CONVERT CRISIS ON OPPORTUNITY
The threat of the crisis grows in kind, cost and intensity
The coronavirus crisis, which began in China at the end of 2019 but emerged as a full-blown pandemic in March of the following year, has plunged everyone into a global health crisis and a global economic recession. It dramatically redefined what a normal life means, served as a wake-up call, revealed the chaos that can be caused when the entire global economy is unprepared for a crisis.
Why have businesses suffered more during this crisis than any other crisis in recent history? In the fast-paced and unpredictable business world, crises are an inevitable reality. Whether it's a global pandemic, a financial crisis, a product recall, or a PR disaster, every business will face its fair share of challenges. In the age of modernity, social media allows people to publicize a crisis like never before.
People now carry smartphones around all the time, and witnesses to an emergency can post in real-time on a variety of social media platforms. There's a good chance that your customers or your brand will get involved in a crisis sooner or later. Events around the world, from terrorist attacks to natural disasters to major product breakdowns, have made managing social crises a critical concern.
"When we think of crises, we think of them as something unknown. The reality is that there is almost no unknown risk or crisis. Almost every crisis an organization has faced, including the global pandemic, has been on someone's risk radar. They just felt unknown because organizations don't always make the right levels of investment to prepare for them," says Dr Paul Robertson, EY UK Cyber Resilience, Preparedness and Response Partner, Ernst & Young LLP.
This insight underscores the fundamental importance of a proactive approach to risk and crisis management. The idea that crises are unknowable often stems from a lack of investment in comprehensive risk assessments and robust preparedness strategies. By neglecting to properly identify and analyze potential challenges, organizations may find themselves unprepared when faced with critical situations. The global pandemic, a notorious example, has been predicted by public health experts and epidemiologists.
However, a lack of investment in robust health systems, contingency planning, and pandemic preparedness has left many organizations and governments unprepared to deal with the magnitude of the impact. Dr. Robertson's call highlights the pressing need for organizations to adopt a preventative mindset and invest appropriately in resilience. This involves proactively identifying potential risks, allocating resources for preventative measures, and implementing effective contingency plans. By doing so, organizations can turn what once might have seemed unknowable into a manageable challenge, ensuring an effective response in the face of future crises.
The crisis can hit any company, at any time. In fact, the corporate crisis is more likely to pose an existential threat to small businesses.
According to the U.S. Federal Emergency Management Agency (FEMA), between 40 to 60 percent of small businesses in the U.S. close after a natural disaster, an increasingly common type of corporate crisis.
Given the above scenario, it is understood that small businesses often operate with narrower margins and limited resources compared to their larger counterparts. This makes them particularly vulnerable to unforeseen events such as natural disasters, sudden economic downturns, or significant disruptions to supply chains. In addition, a lack of capacity to invest in robust preventive measures and contingency plans can further increase the negative impact of a crisis. The COVID-19 pandemic is a recent example that illustrates the vulnerability of companies without adequate preparation. Many of them have faced significant challenges, from halting operations to decreasing consumer demand. Those that failed to adapt quickly or implement effective contingency strategies were particularly affected.
A 2014 study found that 32% of companies did not have a crisis management plan in place. Meanwhile, less than half of all board members (47 percent) believed their organizations had the capabilities or processes needed to tackle a crisis with the best possible outcome.
The call to small and medium-sized businesses is clear: preparedness is crucial for survival. This involves creating contingency plans tailored to the company's specific circumstances, investing in technologies that allow for continuity of operations in adverse situations, and considering strategic partnerships to share resources and expertise.
By acknowledging the reality of vulnerability and proactively investing in resilience strategies, small businesses can significantly increase their chances of overcoming crises and emerging stronger. Additionally, awareness of risks and the adoption of crisis management practices can help mitigate negative impacts and pave the way for sustainable recovery.
In 2018 Forrester report documented that every company surveyed had experienced a critical event in the past two years.
In fact, many dealt with multiple incidents, with the average being more than four distinct critical events over a two-year period. These critical events ranged from natural disasters and disruptions to supply chains to cyberattacks and financial crises. The finding that all of the companies analyzed faced some kind of critical event highlights the inevitability of these situations in the modern business world. In addition, the average of more than four critical events per company over a two-year period underlines the complexity and diversity of the challenges that organizations face.
This frequency and variety of critical events underscores the pressing need for businesses to take a proactive approach to crisis management. Simply expecting such events to occur without proper preparation can have serious implications for business continuity and the company's reputation. Investing in resilience, contingency planning, and efficient crisis response becomes not only a wise choice, but an imperative strategy for navigating the unpredictable and challenging business landscape. By doing so, companies can minimize negative impacts, accelerate recovery, and even turn critical events into opportunities for empowerment and innovation.
According to an internal study by Deloitte, crisis-hit companies in the U.S. lost $350 billion in market valuation and $45 billion in resulting losses, fines and penalties over a two-year period.
Financial risks alone underscore the need to adopt enterprise crisis management technologies to help teams and senior stakeholders increase organizational resilience in the face of the unexpected.
The substantial losses documented in the study underscore the severity of the financial impacts that can stem from critical events not properly managed. In addition to direct financial losses, companies face the devaluation of their shares in the market and the additional costs associated with fines and penalties arising from potential regulatory violations.
The integration of corporate crisis management technologies becomes a key part of the proactive response to these financial challenges. These solutions offer organizations the ability to quickly identify, assess, and respond to critical events, thereby minimizing the impact on the bottom line and market valuation. Additionally, they provide a holistic, real-time view of the situation, facilitating informed decision-making and effective coordination between teams and stakeholders.
"Organizations can’t always predict the timing of a crisis, but they can put themselves in a position to get ahead of it". Jeffrey S Sallet (Partner, Investigations & Compliance, Forensics & Integrity Services, Ernst & Young LLP
Investing in crisis management technologies is not only a preventive measure, but an essential strategy for preserving the company's financial stability and reputation. By adopting advanced tools, organizations can not only mitigate financial risks but also strengthen their resilience, positioning themselves more securely in the face of the unexpected challenges that are part of the dynamic business landscape.
Despite the increased volume, speed, and impact of crises in recent years, many executives still do not know how to confront and map potential threats. Risks can become crises within minutes. How a company responds to these crises can make all the difference between survival and failure. Crisis management is a strategic approach that helps businesses navigate turbulent times and presents an opportunity to transform and strengthen the business in the long term.
Key crisis management benets to consider
The task of preparing, managing, and recovering from crisis falls under the banner of crisis management, the processes designed to prevent or minimize the damage that crisis can inflict on an organization. Additionally, organizations can go a long way toward mitigating the damage associated with the crisis by reacting crisis management as a critical business function. Like crisis, crisis management is complex, consisting of three important phases:
Phases of Crisis Management
Pre-Crisis: In this phase, organizations focus on proactive preparedness, identifying potential risks, assessing vulnerabilities, and developing contingency plans. The formation of response teams, the conduct of simulations, and the implementation of monitoring systems are key components of this phase.
Crisis Response: When crisis occurs, the organization enters the response phase. Swift and coordinated actions are essential. This includes activating crisis management teams, communicating transparently with all stakeholders, making agile decisions, and implementing pre-established contingency plans.
Post-Crisis: After the crisis is brought under control, the organization enters the post-crisis phase, where the emphasis turns to impact assessment, lessons learned, and rebuilding. Ongoing communication, in-depth root cause analysis, and adjustments to policies and processes are crucial to strengthening future resilience.
Crisis Management as a Critical Function:
To integrate crisis management as a critical business function is to recognize that crises are not isolated events, but an intrinsic part of business dynamics. By instituting formal processes, assigning clear responsibilities, and investing in ongoing training, organizations can foster a culture of agile preparedness and response. Crisis management should not be seen as a reactive measure, but rather as a proactive discipline that strengthens organizational resilience. By embracing this holistic approach, businesses are better equipped to face unexpected challenges, protect their reputation, and ultimately emerge stronger from adversity.
The tripartite division of crisis management provides a clear view of how the process unfolds in distinct phases, making it easier to understand and plan specifically for each stage. This tripartite structure allows for a more systematic approach, where each phase—pre-crisis, crisis response, and post-crisis—is addressed individually, promoting more effective preparedness at all stages of the crisis management cycle. This division not only simplifies the complexity inherent in crisis management, but also emphasizes the importance of specific approaches and measures tailored to each phase, thus contributing to organizational resilience in the face of unpredictable challenges.
Best Practices for Crisis Management Planning:
Establishing efficient practices for crisis management planning is essential. While the crisis management lifecycle provides a fundamental guide to understanding and preparing for crises, organizations must develop specific proactive plans to address all phases of this cycle. Having a structured crisis management plan in place is crucial for comprehensively addressing all aspects of the lifecycle, allowing for solid preparedness and effective response to unforeseen challenges.
Pre-Crisis Phase: Developing Your Crisis Management Plan
1. Crisis Management Team Building: Constitute a dedicated crisis management team tasked with creating and implementing an effective plan. This team will be instrumental in dealing with issues not foreseen by the plan during a crisis.
2. Devise a crisis management plan to mitigate confusion when faced with a crisis. This plan should contain details about potential crises, preventive policies, and specific approaches to dealing with each challenging situation. Specifically, define who will have the authority to implement the plan, identify the parties impacted by the crisis, establish communication strategies to inform about the development of the situation, and outline the creation of a crisis control center.
3. Carry out simulated activities and practical exercises to train the team and identify weaknesses in the plan in place.
4. As part of the crisis management plan, identify technology solutions to enhance the management of the entire crisis management lifecycle, ensure up-to-date information for internal stakeholders, and monitor media response.
5. Also develop the crisis communication plan, encompassing a system for communicating with relevant parties, designated members of the crisis communications team, descriptions of roles and responsibilities, a list of key media contacts, essential company information, and a set of messages that are already approved and ready to be used in various crisis situations.
Some of the most frequent types of business crises are:
Communication Crises: Emerging Challenges: Communication crises often arise when a company or one of its members is linked to illegal or unethical practices. These situations can occur, for example, if the company's CEO issues an extremely discriminatory public statement, or if a specific campaign loses its direction, becoming offensive or inappropriate. This scenario could trigger a significant backlash against the company, posing a serious threat to its business in a comprehensive manner.
Technological Crises: One of the most dreaded nightmares for IT business owners is the drop in performance. Technology crises manifest themselves when systems stop working, servers face outages, or software simply stops working for various reasons. Software downtime can lead to significant financial losses for IT organizations, not to mention the potential impacts on future leads and brand reputation.
Product Deficiencies: Few things are as disappointing as the inability to deliver on the promises made. Product failures mostly occur when the value of the product falls far short of what was promised, or, even worse, when it puts the safety of customers at risk. If the delivery of the product does not meet the expectations created, a negative reaction is likely to occur, manifested in unfavorable comments on social networks and review platforms. Additionally, negative word-of-mouth can compromise reputation and damage brand image substantially.
Financial Crises: These usually arise when a company faces losses due to a decrease in demand for its products or services, the depreciation of its business assets, or external factors such as natural disasters or armed conflicts. The common outcome of these situations includes a review of costs, the search for additional financing and, in the worst-case scenarios, the possibility of bankruptcy.
Natural disasters: Extreme natural events are usually sudden and intense events that occur due to environmental factors, such as hurricanes, floods, fires, pandemics, among others. These situations force companies to adopt drastic measures and adjust their business processes, as evidenced recently during the COVID-19 pandemic.
Once you have identified the crises that pose the biggest threats to your business, it's crucial to understand the extent of their impact. Often, the ramifications are intertwined when a crisis is triggered. For example, a drop in brand reputation can inevitably result in financial losses. However, it is equally important to consider the scope of other possible outcomes, such as a reduction in customer satisfaction and loyalty, an increase in expenses, among others.
During the Crisis: Executing Your Plan
Post-Crisis: Analysis and Preparing
If crises occurred predictably, companies wouldn't need to prepare for them. However, we live in a world where uncertainty is constant, as exemplified by Target's experience. Even when there are warning signs, crises are inherently unpredictable and manifest themselves in a variety of ways. While organizations cannot anticipate exactly when or how a crisis will arise, it is critical that they plan to manage its impacts with meticulous preparation. This is the essential function of crisis management. Acting as a vital piece in business, crisis management reduces the time, financial resources, and effort required to recover after a critical event. When conducted successfully, crisis management not only facilitates recovery, but also makes it possible for a resilient organization to emerge even stronger after facing a catastrophe.
Seizing Organizational Transformation Opportunities
The point of origin of every crisis lies in the risk. The key lies in identifying these risks and dedicating resources to developing a prepared, robust, and efficient response. Recognizing the potentially challenging nature of risks is crucial for proactively anticipating and addressing crises, thereby ensuring effective management in the face of adverse situations.
Challenges can prove to be valuable sources of learning, both on an individual and collective level. For individuals, adversity can result in deeper self-knowledge, heightened sensitivity and compassion, greater flexibility, and new perspectives. In the organizational context, difficulties can play a catalytic role in driving transformation. They represent an opportunity for the leadership team to identify and implement bold actions needed to align, drive and, in some cases, completely reinvent the organization.
The reality is that every crisis, while deeply disturbing, also contains seeds of opportunity. Leveraging business success during times of crisis requires a connection between strategic planning, adaptability, and resilience. Rather than merely weathering challenges, organizations that can identify and capitalize on these intrinsic opportunities can emerge not only intact but empowered and better able to meet the challenges ahead. This ability to turn adversity into opportunity is often the determining factor for lasting business success.
However, if the past is any indication, this opportunity will be missed by many senior leaders. One of the most significant strategic mistakes companies made before the pandemic was resistance to change when it was needed. Now, the strong yearning to "get back to normal" may further aggravate this mindset. Senior leadership teams may be tempted to return to the status quo and focus on mere survival, but this approach will leave the organization in a more vulnerable and less future-prepared position than it should be.
Know your numbers: Continuous cash flow analysis provides essential information to inform strategic decisions in the business
It's crucial to act with urgency to fully understand your financial metrics. Implementing a rolling cash flow forecast over the course of 12 weeks will provide the insight needed to anticipate future challenges and identify potential cash flow gaps. Certainly, cash flow management is a critical part of a company's financial management, and continuous forecasting plays an essential role in this scenario, especially during challenging periods such as economic crises or uncertainties. Let's explore in more detail the benefits and importance of this tool:
The Urgency of Knowing Your Numbers: In times of uncertainty, the urgency of understanding a company's financial numbers becomes even more evident. Organizations that have a clear picture of their financial situation are better prepared to make informed decisions and respond quickly to changing market conditions.
Rolling Cash Flow Forecasting: A rolling cash flow forecast, especially for a 12- week period, offers an early perspective on the financial challenges that may arise. This allows managers to identify potential shortfalls in cash flow early, providing time to implement corrective strategies.
Positive Customer Feedback: Positive customer feedback stakes the effectiveness of this tool. The testimony that they "don't want to live without it anymore" underscores the transformation that continuous forecasting can bring to financial management by providing a clear and continuous view of the company's finances.
Control During Crisis: In times of crisis, having control over finances is crucial. Continuous forecasting not only offers an in-depth understanding of the numbers but also empowers the company to make strategic decisions, minimizing the negative impacts of the crisis and enabling an agile response to changes in the business environment.
Implementation Opportunity: The crisis, paradoxically, can be seen as an opportunity to implement powerful tools, such as continuous cash flow forecasting. It is during these challenging times that the effectiveness of this tool comes into its own, allowing businesses to not only survive but also thrive in the face of adversity with informed decisions.
In summary, continuous cash flow forecasting is not just a financial tool; It is a strategic asset that provides businesses with the ability to adapt, grow, and thrive, even in the midst of significant challenges.
Navigating from Adversity to Opportunity: Turning Threats into Challenges
Every crisis is unique, and the specific actions you need to take will depend on the nature of the crisis and its impact on your business. The formation of an adequate team is crucial to face, overcome and see new opportunities extracted from a crisis.
Professionals who specialize in crisis management play an essential role in guiding internal teams through the chaotic complexity that crises can present. It is essential that each department understands its responsibilities in risky situations and knows how to react. All areas of the organization must contribute in some way to the crisis response and recovery efforts, playing specific roles at different stages of the process and during the transition back to normalcy.
Therefore, it is critical for crisis management teams across the organization to engage in crisis planning, training, and simulations, ensuring that they are properly prepared to face and overcome threats that may arise.
Staying agile and being willing to adjust strategies as the situation evolves is vital. Skillfully transitioning from a state of threat to a challenge or from a crisis to an opportunity requires a process that requires strategies, resilience, and a flexible mindset. Instead of being defeated by adversity, organizations that view these moments as challenges to be overcome have the ability to turn threats into opportunities. Not only does this move make it possible to overcome immediate crises, but it also lays the foundation for sustainable growth and continuous innovation. The ability to transcend initial threats and identify hidden opportunities can be a key driver for long-term success.
Despite the significant challenges that crises often bring, they also open doors to opportunities for growth and improvement. Agile and insightful businesses have the ability to identify emerging trends and gaps in the market during critical periods. By taking advantage of these opportunities, businesses can diversify their revenue sources and expand their presence into new markets. Additionally, challenges faced by competitors can result in weaknesses, providing the company with a chance to capture a larger market share. By demonstrating proactivity and innovation during crises, a company can position itself as a leader in its industry, even in the midst of uncertainty.
Diversification of revenue sources is a key strategy in this context. By capitalizing on opportunities identified during crises, companies not only strengthen their financial foundations but also explore new avenues for innovation. Creating products or services that meet new market demands is an effective way to stand out. Additionally, expanding into new markets during challenging times can be a risky but well-rewarding strategy. Careful analysis of feasibility and adaptation to cultural nuances are essential for success in this venture.
Taking advantage of competitors' weaknesses is a smart tactic. During crises, companies can gain an advantage by offering more efficient or innovative solutions, consolidating their position in the market. Innovation not only drives competitiveness but also elevates the company to a leadership position.
Positioning yourself as an industry leader requires more than reactive actions; It requires strategic vision and effective communication. Leading companies not only overcome challenges, but also incorporate social responsibility practices, contributing to building a solid reputation. Long-term competitive advantage is achieved through continuous learning and sustained innovation.
Companies that excel not only survive crises, but learn from them, constantly adapting and evolving to stay at the forefront of their industries. In short, tackling crises as opportunities requires an innovative mindset, agility, and a strategic approach. Companies that can not only overcome immediate challenges, but also identify and capitalize on emerging opportunities, are better positioned for long-term success.
Crisis management goes beyond a simple tool to survive in turbulent times; It has the potential to significantly redefine a company's trajectory for the better. Companies that view crises as opportunities for growth, learning, and improvement are more likely to emerge strengthened and resilient. By embracing adaptability, rethinking priorities, improving communication, embracing digital transformation, fostering resilience, and seizing opportunities, businesses can transform in the face of adversity.
The key to this transformation lies in the ability to embrace adaptability. Rather than simply reacting to adverse events, organizations that thrive in times of crisis could adjust, shift priorities, and adopt a continuous learning mindset. Effective communication emerges as an essential pillar in this process, allowing messages to be conveyed in a clear and inspiring way to all members of the organization. The digital revolution plays a crucial role in the transformation of businesses during crises. Those that embrace and embrace digital transformation have a significant advantage, leveraging innovative technologies to drive operations, meet market demands, and strengthen organizational resilience. In addition, resilience, cultivated over time, becomes a key element in facing challenges in a constructive way. Companies that prioritize resilience not only do they overcome immediate obstacles, but they also prepare for future adversity more effectively.
In fact, Crisis management, when done effectively, is not just a response to the present challenge; It is an investment in shaping a more promising future for the organization. Each crisis, rather than being seen as a cause for concern, becomes a unique opportunity for change and growth. By embracing this mindset, companies not only survive, but flourish in the face of uncertainty, emerging more resilient and prepared for the challenges that the future may bring.
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About the Author
Alex Almeida has a Postgraduate MBA in Financial Management, Accounting and Auditing - FGV (Brazil). Degree in Accounting. Controller, Crisis Management Consultant, Project and Sector Organization Manager, specialist in tax analysis. Joined the Accounting Council. Founder and CEO/President of Alxport Financial Consultants Inc since 2019, operating in South Florida with over 20 years of experience in Accounting, Consulting and Auditing and all his training. Recently, it has been developing the E-Crisis Management App to disseminate and increasingly expand the new concept of crisis management.