Governance, Risk & Compliance: GRC
COVID-19: A Long-Term BCM Challenge Without Precedent
The crisis that is coronavirus has revealed key weaknesses in business continuity across all industries. New thinking is needed to make significant changes in order to create truly resilient organizations, SAI Global’s Business Continuity Expert James Green writes in Disaster Recovery Journal.
Many disasters are slow-moving, generated by the aggregation of small failures that emerge out of normal conditions that conceal their nature. But COVID-19 is different – it is an extreme shock to the global system.
Unlike most natural disasters, which affect only small parts of the world, the pandemic is everywhere. Firms from all four corners of the globe did not foresee a disruption that would simultaneously hit their entire ecosystem of suppliers and business partners.
Our digital and local lives are expanding. It feels like our physical and global lives are contracting, creating changes that have accelerated the fragmentation of the global economy resulting in an unprecedented level of uncertainty, both for businesses and our society.
What is playing out right now before our eyes are a health crisis and economic impact on a global scale not seen since World War II.
Compared with previous large-scale systemic events experienced in the last 50 years, which have usually been caused by either economic policy mistakes, oil shocks, or financial bubbles, the COVID-19 threat represents a new category: a global societal shock.
The reality is that this global experience of both health and economic crises combined will change how organizations balance risk and resilience. The virus has already revealed how unprepared some businesses are to respond to a pandemic. Inadequate infrastructure and planning have further weighed down organizations trying to act decisively in response to this disruption.
If an organization is to succeed, they must understand that embracing both risk and innovation simultaneously is not a paradox. It will require them to prepare their businesses to react to opportunities as well as threats, adapting to not only survive but also prosper.
In response to the COVID-19 crisis, some organizations are already adapting and innovating by shifting their business models. Doing so, even though briefly, can bring more than financial gains but also allow you to grow your brand equity and reputation. For instance, Armani announced all of its manufacturing plants will switch from luxury goods creation to making single-use medical overalls. Prada has started the production of 80,000 medical overalls and 110,000 masks to be allocated to healthcare personnel. In the U.S., New Balance has developed and is currently scaling production of a general-use face mask as urgent demand for personal protective equipment continues to increase, and distilleries and breweries have started making and giving away hand sanitizer in an acute shortage.
Peak of disruption
COVID-19 is simultaneously a demand- and supply-side crisis that affects industry ecosystems and consumer behaviors at many different levels. As the infection spreads, its effect on business is being amplified. Markets such as the EU and the US which could previously be treated as “single markets” have in many respects become patchworks with local restrictions and regulations.
The size of rescue and stimulus packages, equivalent to around 10% of worldwide GDP already, as well as the immediate damage to the labor market, indicate its enormous economic impact. With such economic misery, short-term survival is the focus of most firms.
However, being solely focused on the short-term can be misguided. According to findings from a Harvard Business Review assessment of corporate performance during the past three recessions, of the nearly 5,000 organizations studied, those which cut costs fastest and deepest had the lowest probability of outperforming competitors after the economy recovered.
In other words, the group most likely to emerge as winners were those which struck the right balance between short- and long-term strategies by investing comprehensively in the future while selectively reducing costs to survive.
While the importance of this balance may appear obvious when the economy is strong, amid the pressures of a downturn of such proportions as we’re facing right now, business leaders are particularly susceptible to a short-term mindset. But “waiting out the storm” is not an option in the medium term. Economic narratives have changed. There will be many “known unknowns” in the weeks and months ahead.
The main challenges for the medium and longer terms can be summarized under three main headings – exiting “economic hibernation,” mitigating the ensuing economic fallout, and damage limitation. An important lesson is to avoid examining these risks in isolation.
After all, the virus has already shown a unique power to uncover fault lines that have been hiding in your organization for some time. You only need to look at the extent to which economies and businesses are experiencing supply chain and business interruptions to see this.
What this teaches us is that COVID-19 is going to force organizations to think bigger than their traditional business continuity planning strategies. Unlike predicting the impact of a hurricane on a building, which is a typical task for a Florida-based business continuity professional like me, predicting those related to COVID-19 is a Herculean task.
A true balancing act
Like many of you, I have been helping companies prepare for and respond to COVID-19 since January. During that time, I have found the traditional model of crisis management/business continuity/disaster recovery helpful:
It is suitable for an incident which lasts days or weeks, but not months, as this model assumes a philosophy of:
- “Business as usual”
- Crisis management/business continuity/disaster recovery
- “Business as usual”
But with COVID-19, there are two items missing.
First, returning to business during a pandemic involves many complex decisions:
- Should you take your employees’ temperatures?
- How do you keep track of all the different government restrictions?
- What if those restrictions conflict with each other?
- How do you manage a possible spike or second wave of a pandemic?
- Should you have a nuanced, phased approach?
All of this requires a brand-new step in the recovery process, which I call “return to work.”
Second, for most companies “business as usual” has changed. You may have introduced new products, solutions, and offerings. These may be temporary, or they may become permanent. Business continuity needs to understand these items and know where the business is now headed. We call this the “new business as usual.”
The new model should be:
- Business as usual
- Crisis management/business continuity/disaster recovery
- Return to work
- The new business as usual
As a result of this, both the business continuity function and profession are at an inflection point. It may require a change in core strategy, operations, and organization – all at the same time. But it is not enough to just see an inflection point coming. You also need to be able to bring the organization with you.
While there is no wrong time to transform, waiting until after the effects of COVID-19 subside is too long of a timeframe. Your business may not have the heart for a wholesale rewrite of your entire business continuity framework. However, you need to apply an agile mindset to the way you manage resilience and the way you are managing this particular incident.
True business resilience should be a strategic imperative for your organization. It just might provide you with a competitive advantage in an uncertain world.
What happens next
Over the coming months, the extent of the COVID-19 corporate casualties will become apparent as we find out which companies can operate with minimal liquidity, stretched supply chains, and token contingency plans?
For some organizations, near-term survival is the only agenda item. More progressive firms are peering through the fog of uncertainty, thinking about how to position themselves once the crisis has passed and things return to the “new business as usual.”
The question is, what will “new business as usual” look like? While no one can say how long the crisis will last, what we find on the other side will not look like the normal of recent years. As Winston Churchill surmised in 1942 after Britain had just won its first land victory of WWII, “This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”
Nurturing a “new business as usual” which will be better than what it replaced will be a long-term test.
One possible “new business as usual” is that decisions made during and after the crisis lead to less prosperity, slower growth, widening inequality, and rigid borders. Another possible “new business as usual” could be the decisions made during this crisis lead to a burst of innovation with productivity, ecosystems, supply chains, and business systems all being fundamentally rethought, rebalancing efficiency and resilience in the light of new regulations, sustainability goals, and the emergence of a reconnected world … a better world.
The outcome is probably more likely to be a mix of the two. The point is where the world lands is a matter of choice – of countless decisions to be made. In short, the coronavirus has forced both the pace and scale of workplace innovation. Indeed, as businesses are forced to do more with less, many are finding better, simpler, less expensive, and faster ways to operate. Many have learned how to operate remotely at a high level and at far greater speed. These practices could well stick, making for better management and more flexible workforces.
And although these silver linings are thin compared with the scale of the coronavirus catastrophe, one way or another, organizations will define measures and establish buffers to deal with future catastrophic events, and true resilience will be the key to organizations survival and long-term prosperity.
- Reprinted with permission from Disaster Recovery Journal, Summer 2020 issue
- James Green was the Director of Risk Advisory Services at SAI360 (formerly SAI Global)
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