Don’t Bury Your Head in the Sand: Profitable Crisis Management

As long as everything runs smoothly, we hardly pay more attention to concerns about future crises than to confused anxiety dreams – quickly suppressed, but the unpleasant aftertaste remains. Or we are not aware of them at all and they lie undiscovered in rigid supply chains, lack of digitalization and inefficient work environments. And yes, no one really anticipated a year like 2020. That’s why we advocate integrating risk management built directly into the business model: continuing to envision the anxiety dream, identifying actual vulnerabilities, and finding creative solutions before the crisis hits. You’ll feel the aftertaste evaporate. In the following, we will show you which mindset and steps are necessary for this.

A Mindset for Winners of a Crisis

Before you jump right in and possibly lose yourself in blind actionism, you should give a thought to the correct mindset, which helps tremendously towards getting your actions in a clear line. For this, we recommend the book by Natalie Turner: Yes, You Can Innovate, whose key points we are happy to share here.

In times of good business it is nice to be happy about it and to pat each other on the back but due to the global interconnectedness of the world, an abundance of processes correlate with each other so that the next crisis will surely occur at some point. Therefore, it is of utmost importance to optimize the initial conditions for an emergency situation in advance.

Any solutions to a crisis require creativity, flexibility and innovation. All of this can only be achieved in an environment where diversity is lived and individualism is given high priority. Rigidly conformist and simple-minded thinking is steered in new directions, where a free space for individual responsibility arises. Anyone who wants to thrive must make the decision now to exchange outdated conventions for courageous innovations. This is the path from orderly negligence to confident decision-making. And for this turnaround to succeed, something has to change in the minds of everyone involved. Natalie Turner calls it the Six ‘I’s which are all interlinked with the central purpose that has to be kept in mind:

  • Identifying: spotting both opportunities and aspects to be ameliorated creates a capacity for new ideas
  • Igniting: cultivating & nurturing new ideas which may serve customers’ needs or a new trend
  • Investigating: exploring the fresh ideas by experimenting and analyzing feedback
  • Investing: once approved, an idea needs funding not only with money but also with resources like time and energy
  • Implementing: executing the new plans and ideas in an innovative way
  • Improving: repeated reviews of the product or service and adapting where needed

This new mindset may involve a more or less radical shift within the mindset of many, but it’s worth making the effort. If you would like more inspiration on this, you might have a look at the entire book. It does not stop at the Six ‘I’s but includes hands-on, practical advice with tests and assessments.

If you take the opportunity out of the crisis – it becomes a threat. If you take the fear out of the crisis – it becomes an opportunity.

Anja Förster & Peter Kreuz in “Don’t Waste a Crisis” (orig: Vergeude Keine Krise)

1. Identify the Risks

Let’s be honest – are you aware of all the risks that could affect your company in the event of social, political, global, financial or technological upheaval? In other words, which of the risks that you recognize have you ever simulated from start to finish; taken a look at the various parameters, developed an analysis and a strategy of action? The pandemic has shown us very clearly how much more emphasis must be placed on crisis management in business models in order to remain capable even in the event of an emergency.

Such crisis prevention is based on a precise analysis of various scenarios. For this purpose, it is useful to apply all possible outcomes of these scenarios to your company and to find out which ones are of central importance for you. For this there are various departments in the company that take care of their own specific areas; Enterprise Risk Management, uses various parameters to evaluate both strategic and operational risks, Compliance Management investigates legal factors, while Sustainability Management determines sustainability risks and the internal control system examines the process flow for risks. As we can see, these areas are quite distinct, but they are all more or less interrelated because rarely does a problem affect just one aspect; often several interacting points of reference are involved.

2. Minimize the Risks

What effective crisis management requires is an integrated view of all the risk factors in the various areas. After all, the outcome of a risk can of course be assessed as marginally relevant when viewed in isolation, but it is only in the concrete, interrelated structure that a potentially serious effect arises which may become a threat. We tend to assess what is known as less imminent. However, you should be aware of this subconscious assessment when it comes to risk assessment. Just because we know the danger doesn’t mean it can have less serious consequences in reality.

This holistic and objective assessment is successful if the different departments cooperate – each is expert in its own area, but at the same time gains a deeper understanding of the processes and risk factors from other areas and can bring new perspectives to the table. Such loose collaborations are a great solution when it comes to short-term action, but in the long run, it needs to become a solid organization that serves as the basis for risk management and thus sustains crisis prevention.

Within this organization, the goal must be to calculate profitability based on real numbers, focusing on both the best-case and worst-case scenarios. In order to make better decisions, it is necessary to agree on risk factors, which, in conjunction with predefined key figures and qualitative aspects, allow for more well-founded scenarios. In addition, a decision tree can be created in advance on the basis of these scenarios, which increases the freedom of action in the respective situation, because it is much more difficult to act clearly and with a firm grasp of the facts when under pressure. These strategies make it much easier to recognize which decisions are likely to have which consequences.

3. Perform Regular Revisions

This last step is simultaneously the first step. It is by no means just a matter of meeting regulatory requirements, drawing up a plan for the crisis and then twiddling your thumbs. Instead, the focus must be on the safe continuation of the company’s business activities. To do this, we need to recognize that we are operating in an environment that will certainly not become less risky in the coming years as a result of strong global interdependence.

Once again, this means always keeping an eye on current changes in the world of technology, politics and business, regularly reviewing the different areas and possibly eliminating or exploiting new potential correlations, risks and problems in advance. We can clearly conclude that a holistic, forward-looking approach with a coherent purpose and the right mindset are the key elements.

Learn How to Easily Achieve Resilient Business Design

What exactly does it mean to be resilient? In physics, it is the ability of an elastic material that will take its original shape after being forcefully deformed. This principle was adapted to psychology and is the mental skill to meet setbacks and change with an inner strength and therefore recover quickly from difficult situations. You as a company leader can actively make an impact on how well your business is prepared for such crises.

Never let a good crisis go to waste.

Winston Churchill

Seize the Crisis as a Momentum for Change

Crises are not usually situations to appreciate but you can learn to deal with them effectively. Winston Churchill already understood about the opportunities that a crisis brings with. It operates in the extremes, casting a magnifying glass on the inefficient elements of all operations that need improvement. Hence, such a situation always offers the opportunity for self-awareness, to get to know one’s weaknesses just as well as one’s strengths. Turning the data gained from this into action and monitoring regularly is what resilient businesses do right.

It is crucial to conduct a precise assessment, analysis, and root cause analysis and then to create a proactive plan for recovery and optimization. The fact that many companies have understood this can also be seen when looking at the figures from a survey conducted last year regarding the lessons learned from the pandemic: At 59%, almost two-thirds of companies put the expansion of crisis response teams, task forces and scenario analyses for exceptional situations on their agenda as a high priority (source: Future Readiness Index 2020)

This increased focus on risk management aspects are essential and exactly the right step in this situation. However, it would be much more efficient and less risky if these scenarios and task forces were given sufficient attention in advance and a resilient corporate design was considered right from the start.

What Resilient Businesses Do Different

We’re going to outline what the main steps of becoming a resilient business entail. There is the question however, of how to combine the pursuit of efficiency with increased resilience? The magic word for this is flexibility and a creative approach in order to be able to adapt to every situation anew. To do this, of course, these situations and scenarios must be thoroughly examined beforehand, which then supports efficiency in the event of an actual crisis: The options for action that have been devised are clearly outlined and there is no need to make difficult decisions under high pressure. This sweet spot of flexibly planned options for action is where resilience and efficiency meet.

Four steps for a resilient business design

The following four-step method, created by Dr. Tobias Naujoks, shows you the different tasks that are to be completed by resilient businesses.

  • Understanding the dimensions of risk: evaluating expected change on a local, national and global scale → recognizing interdependencies
  • Developing scenarios for your industry: assessing key aspects of one’s own industry in risk scenarios and evaluate the results
  • Creation of medium-term resilience: developing a plan of action based on the gained insights
  • Changing perspectives: considering the opportunities as well as the risks → opening up markets, acting with an eye to the future (source: KPMG)

Another key point is the integration of digital transformation into your operating model and its future-oriented optimization. This means that there are areas of action, particularly in the areas of production, supply chain, marketing and IT. Digitalizing these helps your business to achieve flexibility, for example through cloud-based services, agile supply chains and web presences on suitable channels. In addition, the personnel area must not be ignored when it comes to digitalization – employees should have the option of working in a home office without creating security gaps or communication shortfalls. Cyber security and strong as well as trustworthy leadership are therefore also key topics. Read more about that specific subject in our article How to Master the Digital Transformation Successfully.

Food for thought: How can your company be resilient if the management does not transmit this inner strength? It is worthwhile for leaders to exemplify resilience. Essentially, this involves acting self-responsibly; taking ownership of your own character development, and gaining an awareness of your power over your personal attitude.

Establish an agile supply chain

An important part of making your business more resilient is supply chain optimization. Global trends have a major influence in this regard. These include demographic change, increased sustainability awareness, or the general shortage of resources. A mere risk assessment based on statistical calculations and empirical values is often not sufficient to absorb supply chain interruptions. For this reason, we present you the 5 factors for resilience in the supply chain, created by KPMG Director Dr. Sylvia Trage:

  1. Making organizational structures more agile: Agility through alternative plans and early warning systems, regular review of customer expectations
  2. Decentralizing the setup of supply chains: making individual locations more independent and more capable of innovation, creating (global) options for evasion
  3. Utilizing structural duplications: Standardize processes, create norms (in infrastructure, technology, production, etc.), bridging gaps by switching to other locations, minimize variants.
  4. Designing a New Work environment: outside of qualification & motivation, also pay attention to personal qualities of employees: Interdisciplinary, diverse, intercultural teams bring benefits of different perspectives, innovative solution strategies, using group efforts
  5. Stimulating continuous learning processes: Seize opportunities of constant change, steadily monitor and adapt scenarios, train employees, establish emergency processes for crises → avoiding negative impacts to the market

The 7 Factors of Inner Strength for Leadership in Times of Crisis

How can your company be resilient if the management does not transmit this inner strength? Especially now, but also with a view to the future, it is worthwhile for leaders to exemplify resilience.

Essentially, this involves acting self-responsibly; taking ownership of your own character development; and gaining an awareness of your power over your personal attitude. All of this helps you to master smaller and larger, short- and long-term crises – in brief, to react resiliently to failures, defeats and crises. This is not something that can be learned in the blink of an eye or in passing, but requires an in-depth, continuous engagement with the subject. After all, today, there is no such thing as the one job for life – every day we are asked to be aware of the new requirements that are imposed on us and to ask ourselves whether we have the necessary skills to meet them. This lifelong learning has become the norm, and it goes without saying that we need to look inward. The future-oriented, self-confident, but critically-thinking mindset is the key to success.

For that purpose, we have listed seven different factors, adapted from Micheline Rampe’s work The R-Factor (orig. Der R-Faktor), that help you to build and strengthen this mindset and thus resilience.

  1. Optimism: Difficulties exist now and will pass. It won’t stay this critical forever, and there are certainly things you can do to bring about positive change.
  2. Acceptance: It is what it is. Getting bogged down in the supposed hopelessness of a situation doesn’t help. It is better to accept it and try a change of perspective: There is always an upside to the downside.
  3. Focus on solutions: With acceptance comes openness to new ways of thinking, because there is a solution for everything. Sometimes you just have to look for it a little longer.
  4. Take initiative: We ought to discover courage and self-efficacy. Only when we take active steps, we can make a difference. Every freedom also costs the courage to grow a little beyond oneself.
  5. Take responsibility: In the case of crises caused by others as well as those of our own doing, it is not a matter of dwelling on casting blame for a long time, but of taking responsibility. After analyzing the error, we must move quickly in the direction of finding a solution.
  6. Community orientation: Solidarity makes us strong. Trust in your fellow human beings is an excellent source for sharing experience, strength and gaining new energy and ideas.
  7. Plan for the future: True to the motto After planning is before planning, we have to think with an eye to the future. Play out visions of upcoming difficult situations and develop strategies, because the next cold winter is sure to come.

It is becoming clear: Not only in your company should constant growth be a priority, but also in your personal development. The one cannot be separated from the other in the long run – professional coaching with an eye to optimization can be a catalyst for this process.

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