When a crisis starts, leaders and managers need to be prepared, ready to mobilise to manage the situation, and identify the potential recovery options from the outset.
The Nature of Crises
Crises are unpredictable in terms of their type, triggers, timing and recovery. They change as circumstances change, and often at pace. New facts and evidence will emerge as the crisis persists and if new information cannot be accessed or processed quickly, there can be a domino effect triggering more crises and more problems. These problems and their impact can increase exponentially, and without early management action, they almost certainly will.
In the past, but maybe no more, preparing for unknown crises has often been neglected. There are usually more pressing and immediate challenges and given competing demands for time and resources, why use them for crisis preparation when a crisis may never happen?
Whilst we might wish ‘it will never happen to us’, the reality is crises come in different forms and over time there is an increased likelihood that some type of crisis will occur. It may affect an individual organisation or it may affect those operating in similar market sectors or those using the same supply chains. And then there are macro-crises at a national or international level, triggered by geopolitical changes, economic cycles and global challenges such as the current COVID-19 global pandemic.
When considered from a distance, it is clear that all organisations need to be prepared at any time for a crisis and understanding their own level of readiness and how it can be strengthened can help make the difference between success and failure.
Business Continuity Planning has usually been the starting point, ensuring that organisations can continue to function by allocating and redistributing resources or securing additional resources and facilities for different disaster scenarios. Context and constraints such as the level of liquidity and stakeholder relationships at the crisis point can easily be overlooked.
However, by looking at the possibility of future crises through the lens of business resilience, not just business continuity, additional practical preparations can be made for any type of crises. This will shorten the response time to mobilise, improve in-the-moment crisis management and increase the likelihood of rapid and sustainable recovery.
Also, understanding business resilience in real-time will create additional value-add since many of the drivers behind increasing resilience are enablers to leveraging opportunities in markets during times of rapid disruptive change. Resilient organisations are often both the most agile and most competitive.
The midst of a developing crisis is a dangerous and difficult place to be. Leaders and managers need to be hands-on and delve into the detail. They will be tested under extreme pressure, sometimes leading to disagreement, confusion and instability. Being prepared helps reduce disagreement, minimise confusion and speed up the restoration of stability.
The time taken to act is a critical factor in mitigating the impact of a crisis. When framed as a business resilience issue, crisis preparation and management can become part of routine business since the areas of greatest vulnerability are known in advance. A plan of action and options to increase resilience can be identified and recorded on an ongoing basis in a real-time Business Resilience Register.
The Business Resilience Register would be a key business artefact and would mitigate the impact of any crisis. As a minimum it would contain the following:
- Liquidity Impact Assessment – options to increase liquidity at short notice can be identified in advance and reviewed regularly and recorded as an item on the Business Resilience Register. Time to act in a crisis is reduced by having this readily available as opposed to creating it at short notice and under pressure. The register would include items associated with external lending sources, factoring agents, government support schemes, etc. For each source it would include: contact details, likely level of funding available, likelihood of securing funds and lead time to reach agreement. Internal items on the register would include opportunities for immediate cash preservation and generation from accelerated delivery, conversion of WIP into cash, outsourcing options and stopping non-critical expenditure. Opportunities to reduce overheads to match different types of operating models would also be included. Having this information up to date and available means that accurate cashflow forecasts for different scenarios and options can be pulled together in a matter of hours, rather than days. Obtaining an early assessment of liquidity during a crisis is essential to making informed decisions at pace.
- Stakeholder communication plan – to remain a going concern in times of crisis, strong relationships and trust need to have been built up over time with lenders, shareholders, customers and suppliers. The strength of these relationships can buy much needed time to look at option such as renegotiation of payment terms, advance payments, increased borrowing or debt-to-equity conversion. Early and frequent communication with agreed messaging and plans, prepared in advance, will provide stakeholders with reassurance that the crisis is being managed as effectively as possible. This will increase their support and increase the likelihood of survival.
With preparations in place, the management of the crisis itself becomes much easier. Having an up to date off-the-shelf outline Crisis Management Plan available, aligned with a Business Resilience Register, ensures parallel workstreams and action plans can be mobilised quickly. The off-the-shelf plan should contain sufficient detail and standard checklists to capture:
- What activities and operations can be continued ‘as-is’?
- What activities cannot be continued ‘as-is’ and for each one, is there an alternative approach available (e.g. staff working remotely, remote access to facilities, outsourcing, etc.) and what is the likely impact of any alternative approach on cost, productivity, throughput and quality?
- For those activities that cannot be continued as-is and have no alternative approaches, what is the customer delivery and commercial impact of their discontinuation?
Once these steps are complete and the situation is understood, the Business Resilience Register can then be used to:
- Rapidly complete a Liquidity Impact Assessment
- Immediately commence key stakeholder communication
- Develop a detailed Crisis Management Plan
As with any plan, the Crisis Management Plan should be a live document and updated throughout the duration of the crisis as circumstances change. The effect on liquidity and stakeholder communications need to be reviewed in response to events and changes to the plan. Then, once the immediate actions to gain control are complete, the focus will move to recovery.
The phased recommencement of business needs to be planned in detail. At the same time, all crises create opportunities and these must not be missed since they can improve business performance and competitiveness thereafter,
It is worth taking time to look at all operational changes to identify what could be retained post-crisis. It may become apparent that a return to business-as-was is not be the best way forward. Many interim arrangements will have changed the interaction between people, processes and technology and it might be that some results and KPIs have improved during the crisis. Remote working, virtual meetings, supply-chain engagement and customer communications can change organisations for the better, reducing costs, streamlining processes and increasing productivity.
Furthermore, the momentum from crisis recovery itself can be used to overcome many of the barriers to organisational change and as such, needs to ensure the opportunity for transformation is not lost.
Benefits of Business Resilience and Agility
Business resilience assessment is a means of understanding how ready a business is to adapt to a crisis that may threaten its survival. But crises are not the only times that the capability to adapt to rapid and disruptive change is needed.
Business opportunities can come about at short notice and an agile business that is prepared for rapid change will always be well positioned to seize an opportunity. The fundamentals are the same; assess the liquidity impact, manage external communications, review the options for change to activities and operations, develop and implement a plan.
In the midst of a crisis it is hard to look for positives, but once the crisis has passed it may be that understanding business resilience is exactly what is needed to provide the agility to implement transformational change and not miss out on future opportunities.