From X-events to Resilience How to Build A Resilient Business Model

From X-events to Resilience How to Build A Resilient Business Model Leena Ilmola International Institute for Applied Systems Analysis (IIASA) The Global X Network

Structure of my presentation I. About resilience what is that? II. Elements of corporate resilience III. Resilience measurement IV. Resilient business model 2

I ABOUT RESILIENCE 3

What do we mean with resilience? Performance Capability to succeed in the environment that is dominated by uncertainty. Awareness Active learning Agility Adaptation Time

Theory behind our proposition for definition Ecosystems theory Holling C.S. (1993) Resilience and stability of ecological systems How adaptation builds complexity Holling C.S. (2001) Understanding the complexity of economic, ecological and social systems. Ecosystems 4, 390-405 Gunderson, L.H., Holling C.S. (2002) (Eds.) Panarchy. Understanding transformation in Human and natural systems, Island Press, Washington D.C. Folke C. (2006) The emergence of a perspective for social-ecological systems analyses Global Environmental Change 16 pp. 253-267) Resilience Alliance www.resalliance.org Complex Adaptive Systems theory Anderson, P (1999) Complexity Theory and Organization Science, Organization Science, VOL 10, No.3, May-June 1999 pp 216-232 Berger P.R. & Luckmann T (1966) The social construction of reality, Doubleday, New York Holland J. (1995) Hidden Order: How adaptation builds complexity, Addison-Wesley, Reading MA Luhman N. (1995) Social Systems, Stanford, Stanford University Press Innovation theory Reinmoeller and van Baardwijk (2005) http://sloanreview.mit.edu/article/the-link-between-diversityand-resilience/ Cho, Mathiassen, Robey (2007) Dialectics of Resilience Journal of Information Technology Liisa Välikangas, A. Georges L. Romme, (2012) "Building resilience capabilities at Big Brown Box, Inc. ", Strategy & Leadership, Vol. 40 Iss: 4, pp.43 45 5

II CORPORATE RESILIENCE 6

Based 6 INDEPENDENT SUBSTUDIES 1.SELF ASSESSMENT TEST 2.CULTURE RESILIENCE TEST 3a.GAME CHANGERS TEST 3b. SHOCKS TEST 4. STRUCTURE TEST (NETWORK) Introduction to resilience, its implications to the company. Own perception of strengths and weaknesses of resilience. Identification of internal flexibility and the values that are guiding organization in the shock situation. Strengths of current strategy from resilience perspective. Potential vulnerability. A portfolio of concrete resilience development actions. Weak nodes of existing operations. Systems description of the operations. 5. COMPLEXITY TEST Fit to existing markets -elaboration 7

INSIGHTS AND RESILIENCE ASSESSMENT 1 st insight based on resilience review Resilience is a result of how well functions are working together, (one function alone cannot solve resiliency) Resiliency is a Board Level responsibility

1. RESILIENT CULTURE 9

The Acculturation model + Frustrated Driver Positive perception of a firm now, but negative expectations for the future Positive perception of a firm now, and positive expectations for the future Now Alienation Follower - Negative perception of a firm now, and negative expectations for the future Negative perception of a firm now, but positive expectations for the future - Future + Acculturation model by Berry 2005

Drive is essential for resilience + Now Driver DRIVE Positive perception of Cassiidian now, and positive expectations for the future Typical for high drive culture High quality participatory planning Reality rules: Empowered people do not obey rules and plans Trust Diversity - - Future + Culture study perception about current situation and future all companies (Casti, Perchter, Berry) Analysis of actions in disruptive cases (Schein)

What generates trust in the future AN%= themes that alienated group used when describing the reason for their perception of the current situation (now) AF% = themes of alienated people when they described future FN= Followers now, FF= followers future, DN=followers now, DF=Drivers future ALIENATED, FOLLOWERS AND DRIVERS THEMES NOW AND FUTURE 120.0 100.0 80.0 60.0 40.0 20.0 0.0 AN% AF% FN% FF% DN% DF% culture operations structure environment strategy resources Data: Culture study perception about current situation and future, all the companies (Casti, Prechter, Berry)

What makes culture resilient 2nd insight Drive is essential for resilience > empowerment, speed of reaction, commitment Strategy is essential for the future expectations Resilient culture: Pragmatism Development orientation Diversity Trust

2. STRATEGY RESILIENCE 14

Strategy resilience Basic Assumptions of the Strategy Competitors from other fields are not able to enter the market Customer seg. X and Y demand will be steady for the next 10 years Business is global Economic growth We are essential part for the whole (value chain, company) WHAT IF Different business models are introduced Segment will disappear New regulation Long lasting decline Restructuring K e y C o m p e t i t i v e F a c t o r s Strong understanding of client needs Agile fast reactions Technology X knowledge Strong Trust Brand, recognition We never leave customer into trouble Supports Strongly ------------------------- > No Impact ----------------------------------------> Lethal Impact 15

Strategy as a source of resilience 3 rd insight: Key strategic features that increase resilience Culture related strengths (not directly market driven) are not sensitive for the speed of change Agility, fast reactions, speed Strengths lies in supporting capabilities that are not directly technology or customer specific Strong customer focus, partnership Basic assumptions that increase vulnerabilities: Growth related objectives (basic assumption that is possible) Strong perception of externalities behavior We have to focus on our core competence (working with similar kind of clients) Our competitive factors are very strong Key strategic features that decrease resilience Client segment specific focus Specific technology focus Strong customer focus, partnership Dependence on externalities: owners radical actions, new type of competitors

3. STRUCTURE 19

16-Jun-14 Structure and resilience Process step 1 Sales has the key role in this process. Systems theory, Parmenidas Eidos approach, data: fictive example based on case studies 20

16-Jun-14 Structure and resilience Process step 2 Changes in the environment have negative impact on clients, except on segment S. Now the process is driven by sales, competitor and client segment B Systems theory, Parmenidas Eidos approach, data: fictive example based on case studies 21

16-Jun-14 Structure and resilience Process step 3 Now the response to the market change requires R&D, but the partner is already involved with the competitor. Systems theory, Parmenidas Eidos approach, data: fictive example based on case studies 22

Structure as a source of resilience 4 th insight: Structural features that decrease resilience: One of the nodes/agents will have too dominating role There are systems Blocks or gate keepers Same drivers are driving all of the customer segments Slow feedback loop internally > slow reaction to the market change > external drivers are driving the system

4. OPERATIONS RESILIENCE 24

Recruitment philosophy 35% 65% We look for specific skills We recruit smart people There is a lack of candidates so we cannot apply a recruiting philosophy 25

Firms reward active, efficient and goal oriented employees Experts Those participating actively Team builders Efficient people People with global business skills People with exceptional People with a wide perspective on Goal oriented Those good with numbers Those with interests beyond their Those with good people skills 26% 30% 11% 19% 22% 22% 26% 4% 19% 48% 56% 0% 20% 40% 60% 80% 100% Insta/Cassidian/Ruukki combined (All responses) (Mean: 5.724, Deviation: 2.927) (Responses: 27) 26

Share of personnel able to do other jobs in the company than their current one? 0% 10% 0% 4% 20% 30% 40% 19% 19% 23% Greater than 50% 35% 0% 20% 40% 60% 80% 100% Insta/Cassidian/Ruukki combined (All responses) (Mean: 4.615, Deviation: 1.243) (Responses: 26) 27

When losing two major suppliers, do firms have the ability to react in time in order not to have major disruption in business? Yes 27% No 35% I do not know 39% 0% 20% 40% 60% 80% 100% Yes No I do not know 28

When the largest partner is not able to deliver, what is the impact on production (1 = Little Impact, 5 = Shut Down) 100% 80% 60% 40% 26% 44% 20% 0% 11% 15% 4% 1 2 3 4 5 1 2 3 4 5 29

Example of Resilient portfolios Resilient portfolio of 6 actions: 11, 8, 12, 5, 1, 6 1. Be open about risk 2. Catasthrope roofing-solutions 3. Cut down the production by 50% in Raahe. 4. Electricity from Russia 5. Marketing of solar and wind 6. Marketing with partners 7. New bio based primer to use. Secure the functionality of the order-to-cash process 9. Storm durable products 10. supply smaller - price higer 11. Transparency in all our work, responsible action 12. Utilize stocks at nearest location 120 11 1 10 2 93 84 57 6 57 48 39 10 2 11 1 12 0 Portfolio size Analysis method - Robust Portfolio Modeling 30 Portfolio size 3 4 5 6 7 8 9 10 11 12 2 1 0

The key is back-up of of all critical material 0% 14% 32% 50% 66% 79% 89% 96% 100% 100% Use phone, fax to ensure minimum communic. 0% 14% 27% 36% 45% 54% 63% 74% 86% 100% Internal update policy to to critical systems 0% 14% 27% 39% 48% 57% 65% 74% 86% 100% Ask for power generators from defence forces 0% 14% 32% 48% 61% 75% 87% 96% 100% 100% Remote access utilization in emergency situat 0% 14% 27% 36% 45% 54% 63% 74% 86% 100% 1. Use external resources 2. Build trust 3. Backup for critical issues 4. Develop services/products to uncertainty demand 5. Be open for disruption Be transparent with communication audit results 0% 14% 23% 32% 42% 52% 63% Better co-op with internet operators 0% 14% 23% 32% 42% 52% 63% Create personal power generator 0% 0% 5% 14% 24% 37% 52% Collect ip addresses of critical partners 0% 0% 5% 14% 26% 40% 54% Create a "VIP" DNS system of your own in Cassidian 0% 74% 74% 70% 70% 86% 86% 86% 86% 100% 100% 100% 100% 0 1 2 3 4 5 6 7 8 9 9% 9% 14% 18% 23% 32% 43% 59% 76% 91% 100% Portfolio size Backup postal service for data distribution 0% 9% 9% 18% 30% 41% 51% 61% 71% 80% 91% 100% Promote TETRA as non-vulnerable communication solution 0% 9% 31% 47% 59% 71% 80% 87% 92% 95% 91% 100% Geographical distribution of activities 0% 9% 31% 51% 65% 72% 76% 77% 82% 85% 91% 100% Boost Cyber security knowhow selling to power companies 0% 9% 25% 34% 47% 59% 66% 73% 78% 83% 91% 100% Help Desk service by phone 0% 9% 9% 16% 23% 31% 43% 55% 68% 80% 91% 100% Provide additional equipment to the rescue teams 0% 9% 13% 24% 36% 47% 58% 69% 78% 85% 91% 100% Know network service level in Nothern countries 0% 9% 19% 27% 35% 43% 54% 65% 73% 80% 91% 100% Guarantee hot line service 0% 9% 19% 27% 35% 46% 55% 63% 70% 78% 91% 100% Virve network is taken more wider use as today 0% 9% 19% 20% 23% 30% 42% 56% 67% 80% 91% 100% Send our experts to Sweden and other european countries 0% 9% 16% 22% 30% 37% 42% 50% 62% 76% 91% 31 100%

What makes operations and resources resilient 5th insight Assume volatility Recruit rather smart than those with one specific skill Reward those with interest beyond their own scope and those with wide perspective and capable of replacing others Cherish ability to innovate for uncertainty Assume and make plans for disruptions Encourage into reactive learning as responding to disruptions or when rehearsing for them

III ABOUT MEASUREMENT 33

How to measure resilience? Do you want to be a pioneer? Please join to our Piloting Partners! Contact ilmola@xevents.com 34

What does all this imply on the business model level? IV RESILIENT BUSINESS MODEL 35

Business model elements 36

No investments in infrastructures, partnering Multiple capabilities, multipurpose resources, Culture Resilient Business Model Elements Redundancy Hybrid innovations Based on cocreation, trust Diverse segments with diverse needs Customer is a co-creator, one process for multiple purposes Internet, SOME On demand, cost generated when service produced Crowd financing Do you need any profit? Multiple streams from diverse set of services 37

Fast designs for multiple purposes 3D printing A business model example No limits Do when you want and what you do want! Brand, trust Diverse segments with diverse needs in your network. Customer is a co-creator, same printer for multiple purposes WWW, SOME On demand, low production, storage cost Designers as financers? Do you really need any profit? Multiple streams, designs, technology, raw materials 38

What is an ExO? In 10 years, it's predicted that 40% of the Fortune 500 Companies will no longer exist. Innovation P&G 300 days from idea to product Exponential Organization 29 days Business model: Staff on demand Community & Crowd Algorithms Leased Assets Engagement 39

If this is true for your organization. 1. We mostly use on-demand contractors in addition to a small full-time core team 2. We emphasize agility - even mission critical functions are outsourced 3. We use on-demand assets even in mission critical areas 4. Our community is decentralized, communication is many to many and drives peer-to-peer value creation 5. Most core processes are self-provisioning and executed outside the organization via a scalable platform 6. Objectives and key results have full transparency - everyone can view each others' performance) 7. We use experimentations and A/B testing and short feedback loops; for all core functions 8. Failure and risk-taking are expected, pervasive, measured and even celebrated across the organization 9. Small, multi-disciplinary, networked, self-organizing teams are the primary operating structure 10. All key decisions are decentralized (except purpose, culture and vision) then you are resilient Modified from http://exponentialorgs.com/survey 40

Final what do we want to say SOURCE OF RESILIENCE IS A BUSINESS MODEL 41

Thank You! Please contact: ilmola@iisa.ac.at 42