board has demanded that we get out of a crisis mindset and prioritize enterprise resilience…emphasis on the enterprise part. Charles has tasked me with putting an enterprise resilience plan together and needs to report to the board on our progress at the end of the month. That’s where our attention needs to be.”
“That’s where your attention needs to be, Joel,” Sabrina said. “I’m going to be busy putting out fires until I get some budget to move our supply chain model into the twenty-first century.”
And with that, Sabrina left the video call.
“So, see you next week?” Joel asked Maha.
“See you next week,” Maha replied.
Question: How can FooderFodder reverse the crisis management lifecycle so that it can prepare for change instead of reacting to it?
5. Reversing FooderFodder’s crisis-management lifestyle
Three EY leaders focused on people, supply chain and risk provide perspectives on challenges FooderFodder executives face.
Stephen Koss, EY Asia-Pacific Workforce Advisory Leader
I fundamentally believe that to achieve enterprise resilience organizations first need to talk about individual resilience. Both Joel and Sabrina appear exhausted and, in that state, they can never perform at their best. Meanwhile, Maha is frustrated that FooderFodder’s people seem to be an afterthought for much of the C-suite. Physical and mental health are foundational elements for resilience.
Maha needs to focus on designing around what people need to perform at their best and work outward to design the organizational changes to support it. These organizational elements can be around balancing work capacity across teams, whether they are equipped with the right skills and capabilities to perform in their role, the right attitudes and motivations, performance frameworks, and work culture and environment, which is set through the leadership behaviors. Keeping their focus on what humans need to perform at their best will provide FooderFodder with the organizational changes to achieve resilience across the enterprise.
My recommendations for FooderFodder are:
Close the empathy gap
Some members of the FooderFodder C-suite, starting with the CEO, will want to consider how they can close the empathy gap. The leadership characteristic of empathy has always been known for its importance, but never more so than now. Employees respond best when leaders demonstrate their own humanity by being empathetic and demonstrating care for their people. They also appreciate honesty and authenticity. The focus on empathy can help improve organizational culture and resilience.
Work with the CRO and CSCO to close the skills gap
FooderFodder was not prepared for disruption or digital innovation in the supply chain. However, as Sabrina evolves the company’s supply chain, skills gaps will grow which will hurt her business if not proactively addressed. At the same time, Joel’s risk organization will need to be upskilled as the process to identify and quantify risks and scenario plan is automated and data-driven. Many of the team members will need to shift their mindsets toward analyzing complex data sets, and forming more strategic and informed decisions. Maha will want to help both Joel and Sabrina create capability maps to assess current workforce skills, develop innovative learning programs to reskill and upskill FooderFodder’s people, curate learning experiences, and cultivate culture of growth, curiosity and learning. Having teams of the right skills and capabilities improves resilience.
Establish an agile team approach
During the pandemic organizational structures were an even greater impediment to change. The highest performing organizations took this challenge on to shift to more collaborative work practices to help speed them through the rapid change needed to respond. As the crisis subsides, there is a risk that some organizations will retreat back to a more traditional approach to work. To help mitigate this risk at FooderFodder, Joel and Maha may want to consider setting up an agile team that cuts across the silos and enables greater productivity. Agile teams can help by balancing workload dynamically, which can improve resilience in individuals and their teams. It is important to note, however that someone, likely the CRO, will need to be clearly accountable and empowered to drive the business transformation effort.
Regenia Sanders, EY US-Central Consulting Supply Chain and Operations Leader
Supply chain reinvention is a process, not a project. In a time of continuous disruption, like the one Sabrina de Haan is experiencing, the only path to meeting FooderFodder’s goals is to continue to evolve toward a responsive supply chain.
My recommendations for Sabrina would be:
Put humans at the center of your supply chain
FooderFodder’s leaders will want to create a structure and a culture that is less top-down and more collaborative. They’ll want to empower their workforce to participate in developing solutions that make their jobs easier with the adoption of enabling technology. It’s a familiar refrain: technology will make things possible; talent will make them happen. Sabrina focuses on the need for technology to reinvent her supply chain. But to fully unleash the power of digital investments, FooderFodder will need to re-evaluate its organization structures to organize themselves in ways that support speed to innovation. Sabrina will want to work closely with Maha to evaluate the workforce with plans to develop in-house mastery, drive adoption of new enabling technologies, and solve the supply chain talent gap through cross-training, upskilling and re-tooling.
Shift the needle on investment priorities
Sabrina alludes to the fact that she’s been trying to get budget and IT resources to move the needle on digital transformation in the supply chain. A just-in-time supply chain, while great in good times, is highly vulnerable to disruption in bad times. Further, current supply chain processes tend to have too much operational technical debt, resulting in delayed automation, robotic and IT projects, and people-based workarounds that increase the risk of insufficient business resilience. Sabrina will need to work closely with Joel to build a business case that demonstrates the urgent need, embeds the risks and quantifies the impact as well as the opportunities and the ROI of leveraging digital technologies to reinvent the supply chain.
Gather intelligence for better decision-making
Sabrina would do well to get a monitoring tool that uses data and analytics to analyze the entire breadth of FooderFodder’s supply chain. Either as a prerequisite, or simultaneously, the company will need to invest in a data strategy. Combined with the risk intelligence technology Joel is implementing to anticipate the risks and impact on the supply chain, Sabrina should be able to identify her supply chain’s critical pain points. This intelligence will also give Sabrina an increased understanding of FooderFodder’s customer requirements through segmentation and the adoption of more robust forecasting techniques that take into account other demand signals, such as point-of-sale information, market drivers, and customer preferences, rather than solely relying on historical demand.
Gain end-to-end visibility across the supply chain and operations
Sabrina needs end-to-end visibility to improve responsiveness to changes in supply and demand triggered by disruptors across the end-to-end supply chain. This could be risks in the supply base, spikes in customer demands, disruptions in fulfillment challenges, capacity constraints in manufacturing, quality issues or labor shortages. With greater visibility, Sabrina could have had a clearer picture of the supply chain interdependencies, and Joel could have pushed for a better balance between being lean versus having enough slack in the supply chain to address unpredictable events when they arise. Sabrina also would have been able to flag vulnerable suppliers and vendors before supplier issues arose. Control tower and digital twin technologies can help. Control tower technology leverages AI and machine learning to anticipate and react instantly to supply chain disruptions. Digital twin technology will enable Sabrina to build a virtual model of the physical supply chain. This can help her to improve scenario planning, optimize the supply chain and facilitate continuity planning in times of crisis.
Evolve from a linear to a networked supply chain
Historically, supply chains, like FooderFodder’s, have followed the traditional plan, source, make, deliver model where digital connectivity with customers was limited. More and more, there has been a transition from linear to networked supply chains. These digitally networked supply chains are data-driven and can react to events in real time. Data is shared in the cloud or directly integrated with suppliers to enable better collaboration and supply chain visibility. However, for FooderFodder to consider this type of a transition, they will have to make fundamental changes in the way they employ data governance, think about their supply chain strategy, supply chain operations and supply chain physicality.
Kristina Albang, EY Global Enterprise Resilience Leader
If FooderFodder’s CRO can look beyond managing risk to building stakeholder trust and reframing risks into opportunities, the company has an opportunity to reposition for long-term value creation. But first, the CRO needs to get the C-suite out of playing damage control and into reimaging the business so that the company has the agility to thrive no matter the situation.
My recommendations for Sabrina would be:
Turn uncertainty into opportunity
This requires modernizing the risk management function to leverage data-driven risk intelligence and scenario planning to predict and quantify emerging risks (upside, downside, outside) across the value chain. To do this, Joel will want to begin by aligning the organization’s purpose and strategic priorities to risk management so that it can support risk-based decision-making. He’ll also need to work with the CFO and CIO to secure budget for investment in technology to automate the risk management lifecycle and implement continuous monitoring of risks tied to their strategic priorities. Artificial intelliegence (AI) technology will help. However, Joel will also have to shift his mindset from identifying and ranking the top 10 risks to determining of the 1,000 or more risks, which matter most to FooderFodder. By anticipating disruptions and their impacts the company can turn risk into opportunity, spur innovation and reframe the company’s future to meet changing expectations.
Proactively prepare the organization for disruptions to minimize the impact
The fact that FooderFodder didn’t have a business continuity, disaster recovery or crisis management plan was a clear miss on Joel’s part. Had these plans been in place, the CRO and his team would have been able to routinely test critical decisions and critical dependencies, alternate recovery strategies and scenario planning, and update or adjust as necessary. This can’t be a check the box exercise. Any plan, and the associated testing, needs to be sensitive enough to evaluate all of the critical dependencies and account for the compounding of multiple risks at times of crisis. Business resilience can’t begin until organizations have a clear plan — and are executing against that plan — for returning to normal.
Embark on a trusted transformation
Once the organization has built a better risk intelligence engine to identify risks and opportunities, they will need a better way to manage the resilience of change to anticipate risks and design controls into the new products, services, customer experiences and business models so that any new that’s customer-facing is trusted. FooderFodder will also need program risk management (PRM), which accompanies any large transformation, so that Joel can keep the transformation program on time, on budget and delivering value for the level of investment.
Organizations looking to create a resilient workforce, enterprise and ecosystem requires a coordinated team effort among risk, operations and supply chain, and human resources. By putting humans at the center of any resilience initiative, advancing technology at speed, and innovating at scale, organizations can pivot from surviving to thriving.