Achieving resilience through supply chain and portfolio management
If you could design and build a resilient business from the ground up, what would it look like? Unfortunately, there is no magic bullet or one-size-fits-all solution, so instead let’s explore some strategies that companies adopt. This is a huge topic, so for the sake of clarity, in this article we will focus on the company’s position in the supply chain and its portfolio approach.
The supply chain and its effect on resilience
When it comes to the supply chain, some companies opt for vertical integration wherein they take a dominant presence in the supply chain. In contrast, others opt for an orchestrating role, which translates into less of a presence in the supply chain.
Here are the key differences between the two:
There is no magic bullet or one-size-fits-all solution for resilience. Let’s explore some options!
- Vertical integrators and the fragility conundrum
With vertical integration, a company extends its role beyond its core activities in order to integrate and own all or most of the supply chain. Some companies choose this option in search of efficiency and greater control of their supply chain – an interesting feature in times of higher inflation and disrupted supply chains.
However, this approach may actually make the company more fragile due to hard-wired structures and processes, a decreased level of connection with the broader business ecosystem, or the emergence of single points of failure, among other reasons.
Such an approach could make the company more robust, if some of these vulnerabilities are well managed, but it will hardly make the company more antifragile – capable of growing and thriving when exposed to disruptions. For example, during the pandemic and even now, we have seen major, vertically-integrated supermarkets face shortages of basic products, less variety, and occasionally empty shelves. These are tell-tale signs of supply chain disruptions and/or risks induced by excessive optimization.
- Orchestrating a sustainable future
A radically different approach has led some companies to essentially erase themselves from the picture. Instead of extending their grip along the entire value and/or supply chain, they instead opt for an orchestrator role. They carefully outsource many steps of the value chain, retaining ownership of only the very core aspects of the business. For example, IKEA focuses on design, distribution and sustainability in its aim to provide attractive and affordable furniture. It relies on an extensive ecosystem of suppliers and partners for many aspects of the business. In times of crisis and disruption, this configuration can prove incredibly resilient or even antifragile. However, this is only possible if the company has mastered its ecosystem management and partner onboarding.
It is important to note that eco-design and fluid supply chains are being increasingly mastered by companies that are leaders in sustainability. They use specific tools to choose the right supplier for a certain KPI or constraint such as decarbonization or resilience.
The impact of portfolio management on resilience
Changing gears from supply chains to portfolio management, we have observed that some companies spin off disruptive portfolio growth while others disrupt themselves throughout their history.
- Aiming for the moonshot: Spin-offs or divisions
For the same reasons given above, some companies choose to broaden their portfolio by creating specific divisions or daughter companies with the mandate of nurturing new business models, riskier approaches, and moonshot projects. These endeavors escape the straightjackets of business-as-usual activities like short-term thinking, risk aversion and excessive optimization. Such strategies may require stability and good cash reserves, which may not necessarily be available to any market player. The strategy is not without its own challenges. If new services or products are dropped because they do not deliver the expected results — especially after a critical mass of adoption has taken place — the company may face user backlash, like Google did with Google+ or Stadia.
- Enabling radical portfolio shifts
Some companies have proven themselves capable of pivoting the entire business quite radically. Nokia transformed from a paper mill into a rubber company, then to a mobile phone enterprise and to its current incarnation as a networks company. Portfolio management — the ability to wisely choose when and how to invest/divest — is an essential trait for any company to achieve antifragility.
- Rightsizing the portfolio
Portfolio breadth is another key aspect to assess. There is a sweet spot when it comes to portfolio items. If there are too few, the company may not be realizing its full potential and increasing its risk, should one or more items underperform. If there are too many portfolio items, the company could have a hard time managing its portfolio and product/service roadmaps, as well as sending confusing messages to the market. The challenge then is to identify a correctly balanced portfolio.
Charting the way ahead
There is no single correct option when reshaping a company to become antifragile. Being quite aggressive – or perhaps the exact opposite – in supply chain ownership and portfolio strategies may yield good results, but its sweet spot will depend on the market position, financial reserves and company culture.
Remember that there are no magic bullets for antifragility, but if you keep aiming for a continued and educated experimentation with these alternatives, you will be able to chart your organizational growth with better precision.
In this blog, we have discussed portfolio and supply chain, but there are many other angles to consider when striving for resilience. We explored some other approaches in a recent post, and will address new angles in future blog posts and in an upcoming opinion paper. Stay tuned for additional insights.
What can a crisis teach us about resilience?
Read our latest opinion paper to find out: