Why do some companies thrive in chaos while others struggle? From cyber threats to political instability, understanding how vulnerabilities impact resilience is crucial for succeeding despite external factors. While 62% of organizations seek opportunity in risks (PWC, 2023), only 33% have robust mechanisms to manage them effectively (AICPA, 2023). This gap highlights a significant challenge in fostering true organizational resilience. The coffee industry serves as a poignant lens through which we can examine critical issues of risk and vulnerability, learning how to reinforce them when they arise. This article will explore the various types of risks organizations face. Using examples from the coffee industry it will examine the strategies employed to respond to business disruptions to bolster resilience and draw on examples to illuminate these critical concepts.
The coffee industry is one of the most important commercial value chains worldwide (Piexoto et al., 2022). To illustrate how critical it is for organizations to adapt, consider the coffee industry, which, like many sectors, faces significant external risks. Exacerbated by climate change, the coffee industry faces significant threats, a phenomenon coined by Henri Kunz as the 'coffee apocalypse.' It's a term coined in response to rising temperatures, drought, and coffee leaf rust disease that is shrinking coffee's availability, quality, and beloved unique flavor.
Alarmingly, the Inter-American Development Bank forecasts that by 2050, up to 50% of the land currently suitable for coffee cultivation may be lost (Inter-American Development Bank, 2019). This scenario threatens the livelihoods of millions and endangers a beloved beverage integral to daily life. The challenges the coffee sector faces, illustrate broader themes of risk and vulnerability that many industries encounter. They also offer seeds of wisdom on how resilience can be tackled.
Understanding Business Risks
Risks are potential events or conditions affecting an organization’s ability to achieve its objectives. They can be internal including leadership short-sightedness, assault, harassment, poorly designed processes, obsolete systems, operational efficiencies, fraud, or poor internal controls. Two notable examples illustrate how these risks may originate. In 2023, Tesla experienced a major data breach orchestrated by two former employees, who leaked sensitive personal data to a foreign media outlet. The leaked information included confidential information such as addresses and social security numbers of over 75,000 current and former employees. Fast fashion companies like H&M also face internal risks by using unsustainable sourcing practices that involve modern-day slavery within their supply chain (H&M, 2024). H&M has been accused of using supply chains that include inhumane treatment, child exploitation, and wage theft. (Reuters, 2023)
Not only internal threats derail businesses. External forces, often beyond an organization's control, can be even more devastating. These may include cyber threats, economic shifts, climate change, or natural disasters. As illustrated by the 2024 CrowdStrike incident, a critical software glitch impacted 8.5 million Windows PCs and servers connected to CrowdStrike's security platform, causing global disruption across multiple sectors, including airlines, banks, supermarkets, and hospitals. Thousands of flights were grounded, travelers were stranded, and patients faced delays in medical procedures. In response to this crisis, CrowdStrike developed a new resilience framework for managing vulnerabilities, demonstrating the importance of proactive risk management in safeguarding against unexpected disruptions.
What we need to understand about Vulnerability
The risk events mentioned above illustrate cases of business vulnerability. Vulnerability is a weakness exploited by risk and typically arises from Risk Management Failures such as:
Failure to Scan: Many organizations fail to detect the trends that their market environment is changing. The coffee industry for instance is experiencing changing consumer behavior shifting and shaping the coffee market. There is a growing preference for premium and specialty blends and issues surrounding demographic shifts which impacts all industries. The coffee industry is coming to grips with the rise of millennial and Gen Z consumers. This has required adaptive marketing responses to these consumers. These companies understand this segment’s need for sustainable products and customization. Their response has been exploring innovative ways to stand out by focusing on sustainable sourcing practices to appeal to environmentally conscious consumers, while others are investing in unique flavor profiles and brewing techniques.
Failure to Plan: Many organizations fail to plan for potential disruptions. A weak business continuity plan can leave a company exposed to risks. A robust plan would have critical information an organization needs to continue operating during an unplanned event. For instance in December 2022, Southwest Airlines, known for its affordable fares and being the largest domestic airliner in the U.S. failed to prepare for its peak revenue season. The airline’s internal technology failed, leading to the cancellation of about 16,700 flights between December 21 and December 31, which was 45% of its operations.
Failure to prepare caused severe reputational damage and financial losses, with Southwest reporting an $800 million hit to its pretax results and a rare quarterly loss (Southwest Airlines, 2022). They implemented new weather applications to improve their resilience by better gauging dynamic local weather. Many companies in the coffee sector face similar weather challenges. It is an industry threatened by climate change. The latter disrupts production cycles, alters flavor profiles, and poses challenges to the sustainability of coffee ecosystems disrupting supply chains.
Coffee producers minimize costs and generate revenue through environmental stewardship. The industry has implemented a preparedness strategy by leading sustainability initiatives such as agroforestry practices. This is the integration of planting trees and shrubs into crop and animal farming systems to create environmental, economic, and social benefits. Water conservation is adopted to promote the efficient use of water, and carbon offset programs with tradeable rights are used to reduce or remove carbon dioxide or other greenhouse gas emissions from the atmosphere to compensate for emissions made elsewhere.
“We will develop solutions that will not only improve coffee productivity and quality but also empower farmers with the tools and knowledge needed to thrive in a changing world and challenging climate”, (Robert Vega,2024).
Starbucks provides lessons on vertically integrating to secure your supply chain. Starbucks, which purchases 3% of the world’s coffee supply (IAD, 2024), has been battling coffee industry risks driven by climate change. It has been facing growing pressures because of climate extremes. In response, they purchased 2 additional farms (October 2024) to protect their supply chain and shared 90 million “climate-resistant” coffee trees and more than 53 million coffee sprouts to local farmers.
Cultural Factors: An organizational culture that discourages open communication can prevent issues from being addressed promptly. This can exacerbate internal risks, as employees may feel uncomfortable reporting problems. In December 2022, Silicon Valley Bank (SVB) was the 16th largest bank in the US with $209 billion in assets.
However, by March 2023, it collapsed in just two days, marking the largest bank failure since 2008 and the second largest in US history. Several factors contributed to SVB’s downfall including a surge in withdrawals by tech startups, SVB’s primary customers, which led to a bank run. However, the Federal Reserve highlighted poor risk management. According to Ethan McCarty, SVB’s leaders did not adhere to their stated cultural values, such as taking responsibility. These issues undermined customer confidence in regional banks and posed risks to their future stability.
Resource Limitations: Organizations with limited financial, technological, or human resources may struggle to implement adequate risk management strategies. Prioritization is key when resources are limited. Companies can focus on the initiatives that are the “low-hanging fruit” and easily implementable focussing on the risks that could have the greatest impact on their business and those that are most likely to occur. This enables allocating resources in a way that first mitigates the most significant threats. Companies can also employ partnerships which is a form of reducing the burden of risk management through pooling of resources. Many coffee producers are partnering with each other to take advantage of market shifts and boost their customized offerings. Some choose to get closer to the consumer by offering in-person service quality attributes that boost the symbolic quality of their coffees. These are exemplified by café chains controlled by producer organizations, agrotourism networks (Edelmann et al. 2022), safari farm tours, and digital marketplaces for producer-consumer interactions (Daviron & Ponte, 2005).
Others are developing relationships with nonprofit organizations or multilateral lending agencies whose role is to provide social capital. They undertake community improvement initiatives such as promoting fair labour practices and environmental preservation and in the case of the lending agencies funding. This symbiotic arrangement allows access to capital and sharing of knowledge and experiences providing community and customer-centric solutions to problems.
Failure to understand Dependencies: If you don’t understand your value chain, you can’t protect it. Understanding your value chain by performing dependency mapping is a collaborative process of identifying and documenting all the people, processes, information, technology, facilities, and third-party vendors required to deliver each critical business service. Identify any areas where you lack redundancy and require diversification. In coffee production, diversification is the introduction of new products so that coffee is not the only income for a producer. It provides necessary income for producers and is a strategy to protect crops from disease, pests, and other negative impacts of climate change. By monitoring how different crops are planted together, barriers are created to stop the spread of disease. It also promotes biodiversity as other crops generate by-products that complement the growth of other crops like supplementing with honey production.
From Vulnerability to Organizational Resilience
Resilience refers to an organization’s capacity to anticipate, prepare for, respond to, and recover from adverse events. Understanding the interplay between risk and vulnerability is vital for enhancing organizational resilience. Resilience is your organization’s protection in a chaotic world—without it, you're exposed. There is another angle to this. External events are intersecting and being amplified. Risks like climate change, biodiversity losses and supply-chain constraints span geographies and industries. There is nowhere to hide. They affect everyone. If the objective is competitiveness and growth, there is limited space for the traditional application of risk minimization ideologies with the hopes of eliminating the risk. Adaptation is critical.
Strategies for Building Resilience
Risk Assessment and Management: Conduct regular risk assessments to identify internal and external risks. Implement a risk management framework with thorough vulnerability analysis to prioritize and mitigate these risks effectively. Use tools such as risk mapping, scenario planning, and predictive analytics to assess vulnerabilities. For example, organizations can leverage AI-driven risk management systems to monitor emerging threats in real time.
Business Continuity Planning: Develop and regularly update a comprehensive crisis management plan. This plan should include protocols for communication, resource allocation, and recovery strategies. Be proactive. Utilize technology to bolster risk measures and provide ongoing training for employees. Southwest Airlines’ failure to update its operational systems and anticipate seasonal risks led to massive disruption. A well-trained workforce can be the first line of defense against internal and external risks
Foster a Culture of Transparency: Encourage open communication and a culture where employees feel safe reporting vulnerabilities or potential risks. They are often the best scanners as they are involved in the day-to-day operations and interact directly with customers. This can help organizations identify issues before they escalate.
Cultivate your Partnerships: Build your coalition within your industry. Managers should explore solving their problems by developing relationships whereby partners can access novel resources like potential networks, expertise, or social capital.
As this article conveys, Mimic what works for other industries!
If you aim to build resilience in an unpredictable world, grasping the concepts of risk and vulnerability is essential. Lacking a clear understanding of vulnerabilities means you are more susceptible to uncertainty. Recognize the internal and external threats you face and emerge stronger by addressing your vulnerabilities through strategic measures. The lessons learned from real-world examples like Southwest Airlines, Crowdstrike, and Tesla remind us of the importance of proactive risk management and cultural awareness in fostering resilience. Hopefully, the examples given from the coffee industry with strategies used by behemoths like Starbucks are illustrative of strategies used when dealing with extreme global risks.
“The bamboo that bends with the wind is stronger than the resisting oak.” (Japanese Proverb)
Resilience is not about avoiding risks but about preparation, and leveraging vulnerabilities as opportunities for growth. Survival depends on adaptability not just risk minimization. Where change is the only constant, organizations prioritizing understanding risk and vulnerability will be better equipped to thrive in adversity. The true test of an organization’s resilience is not in eliminating uncertainty but in its ability to thrive despite it.
Will yours be one of them?
References
· American Institute of CPAs, & North Carolina State University’s Enterprise Risk Management Initiative. (2023). 2023 State of Risk Oversight: An Overview of Enterprise Risk Management Practices. Available at: AICPA 2023 Report
· Peixoto, A., Santos, R., & Ferreira, J. (2022). Global Coffee Supply Chain Vulnerabilities and Climate Change. Journal of Agricultural Studies, 10(3), 45-67.
· Inter-American Development Bank. (2019). The Impact of Climate Change on Coffee in Latin America: 2050 Forecast. Available at: IDB Report
· NBC News (2024). Technical Glitch Disrupts Global Systems. Available at: NBC News
· Reuters (2023). H&M probes Myamar factory abuses as pressure intensifies. Available at Reuters
· Southwest Airlines. (2022). Winter Storm Operations Disruption Report. Available at: Southwest Report
· Cybersecurity Dive. (2024). CrowdStrike Introduces “Resilience by Design” Framework. Available at: Cybersecurity Dive
· Edelmann, M., Daviron, B., & Ponte, S. (2022). Agrotourism and Coffee Farms: New Approaches to Coffee Supply Chain Resilience. Journal of Sustainable Tourism, 28(5), 1204-1221.
· Daviron, B., & Ponte, S. (2005). The Coffee Paradox: Global Markets, Commodity Trade, and the Elusive Promise of Development. Zed Books.
· CNBC. (2024). Starbucks Invests in Innovation Farms. Available at: CNBC
· H&M. (2024). Modern Day Slavery Policy. Available at: HM group
· Edelmann, M., Daviron, B., & Ponte, S. (2022). Agrotourism and Coffee Farms: New Approaches to Coffee Supply Chain Resilience. Journal of Sustainable Tourism, 28(5), 1204-1221.
· Daviron, B., & Ponte, S. (2005). The Coffee Paradox: Global Markets, Commodity Trade, and the Elusive Promise of Development. Zed Books.
· Cybersecurity dive (2024). Crowdstrike resilient By Design. Available at: Cybersecurity
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