Risk Management and Building Organizational Resilience in the age of Chaos

COVID-19’s dangerous business threats are no longer a possibility but a reality. Likewise, there is no more doubt about a recession, but the question is: How deep and traumatic will it be within and across industries? In major economies—such as the US, France, Spain, Italy, and the UK—businesses have been ordered to shut down temporarily — including major sports events around the world like the Tokyo Olympics.

Thus, risks such as investment pull-back, social distancing and supply chain disruptions, plunging productivity, credit and financial risks, and instability regarding the economy are some of the challenges that will become the new normal. As a result, as of this writing, stock markets have been nosediving at an unbelievable speed never seen since 1987 or during the financial crisis a decade ago.
Thus, winning entails building organizational resilience muscle for weathering the storm. The work needs to start now to navigate these unprecedented disruptions with serious implications for survival and business viability. Our experience suggests that organizations need a time-tested resilience framework like the one below: noticing, interpreting environment signals, determining potential responses, and finally, taking action and learning.

Noticing

The first order of business is to build a team of watchdogs—eight people maximum—pulled from cross-functional teams of experts. This team will be responsible for identifying emerging risks, threats, and even opportunities. Globally, the team will be monitoring the most vulnerable countries and how these countries are related to the firm. Vulnerability equals a country’s exposure to disruptions regarding, for instance, trade, manufacturing, investments, etc., minus its resilience concerning the coronavirus—such as healthcare systems and public policy responses.

Interpreting the Environmental Signals

The firm needs to translate the potential risks and threats of COVID-19 into insights through deliberate reasoning by de-biasing the inputs. The leaders need to ascertain the future implications of the newly gleaned insights from the data on the business. The next step in this process is to refine the findings with Bayesian probability, which refers to the likelihood of the events occurring adjusted with the emerging evidence or facts on the ground.

Determining Potential Responses

The company needs to analyze the potential responses available at its disposal, given its circumstances. Moreover, it needs to deploy the full potential of enterprise risk management. Also, it must establish healthcare protocols within the organization—including internal and external work and interactions with other stakeholders. Furthermore, the firm needs to build a sound mitigation plan. Simulate the financial statements (Monte Carlo) through different scenarios through a triangular distribution function—which allows firms to incorporate several types of risk with their probabilities. Our experience suggests that this kind of exercise can be an eye-opener.

Taking Actions and Learning

All these exercises are worthless if the leaders do not act upon the recommendations or insights. Indeed, timing here, like any strategic move, is crucial. Organizations need to prioritize strategic over tactical actions or moves. Our experience makes it clear that the coronavirus outbreak exposed the glaring flaws of many business models, which were previously unknown given that they were designed for a stable economic environment.

Thus, knowing these flaws is an opportunity for business improvement. Likewise, given that organizations suddenly need to change how they work and interact with employees through remote work, firms need to make the transition an enjoyable experience.  Indeed, firms need to know how to win with remote teams. That is, how to build a high-performance virtual team. Because the level of familiarity with the remote work tools and technologies may vary greatly within every organization.  Thus, providing training and IT support may be necessary for getting people up to speed for productivity enhancement. We believe each crisis—such as COVID-19—has a silver lining. Thus, organizations should exploit or explore business opportunities while building their resilience capabilities for the new normal. Beyond resilience, understanding disruptions for better responses to the COVID-19 crisis will separate the winners from the pack.