Management
Risk / Managing Crisis

PwC ... Welcome to the crisis era. Are you ready?

Burgess COMMENTARY
Peter Burgess Why are there so many crises when we have technology that is so much better than 50 years ago (when I became a Chartered Accountant). I argue that we have had 50 years of wrong headed leadership that has figured out how to make a lot of financial wealth while losing out on almost everything to do with human happiness and doing immense damage to the environment. Surely we can do better. For my part I want to see better metrics so that performance relative to people and planet are as rigorous and simple as those that related to financial wealth. Peter Burgess http://truevaluemetrics.org
Peter Burgess

Crisis Welcome to the crisis era. Are you ready?

... Crises are hitting with greater frequency
... Crises take leadership, time and resources to manage effectively
... Every cloud has a silver lining
... How to respond to a crisis more effectively
... Conclusion

Can you recall a time when the world seemed quite as unpredictable and uncertain as it does today? In 2016 we saw the UK vote to leave the European Union, US electors chose a Republican outsider, President Donald J. Trump and a referendum on government reform in Italy that led to the resignation of Prime Minister Matteo Renzi. 2017 will also test the political status quo, with four European Union elections and the UK’s triggering of Article 50 to leave the EU. Add to these events fluctuating currencies, sluggish growth, civil unrest and continued geo-political turmoil across the globe and it seems clear that for the foreseeable future the only certainty is more uncertainty.

Times like these raise the possibility that events will lead to crises for companies with operations, interests, or partners exposed to these issues. And that means nearly every business, as today we’re designing organisations to be more integrated, more global and more socially connected and involved. Understanding, then, how to be ready to respond to economic, environmental and geopolitical crises, and a time of rapid social, regulatory and digital change, is critical for all companies.

But it’s not all bad news. In fact contrary to popular belief, and as our conversations with CEOs prove, being prepared to face a crisis and then managing it well can also deliver real business benefits with a positive impact on the top line.

In this latest Pulse, we spoke to 164 global CEOs about their views, struggles and approaches to crises and offer our perspectives on what organisations can do to better prepare themselves for whatever crises may lie ahead.

Crises are hitting with greater frequency

Often a crisis isn’t isolated and contained. It builds, unfolds in multiple peaks and troughs and its effects can be long lasting. Some crises are anticipated. Some unlikely. And, some are simply impossible to foresee.

Sixty-five percent of the CEOs we spoke to told us they’d experienced at least one crisis in the past three years. Over half have gone through two or more during that time and 15% - a small but nonetheless significant number – say they’ve been hit by five or more crises in the last three years.

Looking forward, more than 30% of CEOs predict they will face more than one crisis in the next three years compared with just 16% who think they’ll face less. These findings suggest that managing crises may well become a new normal for all businesses. It’s no longer a matter of if they’ll hit; rather a matter of when.

Living in interconnected and disrupted times

The types and frequency of crises companies are experiencing can probably both be explained by the uncertain conditions in which businesses are operating. A fragile global economic system certainly plays a role – 72% of CEOs called out global economic uncertainty as the biggest threat they face. Concerns over increased regulation and more severe fines for non-compliance also loom large in the minds of CEOs as they anticipate potential crises, while exchange rate volatility and increased geopolitical upheaval add to uncertainty. Compounding these individual concerns is the knowledge that in our globalised world nothing happens in isolation. What were once insulated events now have repercussions everywhere. In much the same way, a crisis in one industry sector can have major ramifications for others (especially in light of increasing industry disruption).

Power to the people

Rapid, real-time and pervasive communication has substantially increased CEOs concerns over the speed at which a crisis can escalate. Take, for example, how customers’ reactions to faulty products and substandard services can hurt a company. Twenty years ago, companies could listen to customers’ complaints about a product and handle the problem directly, before news went mainstream. Today, social media can speed up, or even directly cause, a crisis. Social networks spread complaints and concerns like wildfire – especially if other consumers experience the same problem.

But while those platforms present a threat to companies that are not prepared to respond effectively, for those that are, those same platforms can be a formidable platform to communicate with customers, employees, stakeholders and wider communities.

Why every crisis is a financial crisis

When asked about the types of crisis they have faced, the majority of CEOs (80% in fact) say they have experienced a financial crisis. Just over half say they have been hit by an operational crisis (such as a disruption to their supply chain, a facility failure or a recall of products, etc.) or a human capital one (such as a strike, a failure in succession planning or high staff turnover, etc.).

While CEOs may have experienced financial crises in and of themselves, such as a sudden and dramatic asset devaluation or a major fraud or a failure to recapitalise at an urgent juncture, perhaps the reason that financial crises stand out from the others is that, by the time the crisis reaches the CEO, whatever its trigger or triggers may have been, it or they have spiralled to such a point that it becomes a de facto financial crisis with a fundamental impact on the finances and/or the share value of the organisation.

Responding to crises takes leadership, time and resources

Such a crisis can throw an entire organisation off track. It may take days, weeks and sometimes months from the initial trigger to delivering an effective response. Even then, the responses often lacks a long-term vision, discipline and structure and, as a result, decision-making is paralysed by the fear of making the wrong call.

Even though many organisations end up doing the right things eventually, the process to get there can still be disjointed. When this happens the big picture can be lost. That’s why, during times of crisis, a strong leader with the right people support and the right governance structure behind them are must-haves.

Lack of a visible plan can make CEOs and their organisations vulnerable

An overwhelming 91% of CEOs said they are in charge when a crisis hits. That certainty is a key element of strong leadership. But it needs to be supported by a strategy, a clear plan and a structure to first tackle then recover from the crisis. If the rest of the business is unclear how they should perform at a time of serious uncertainty, then the CEO can quickly find themselves isolated, undermined and exposed.

Cementing this belief, 65% of CEOs feel most vulnerable about their ability to gather information quickly and accurately during a crisis; 55% worry about communicating with external stakeholders in a crisis and a similar number have the same concerns when it comes to their own employees. Twenty-six percent feel vulnerable due to a lack of understanding about who should be in control, and 38% feel there is a lack of clarity when it comes to the responsibilities of the management team and individual teams taking independent decisions.

These responses suggest that businesses don’t always have a developed and clearly communicated crisis response plan. That means they’re likely to be unprepared (e.g. 57% of CEOs feel vulnerable because of an out of date business continuity plan). It could even be said that the CEO is ‘in charge’ only because there is no plan. In other words, those involved in managing the crisis aren’t empowered to solve it themselves before it reaches ‘the top’.

Why you need a prepared team and clear governance

Being able to react to a crisis with speed and clarity is far from straightforward. Many different pieces of the puzzle must be put together. That’s where a team (or teams) possessing the skills and abilities to get through a crisis swiftly and with as little impact on the business as possible comes in.

We’d suggest that the most effective structure is likely to feature a core and an extended team – each with their own defined responsibilities. The CEO serves in an oversight and strategic role as opposed to being solely ‘in-charge’. The core team provides the framework and strategic guidance, while the extended team addresses the specific actions required to get through the crisis. The core team never changes. It comprises the same small number of people (usually from legal, HR and comms – but this will change from company to company). The extended team’s members come from the business units and other functions and are called in for their subject matter expertise depending on the facts and circumstances of a specific crisis. The extended team is always ‘on call’, as while they may not be needed at the start of a crisis they will be brought in as developments unfold. Having the same people in place through both crisis response testing and during actual crisis scenarios is critical. That’s because doing so enables them to develop ‘muscle memory’ – an almost instinctive sense of how to respond. Holding effective and regular crisis drills are an important way to achieve that. Where the rubber hits the road Strong leadership, the right governance structure and the right people are all crucial if a company is to handle a crisis quickly, confidently and keep the trust of customers and other stakeholders. Building this capability takes a great deal of planning but that has often posed a problem, since many companies don’t often devote time and resources to creating plans based on ‘what if’ scenarios. However, that could be changing. From what business leaders tell us, they increasingly realise the importance of crisis planning. Thirty percent of CEOs have proactively started crisis planning, with another quarter planning to do so over the next year. While it’s neither enjoyable nor easy to prepare for the inconceivable, the good news is that crisis planning can scale and adapt according to what a company needs. CEOs and their teams should begin by reminding themselves of their corporate purpose and company values and put those at the heart of any response. Even the smallest of events can trigger a crisis if values are challenged, which is why clarity from the outset is critical to empowering and focusing crisis responders on what they need to protect above all. Next up is to define what a crisis means for their business. This is especially powerful when you recognise that a crisis is different for every different organisation; for some, a million dollar hit to the books could mean the end of the company; others would consider that sum a rounding error. It’s all about understanding what a crisis looks like in your company, not someone else’s. Just under half say the lack of a clear definition as to what a crisis means to their company could lead to an ill-prepared response. Defining a crisis based on its impact to you as an organisation is a good start - what is the financial impact? The operational or reputational impact? Defining these clearly, with objective language and ranges or specific numbers is a good place to start. After that companies need to make sure they’ve put processes and tools in place that prepare them for tackling and recovering from a crisis. And, that starts with having a battle tested crisis plan that is aligned to the organisation’s purpose and values. That way, when (or if) a crisis hits, everyone knows what the plan is. Importantly, it’s in line with their expectations (and that of employees, customers and other stakeholders). Everyone can look across the table at their peers, recognise them and feel comfortable and confident. Information comes to the right place or person at the right time, is processed and acted upon and, finally, decisions are made by the right people and executed effectively.

Every cloud has a silver lining

That may seem counterintuitive, but according to the responses of CEOs, 39% of them tell us their ability to manage a crisis well has actually contributed to revenue growth, while a further 44% say that a well-managed crisis has not had a negative impact on their top-line growth. To realise the positive value of crisis planning, companies need to give it the same level of importance and support that they would do for more tangible parts of business operations – whether that’s a product launch, research & development, talent acquisition or corporate governance. That way, they will have the structures and thinking in place to identify the opportunities that might arise from what, without good organisation, simply looks like a crisis.

How can companies be more prepared, ready to respond and able to recover from crises?

Crises are not black and white. Each is different. So how can your company prepare? It’s actually easier than you might think. Below are the typical attributes a prepared company is likely to display, alongside eight questions that can help you gauge how well prepared you are:
... What is your level of risk? Existing and emerging risks are proactively identified, mitigated and monitored.
... Does leadership share the same vision and sense of purpose? Leadership is committed to an organisational structure that empowers action and decision-making required in a crisis.
... Is everyone clear about who’s in charge? A formal crisis command-and-control structure and related roles and responsibilities are in place and understood.
... Does everyone understand their role? Crisis response priorities are clearly defined and agreed prior to a crisis occurring.
... Do you have the right blend of skills? In-house crisis capabilities and vulnerabilities are understood and gaps are addressed.
... Do you have a crisis toolkit? Crisis processes, resources and technologies are in place and understood.
... Has everyone undergone the crisis drill? Leaders and crisis responders are battle-tested, trained and exercised.
... Is leadership positive and forward thinking? Leadership encourages continuous improvement of its crisis capabilities, especially in the wake of a crisis.

Crisis prepared organisations share eight similar attributes

Conclusion

The speed, interconnectedness and sheer unpredictability of the modern world means that all CEOs and their organisations should be ready and prepared to deal with a crisis, no matter how confident they feel today about their products, services, employees and standing in society.

The good news is that all companies can develop an effective and scalable strategy to cope when things go wrong – and emerge stronger and more successful from the experience. To do so requires courageous and trusted leadership from CEOs – and not just when they find themselves in the eye of the storm. In fact, the most effective crisis leadership is not reactive it’s proactive. By planning ahead, defining purpose and the values they want to protect and being aware of potential risks and reputational weaknesses, companies can ensure that they have the best information, the most efficient processes and the smartest people in place to support them.

That way, they can not only navigate through the crisis but they can also help their companies emerge stronger in the eyes of shareholders, regulators, employees, the media and, of course, the people who buy their products and services. That, surely, is a future worth preparing for now.

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