Business Today

The Way To Resilience

Operating without a margin of safety could lead to dire consequences.
BT Guest Columnist |Print Edition: November 4, 2018
The Way To Resilience
Illustration by Raj Verma

In Jim Collin's book Great by Choice, the author describes Amundsen's and Scott's radically opposite approaches in their race to the South Pole. More than a century ago, Norwegian explorer Roald Amundsen and four teammates attained the distinctive title of being the first men to reach the South Pole, claiming victory five weeks ahead of Robert Scott. The Amundsen crew returned safely to its base, but Scott and his four British companions died on the return journey, succumbing to exhaustion, frostbite, starvation, fatigue and less foreseeable causes such as poor organisation, lack of planning and overconfidence. Amundsen's approach was to use a combination of skis and dogs, select a champion cross-country skier on the team and carry enough food, but most importantly, ensure a large margin of safety. Scott, on the other hand, overlooked the basic lessons from previous polar expeditions. Instead of taking enough dogs, he took sledges that malfunctioned and ponies that could not cope with the snowy surface. He did not prepare his men to ski, and they were not adequately prepared for extreme temperatures. Also, Scott was indecisive, taking an extra person with him, although his supplies only permitted a team of four.

Why did one succeed and the other fail? Both faced similar external environment. Neither of them knew what the expedition to the South Pole was going to be like and what they would encounter. But Amundsen overcame his lack of knowledge with more than adequate preparation to deal with the unknown while Scott failed to do so. It does not take a polar expedition to follow the rule that planning without a margin of safety is idealistic and short-sighted.

And so it goes with crisis management. It is in the very nature of crises that they escalate unexpectedly, where the impact is difficult to assess and even more difficult to manage. Such crises lay bare the preparedness and responsiveness of an organisation, often tarnishing the company's reputation. Crisis events are on the rise as more than 80 per cent of the organisations, surveyed for Deloitte's latest global crisis management report, suggested that they had to mobilise their crisis management teams at least once over the past two years. Cybersecurity and safety topped the charts of events. Digital media, too, has given a voice to the disenfranchised, drawing the battle lines between brands and aggrieved consumers on social platforms. What are the lessons then? The question has changed from 'if you face a crisis' to 'when will you face a crisis'. Hence, investing in preparedness is an essential strategy to build resilience.

Coming back to the Amundsen-Scott reference, is the confidence of companies in crisis management outstripping their preparedness? The report mentioned above testifies it. Nearly 90 per cent of respondents had confidence in their organisations' ability to deal with a corporate scandal. Yet only 17 per cent of the organisations tested the assumption through simulation. This gap could turn fatal just as it did for Scott.

Here are some critical elements that can help kick off a company's crisis management initiative:

A robust enterprise risk management framework is the proverbial ounce of prevention towards crisis management: Organisations must work on defining and evaluating a robust framework for corporate governance, risk management practices and internal controls. These three components build the foundation for a robust crisis management programme. Through regular reviews, companies can identify new and emerging risks and assess existing risks and also the adequacy of risk management efforts.

Two broad sources can cause a crisis. First, the risks which are on the risk map. Every organisation faces inherent risks specific to the industry to which it belongs. For instance, it could be safety risks for hazardous industries such as oil and gas, chemicals and mining, or product recall for the automobile segment. When the mitigation plans for these risks fail, it can lead to a crisis. Second, there are scenarios where you have less control and can be blindsided. Think of natural disasters, geopolitical incidents, misconduct and so on.

Identify the most likely crises and assess their potential impact through risk-sensing: While risk management efforts are targeted towards mitigating risks, organisations need to identify crisis events and prepare response plans to deal with the scenario when mitigation fails. Organisations adept at crisis management take a systemic approach, anchored in a sensing capability that continually assesses internal and external data for signals. Our crisis management report suggests that 33 per cent of the respondents would improve detection and early warning systems and 27 per cent would invest in identifying potential crisis scenarios.

Develop a crisis management playbook. Prepare today to be resilient tomorrow : A core team must be built involving the top management and representation from other departments such as communications, legal and administration to develop a crisis management playbook. The team should come up with a written plan covering various aspects of a) pre-crisis preparation, b) crisis mobilisation and c) post-crisis actions, to address different scenarios. Each playbook should carry a checklist that covers some fundamental questions: What do we know about the event? Where and how does it impact us? What should be our priorities in dealing with it? With whom do we need to communicate?

More importantly, work on conducting simulation exercises or a crisis drill for the plan to pass the test. Crisis simulation provides an organisation with a way to assess its crisis readiness and know whether its strategy, plans and systems will work when a crisis strikes. Using crisis simulation, people can get a clear sense of what is needed, when to escalate, how to scale up and what the gaps are.

Studies suggest that the combined value of corporate reputation in the S&P 500 touched a new high of $4,561 billion in the first six months of 2017, accounting for 20.6 per cent of the market capitalisation. Shareholder value is a function of corporate reputation. Reputation continues to be recognised as one of the most valuable assets of corporate houses while crisis management and response is a vital ingredient to sustain this shareholder value amid business uncertainties.

Sachin Paranjape is Partner, Deloitte India

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