Future-proofing Companies Through Mitigation, Adaptation, and Resilience Strategies (Part 1)

Globally, the business environment is now becoming increasingly vulnerable and uncertain because of the scale and pace of changes. Studies have identified that environmental, socio-demographic, and technological changes are the top three areas that bring major disruptions to business operations (OECD, 2016; LSE, 2018; UN, 2019). This article outlines various types of global changes and their potential impact for companies, together with mitigation, adaptation, and resilience strategy to manage the risks. In the second part of this article, we will see the reality of this issue by examining the coffee industry and uses Merlo Coffee as the case study.

Types of Changes Impacting Companies

Climate Change

The global climate is changing and it has been a major threat that can disrupt day-to-day business operations. Global Risks Report (2018) identified environmental risks like extreme weather and natural disasters are ranked amongst the highest and can bring devastating impacts for companies. From a financial perspective, the consequence may be severe. In 2025, the potential loss from climate change is projected to reach almost US$ 1 trillion for the world’s top 200 companies. From the operational side, the supply shortage caused by climate-related issues like water scarcity is also likely to happen. To elaborate on climate-related changes and the impact to the business, examples are provided in the table below.

On a positive note, climate change can also lead to new business opportunities. Companies can reduce their operational cost by improving their resource productivity, for instance by energy efficiency programs. It can also lead to innovation, inspiring new products and services that are less carbon-intensive or more eco-friendly. These actions can foster competitive advantages and unlock new opportunities.

Demographic and Socio-economic Change

Demographic and socio-economic changes can shift the way companies operate the business. Some countries are facing dramatic population growth, while others are caring for their aging population (OECD, 2016). In many developing countries, new cities will emerge and the middle class will drive the global economy. As customers, demands, and market base will change, businesses need to anticipate this change. Leveraging on OECD and UN Megatrend reports, Table 2 displays potential demographic and socio-economic changes and how they impacting businesses.

Technological Change

New waves of technology are emerging at an unprecedented speed. Technological advancements such as digital platforms and artificial intelligence are changing the way people’s lives and how businesses are conducted in the future. Reflecting on megatrend reports from OECD and LSE, Table 3 illustrates various technology changes and their impact on companies.

Mitigation, Adaptation, and Resilience

As the changes discussed above will bring risks and uncertainties, organizations need to develop strategies for the future. Mitigation, adaptation, and resilience strategy are paramount to future-proofing the company. Mitigation strategy aims to limit the problem and reduce the impact, while adaptation means organizations are gradually adjusting to modify their coping range. Resilience is defined as expanding the organizations’ coping rate and quickly recover from situations that create vulnerability (Wade, 2020). For companies, these strategies are helpful to identify the drivers of vulnerability, taking a broader view of risks and opportunities, making better decisions, and engaging new partners (Metzger, 2012). That way, management can develop resources and capabilities to avoid or minimize organizational collapse.

Mitigation

A mitigation strategy is critical to make the impact of the changes less severe. By preparing mitigation strategies, organizations can minimize the risk of future challenges and spot new opportunities. In the climate change context, mitigation is recognized to be important as it reduces the rate and magnitude of climate change by reducing GHG (Denton & Wilbanks, 2018).

Mitigation strategy can come in many forms. In a larger context, it appears as international agreements, policies, or taxes, for instance Paris Agreement or Kyoto Protocol. For companies, mitigation can appear as standardization, regulations, and internal policies. Starbucks, for instance, aims to reduce 50% of its carbon emissions by using solar energy in 10,000 stores (Starbucks, 2020). These initiatives are done to reduce the severity of climate change towards coffee production and ensuring a long-lasting coffee bean supply for Starbucks. To address the global demographic shift, Cisco built its second headquarters in India to spearhead its push into this emerging country (McKinsey, 2010). By doing this, the company has established a good presence in new markets. Therefore, mitigation strategies are valuable to future-proofing the business.

Adaptation

Unlike mitigation that focuses to anticipate the impact, adaptation means creating adjustments to modify the coping range of the organizations. In the climate change context, coping range is described as the capacity of systems to accommodate variations in climatic conditions (IPCC, 2007). Through adaptation measures, organizations can increase their coping level (see image) and thus can minimize the damage when changes happened (IPCC, 2007).

Adaptation measures can vary. Berkhout, et.al. (2006) suggest four modes of adaptation: commercial, technological, financial, and information and monitoring. To give some examples, commercial adaptation occurs when companies choose to grow crops that are more suitable for warmer. Starbucks, for instance, purchased a coffee farm in Costa Rica to develop climate-resistance coffee beans (Starbucks, 2020). On technological adaptation, DBS Bank aims to upskill its employees to learn AI and machine learning through its partnership with Amazon (Yu, 2020). Berkhout, et.al. (2006) also argue that adaptation is a process of organizational learning. It means, adaptation is a continuous process (see Figure 2) where companies keep on interpreting the change signals, experimenting, and iterating their strategy to gradually widen their coping range

Resilience

Resilience shifts the focus from analysing the root cause of the problems into asking ‘how are we going to manage it when they happen?’ Resilience plays a vital role because it enables organizations to quickly recover from situations that create vulnerability, once changes happened or once the boundaries of the coping range have been exceeded (Linnenluecke & Griffith, 2011).

A resilience strategy has two dimensions. First, impact resistance, which means a significant coping range. Second, rapidity, which means the ability to rapidly adjust to conditions which fall outside its coping range (Linnenluecke & Griffith, 2011). As seen in Figure 3, these two elements are critical to sustaining organization’s performance once changes happened. Impact resistance is promoted by decentralization, diversity, and redundancy of organizational resources and structures, while rapidity is promoted through processes to identify problems, establish priorities, mobilize resources, and deploy them appropriately (Linnenluecke & Griffith, 2011).

Resilience strategy can come in many forms. On decentralization and diversity, companies can spread their sourcing input or suppliers to avoid dependency and to prepare back-ups. In the 2011 Thailand floods where Toyota lose $1.5 billion, the auto giants industry realized that having a sole key component made in one place is a fragile system (Winston, 2014). On redundancy, companies can develop leeway for changes. For instance, Obama Administration announced a plan to stockpile a million barrels of gasoline to avoid shortages after Hurricane Sandy (Winston, 2014).

Now let's take a look on how these changes affecting the global coffee industry, and particularly local roasters like Australia's famous Merlo Coffee. Check out this article!

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