April 2017 Business SCAN
A recession, a supply-chain disruption, a technology break-down, an industrial accident. These are all examples of crises that may have negative implications for organisations. Crises have been defined as low probability events that have severe consequences, generating ambiguity and decision-making time pressures for businesses. For this reason, the response of an entrepreneur or management team to a crisis can mean the difference between business survival or failure.
For many of today’s corporate leaders, this current period of turbulence, in everything from GDP growth to commodity prices to the pace of product innovation, seems more extreme than anything they have known before.
When faced with turbulent times, there tends to be a dichotomy in responses that’s evident not just in business but in politics and society too. Some people want to retreat to familiar territory, to try and make life more predictable again. Others choose to reach out to embrace the change.
An important approach, which can lead to increased awareness and ownership of risk, is to make sure that risk management adopts the right philosophy. Organisations should develop an understanding that risk is not negative. It’s not just about risk mitigation, it’s also about value creation. Research suggests the future belongs to leaders who ignore the pressure to slash jobs, capture value and retreat, and instead choose to pursue sustainable value creation.
Five lessons to survive in turbulent times:
- Be agile: Rather than using a step-by-step process, leaders today need a more iterative approach that lets them respond to the sheer pace of change and disruption. But while it’s important to be flexible, you don’t want to be precarious. To survive and prosper, combine agility with the following four constant factors.
- Build resilience: Instil robustness, an ability to absorb shocks. The reason companies like Nestlé, Mars, and General Motors have very long histories is their resilience. In times of crisis, these companies had the scale, and the nerve, to absorb the knocks, stay the course and wait for the opportunity.
- Stay true to your purpose: As a leader, it is vital that you understand the sense of purpose that exists in an organisation. And you should be very careful about tampering with it. In times of turbulence, it is up to leaders to understand, legitimise, spotlight and celebrate the motivations and values that underline an organisation.
- Create knowledge platforms to respond in good AND bad times: Any company will have good and back luck events in its life. What marks a company out is what it does when those events happen. A platform can make it possible for leaders to respond to those events. Build capacity (i.e. technical or human) to be able to take advantage of a good luck event or to ride out a bad luck event.
- Look to the medium term: Leaders and management focused on short-term profits are more likely to cut out spare capacity. This decreases their ability to respond to good luck and bad luck events. On the other end of the scale, long-term visions tend to be set so far in the future that it becomes meaningless. What gets missed is the medium-term, and this is the time frame that lets us consider the health of the platform, the meaning and purpose of the organisation, and the company’s absorptive capacity.
Sources: Houlder, D. and Nandikshore, N. (2017) Five lessons for leaders in turbulent times, LBSR, Mar 3; Barton, M.A. and Sutcliffe, K.M. (2010) Learning When to Stop Momentum, MIT Magazine 2010, Vol. 51, No. 3; Forbes Insight and Deloitte (2012) Aftershock: Adjusting to the new world of risk management, [Online], Available at: http://deloitte.wsj.com/cfo/files/2012/10/Aftershock_Adjusting-to-the-new-world-of-risk-management.pdf [17 March 2017]; Kessler, B. (2016) How to Manage a New World of Risk, IK, Jan 5
Have a conversation between the part of you that would say your organisation is crisis prone and the part of you that would say you are crisis prepared. Which areas would you suggest your organisation to improve on? Are you willing to change course when needed?
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