Was the pandemic a surprise for most organisations?

Coro­n­avirus has taught us that con­tin­ued busi­ness suc­cess in a volatile, uncer­tain, com­plex and ambigu­ous world requires us to think and act dif­fer­ent­ly about risk. 

We can no longer be defen­sive; we need to be ready and able to grab oppor­tu­ni­ties when they arise. We can no longer con­sid­er and man­age risks in iso­la­tion to one anoth­er; we need to think strate­gi­cal­ly. And we need to recog­nise that you can’t plan for every­thing; the whole organ­i­sa­tion needs to be pre­pared to deal with uncer­tain­ty.

Pan­demics might be unpre­dictable, but they are recur­ring. Plus plans for the imple­men­ta­tion of mea­sures such as social dis­tanc­ing, self-iso­la­tion, bor­der screen­ing, school and work­place clo­sures are all well doc­u­ment­ed. Yet COVID-19 seemed to take many organ­i­sa­tions by sur­prise. Or did it?

Accord­ing to a sur­vey by the Insti­tute of Risk Man­age­ment, the major­i­ty of organ­i­sa­tions had con­sid­ered pan­dem­ic risk, or some­thing with sim­i­lar con­se­quences to the organ­i­sa­tion, before it hap­pened. Indeed, 30 per cent had con­sid­ered both the oper­a­tional and finan­cial impacts. So not real­ly a sur­prise for most organ­i­sa­tions.

How­ev­er, the same sur­vey also finds that while the risk func­tion of the organ­i­sa­tion had con­sid­ered the risk, this con­sid­er­a­tion only turned into the imple­men­ta­tion of the rec­om­mend­ed risk man­age­ment actions in less than one third of organ­i­sa­tions. What is going wrong?

One prob­lem is that the human per­cep­tion of risk is far from ratio­nal and most peo­ple only asso­ciate the word “risk” with the poten­tial for bad things to hap­pen. This, when com­bined with a busi­ness envi­ron­ment that is being increas­ing­ly dom­i­nat­ed by inter­nal con­trol prac­tices dri­ven by reg­u­la­tion and an aggres­sive media, has been shown to lead to defen­sive risk man­age­ment behav­iours.

A con­se­quence of such behav­iours is a dis­pro­por­tion­ate empha­sis on val­ue preser­va­tion through oper­a­tional reli­a­bil­i­ty, rel­a­tive to val­ue cre­ation and real­i­sa­tion through busi­ness process inno­va­tion. Anoth­er is it under­val­ues the impact of large-scale events. 

The result is large-scale events that may require a com­plete rethink of busi­ness process and strat­e­gy, such as pan­demics, are often only includ­ed in the nar­ra­tive of risk reg­is­ters or risk plan­ning. This means invest­ment for them focus­es on oper­a­tional con­ti­nu­ity as opposed to prepar­ing the senior lead­er­ship to be able to adapt fast to realise oppor­tu­ni­ties. 

It is backed up by a sur­vey from the Busi­ness Con­ti­nu­ity Insti­tute, which found at least half of organ­i­sa­tions felt they were not ade­quate­ly pre­pared for the pan­dem­ic.

A sec­ond prob­lem is bal­anc­ing threats and oppor­tu­ni­ties in the heat of the moment requires being able to see the big pic­ture. Yet most organ­i­sa­tions con­tin­ue to embrace a risk man­age­ment and mon­i­tor­ing sys­tem where risks are most­ly man­aged with­in the busi­ness unit or silo in which the risk resides. For exam­ple, cred­it risk with­in finance and trea­sury, cus­tomer loy­al­ty and reten­tion with­in sales, employ­ee suc­ces­sion risk with­in human resources. 

There­fore, when it comes to events such as pan­demics that cre­ate dif­fer­ent but inter­re­lat­ed risks spread right across the whole organ­i­sa­tion and the envi­ron­ment in which it oper­ates, busi­ness lead­ers find it hard to get a han­dle on what is hap­pen­ing and make the nec­es­sary trade-offs between val­ue preser­va­tion and val­ue cre­ation activ­i­ties.  

How­ev­er, after a shaky start, many organ­i­sa­tions have not just sur­vived they are pos­i­tive­ly thriv­ing. Indeed, observ­ing some organ­i­sa­tion­al respons­es has put me in mind of a quote often attrib­uted to Win­ston Churchill: “Suc­cess is not final; fail­ure is not fatal: it is the courage to con­tin­ue that counts.” 

It turns out the quote is much more like­ly to have orig­i­nat­ed from a copy­writer for Bud­weis­er Beer, ral­ly­ing peo­ple to be resilient in the face of the Great Depres­sion that fol­lowed the Wall Street crash of 1929. But regard­less of the ori­gin, the sen­ti­ment is the same: some­times the sit­u­a­tion you find your­self in will be in flux, some­times it will be bet­ter, some­times it will be worse. 

But know­ing clear­ly what you want to achieve and pos­sess­ing the courage to take risks, togeth­er with the skill, will and grit to man­age those risks, is what will ensure you realise the reward from the risks you take, rather than suf­fer the loss­es.