Building resilient businesses in times of crisis
When the wind blows calmly it’s the perfect time to reinforce the shelter, install new cornerstones, replace old pipes, and protect the windows before the next storm arrives. However many companies have invested that time increasing shareholder revenue in the short-term, rather than the sustainability of their businesses in the long-term. They bite the apple. The low hanging one.
But now the storm is here. Many will see their shelters stripped to the ground in a matter of weeks or months, others are being given a second (and probably last) chance to understand that business is not a sprint, it’s a marathon. Whilst anyone can run and win a sprint; it takes purpose, culture, and strategy to run and lead a long-distance race.
Despite the behavior of the virus is still under research, there are at least two common patterns in countries where COVID-19 has struck the hardest:
- Denial or underestimation
- Lack of preparation
- Slow response time
As an example, Finland has invested heavily in healthcare staff and equipment and has never stopped stockpiling after the Cold War (not only on medical supplies but also oil, grains, agricultural tools, etc.). On top of that, they were amongst the first European countries to react when the virus began spreading by restricting the movement and increasing hygiene measures. On the other hand, we can see the case of Spain that has progressively and significantly reduced its budget for healthcare in the last decade. Furthermore, its initial underestimation of the problem followed by a late and inevitably draconian reaction to the virus led to a tremendous impact on both health and economy, with the second one likely to take years to recover. Denial + Lack of preparation + Slow response time = No resilience
Similar patterns can be found in the corporate world with digital transformation and data-based strategies. COVID-19 has radically increased and accelerated the need for digital solutions, whether this is launching new ones or improving existing ones. Companies that understood the importance of digitization and data in their business models a long time ago have prioritized them implementing (and improving over time) processes to keep innovation flowing smoothly in order to remain relevant and strong. Those who haven’t were already standing in a weak position before the virus and might be facing a serious risk of extinction afterward.
Today’s digitalization will be tomorrow’s purpose and climate resilience
For the first time in many decades, the company’s purpose is shifting from “add value to shareholders” to “add value to stakeholders”. The so-called ‘stakeholders economy’. In April 2019 nearly 200 CEOs of some of the biggest and most innovative companies in the world, including Amazon, Apple, JP Morgan Chase, The Coca-Cola Company and P&G, to name but a few, gathered and issued a statement: “the purpose of a corporation should no longer advance only the interests of shareholders. Instead, they must also invest in their employees, protect the environment, and deal fairly and ethically with their suppliers”.
In the age of information, decades of rising social inequality and environmental degradation have become increasingly tangible, resulting in a growing wave of people not just understanding the need for a new system but also demanding companies to lead that change. Then, we see ourselves forced with the double task of pursuing prosperity for our business as we collectively figure out how to heal the broken system.
In this context, three types of systems can be identified according to their impact on the environment. Companies in the path of a disrupted system will inevitably rush into collapse, those remaining in the status quo will slowly degrade, and only evolved systems will thrive. This opens up the opportunity for companies that suffered a breakdown due to COVID-19 not just to bounce back, but to bounce beyond if they adapt/transform within a new system.
The reason for these predictions can be found in the size and imminence of the climate crisis and its link to human activity. This has been extensively discussed in other articles and is backed up by 97% of the worldwide scientific community, so we will limit ourselves to reinforce the idea that it’s not about the polar bear on a shrinking piece of ice, instead, it’s (mainly but not entirely) about:
- The rise of the world’s temperature and sea level
- The increase in frequency and size of extreme weather events
- The loss of biodiversity and collapse of entire ecosystems
- Scarcity of water, food and raw materials
- Disruption of supply chain
- Massive decrease in consumption
“The future will be green or not at all”.
- Bob Brown
Every single industry is likely to be affected by the inevitable effects of the climate crisis, and in a much deeper and longer-lasting way than that of the effects of COVID-19.
Just like a big pandemic, the climate crisis is also a well-known and long time predicted threat. As David Spratt puts it “Both are systemic, physical shocks that propagate fast in an interconnected world. They are regressive, non-stationary, and risk multipliers, and can only be remedied by understanding and addressing the underlying physical causes”.
“COVID-19 is climate on warp speed”
- Gernot Wagner
One big difference is the fact that the climate crisis can be even more precisely predicted and anticipated since science is confirming that the global set date for climate goals is not sufficient and also unlikely to be met. The global temperature has already increased by 1C above pre-industrial levels, according to the Intergovernmental Panel on Climate Change (IPCC). At the current rate of warming (0.2C per decade), global warming will reach 1.5C between 2030 and 2052. On top of that, not even a hypothetical full interruption of human activity would prevent the world to continue warming up in the upcoming 20 to 30 years, mainly due to climate inertia.
This is why on top of the desperate need to recover from the ongoing crisis there is a fundamental need to prepare for the next one. Because it’s coming.
The biggest challenge and opportunity lies in doing both things at the same time, avoiding the temptation of solely focusing on the immediate crisis’ mitigation. Simply because there is no more room for mistakes or wrong strategic directions.
“There is perhaps nothing worse than reaching the top of the ladder and discovering that you’re on the wrong wall.”
- Joseph Campbell
As in the case of digitalization, this will require bold movements and fast experimentation. Even for those companies that have been preparing or those that sustainability is deeply rooted in their DNA. There is no better scenario than a global crisis to test ideas that otherwise would have taken months to get the “thumbs up”. An example of this can be found on the radical sudden shift to remote work in a matter of weeks.
“Never let a good crisis go to waste”
- Winston Churchill
While it is clear that there is no “one size fits all” solution and every company in every industry of every market will have to find the paths that make more sense for them (always within the direction of an evolved system and global good), we have identified five strategic actions (four of which can be found in our latest report Beyond Today) to consider that that can be applied to your business today, regardless of your industry or market, and can act as lighthouses to find the way in the middle of the storm.
Five strategic actions to consider:
1. Lead with purpose by prioritizing people over profit
Be authentic, consider your company’s values, and work with local communities to ensure collective recovery. Consider multiple angles like local procurement and extended benefits for working parents and caregivers.
Example: The outdoor wear company Patagonia is probably the most quoted example of a purpose-driven company. It’s founder Yvon Chouinard has grown an empire out of a repair and refurbish service, propelled by an unprecedented healthy culture. Furthermore, the company has never entered the stock market, depriving themselves of the always appreciated external founding, to avoid pressure on immediate growth and ROI of the investors. More recently they were amongst the first companies to close all its stores and stop all operations (including e-commerce) under the threat of COVID-19, widely before the government imposed restrictions while continuing to pay employees through the closure.
- Is your company’s purpose contributing to a more equal and sustainable society?
- Are you acting accordingly?
2. Regularly consider the relevance of your value proposition
Reprioritize your initiatives pipeline over the next few months and years to resist getting caught in the present. Consider the impact of each initiative, and which are simply urgent, pushing forward those that anticipate and exceed customer expectations.
Example: Food delivery app Grab has partnered with the Department of Agriculture of the Philippines to deliver fresh produce and support local farmers.
- What areas of our business are no longer viable or valuable to your customers?
- What is your current strategic plan and initiative pipeline?
3. Think about sustainability as potential new revenue streams
Business as usual presumes waste to be a part of the process. Survey the existing product lifecycle to identify where waste can become a new value proposition, whether its secondhand repair services or byproducts like transforming rotten produce into clean energy.
Example: Philips created a “pay-per-lux scheme” where instead of buying bulbs and light fittings, the architects only pay for light itself. Philips takes responsibility for the maintenance of the physical fixtures.
- How are you helping your customers transition to a more sustainable lifestyle?
- Can you reimagine your offer to provide life-time-value in circular economies?
4. Design differentiated journeys for excluded segments
Prompted by our current circumstances, customer segments like seniors facing prolonged periods of isolation, children learning from home, and unbanked individuals unable to access essential services, have increasingly important unmet needs.
Example: Oscar is a remote care platform that offers curated services for seniors in a user-friendly way.
- What products of your portfolio have been designed specifically for a minority?
- How well are your regular services matching the excluded segment needs?
5. Measure climate exposure and plan to mitigate risks
Identify what nodes of your supply and distribution chain are more critically exposed to potential extreme weather events and environmental degradation, build different intensity risk scenarios, and create action plans for mitigation to ensure uninterrupted operations when they happen.
Example: In 2018, Tata Chemicals launched a center for marine biodiversity and coastal ecosystem conservation in India. Through this project, Tata is increasing its knowledge of ecosystems that are an integral part of its business model and at the same time preserving and restoring those ecosystems.
- What links of your supply chain are currently threatened by climate or will be in the near future?
- What initiatives are you considering to mitigate the impact when it happens?
While there is a wider list of characteristics that companies should have adopted by now there are two that stand out from the rest: agile, holistic, and collaborative.
> Agile: We were already going through what it seems to be a never-ending craving for speed to market when the crisis struck. Renewed uncertainty and the constantly changing nature of reality is pushing companies to adopt agility as a core value of the whole company culture.
“We’re actually moving away from scenario planning and trying to focus on building agility and responsiveness into the company. Unleashing the trapped capacity that most big organizations have by letting go and letting people close to the markets, close to the front line, exercise their judgment and their decision-making. We’ve discovered new responsiveness in Unilever that I wish we had unlocked years ago, but it’s taken this crisis to do that.”
- Alan Jope Unilever CEO
> Holistic: It is a must-have in the short term to assess the current crisis efficiently, but also for the mid and long term regenerative projection. Every major issue (education, inequality, health, authoritarianism, immigration, aging population, pollution, etc.) is likely to reach your coast and impact your business one way or another. The reason why it is crucial to make any decision keeping in mind the interconnectedness and side effects it will have (both positive and negative), not just in each market in particular, but in the globalized world we are all immersed in as a whole. The well known “think global, act local”.
> Collaborative: Transitioning to an evolved system is a daunting challenge that no company is likely to achieve alone. Therefore, they will have to keep an open mindset towards collaboration. This can happen with the policymakers, third party specialized organizations ( such as Ellen Macarthur Foundation or B-Corp certification), or even pairing up with the competitors. Shoe manufacturers Adidas and All birds have paused their current rivalry to announce they’re co-developing a sneaker with the world’s lowest carbon footprint. There’s no release date for the sneaker because the brands will have to reconfigure every step of the supply chain to achieve the ambitious goal, from manufacturing to transportation. Cooperating and sharing information will be key to the shared success of the project.
Where to start?
The actions and mindset suggested above are purely strategic. Talking about strategy means that support from C-level will be always needed. For that, we have to be able to clearly communicate the benefits of introducing social purpose and climate resilience as core pillars within the future vision, whilst at the same time create awareness of the threat of doing nothing. C-level support is often gained through excel sheets. Running a resiliency audit will provide valuable data on the potential consequences of climate change. Customer research will provide insights into the value that customers are attributing to purpose-driven companies in your industry and market. Last but not least, ongoing field research and benchmarking will complement both by throwing valuable information on what other public and private players are doing, reinforcing the feeling of urgency.
Only once the magnitude of the threat is truly assessed, the vision aligned and the key challenges identified, it’s time to start defining the short, mid and long-term initiatives towards collaboratively building a better, stronger, and more sustainable shelter to face the storm.