The Importance of Business Contingency Planning
The Crucial Importance of Business Contingency Planning as Demonstrated by COVID
It would be hard to think of a more trying time for businesses in memorable history than the past year. So many have felt the seismic shift caused by Covid-19, with many no longer able to stay afloat. Despite this, there have been hopeful stories and examples of organizations showing their resilience and stepping up to the challenges they face. The pandemic has exposed weaknesses in companies’ ability to plan for future shocks and doing so has actually made many organizations better in the long run.
So, what is it that has enabled some businesses to stay resilient while others suffer? How were some able to maintain their competitive edge and resist seemingly inevitable disruption? Business-model innovation, according to a recent McKinsey article, was the most important strategic lever in addressing the crisis. Those organizations with future-ready plans had the capacity to absorb the shocks caused by Covid-19. In a survey of around 300 senior executives across Europe, McKinsey observed that three-quarters of respondents reported that they had launched initiatives centered on business-model innovation. In fact, the survey reports that “respondents who said their companies addressed the crisis very effectively were 1.5 times more likely to report undertaking business-model innovations than those who thought their organizations’ responses were not effective.”
Business-model innovation, however, is just one part of a multi-faceted approach to weathering the Covid storm. Contingency planning, risk management, resilience planning, flexibility, and the ability to adapt to external influences are other characteristics synonymous with survival and success during the pandemic.
Mapping Out Resilience
As discussed in the McKinsey article, effective resilience planning involves responding to changes in customer behavior. This means designing an environment for existing products or services to make adaptations or creating new ones. New relationships and partnerships are also of paramount importance, with cooperation being key, both within and outside of a given industry. A prime example of this is how pharmaceutical companies have worked with healthcare centers in order to accelerate Covid vaccine development.
Covid-19 impacted supply chains across the globe, leading to delays or even the shutdown of factories. As a result, many organizations made operating-model adjustments, securing alternative supply to protect them from future delays or shutdowns. Sales-model adjustments were also vitally important, with logistics companies offering contactless delivery, catering their services to the new normal in which we now find ourselves.
Rapid product development was also important, with companies accelerating the production of new products to more accurately address gaps in the market or issues caused by the pandemic. For example, telecom companies worked with insurers and healthcare companies to form telemedicine applications that sped up the remote testing process.
Building and Solidifying Your Strategic Resilience
Once companies actually implement changes of these kinds, they will serve not merely as temporary solutions but as permanent and profound changes in organizational thinking that will yield benefits well into the future. One such prominent shift is the transition to remote work or a balance between remote and in-office work, as businesses also recognize that flexibility is indeed conducive to a more productive workforce.
Another element that has become of prime importance is for businesses to articulate and to have a clear mission plan for a wide variety of extraordinary scenarios. These scenarios are an important tool for businesses, allowing them to map out potential pitfalls and eventualities as well as ways to overcome problems. If you plan for extreme situations, ensuring you are able to survive in a range of future outcomes, then you will be aptly prepared for when such a time comes. As we’ve seen with Covid, the potential for extreme situations is not as rare as we may have formally supposed.
While many companies may have always had room for such changes, the kind of economic disruption caused by Covid-19 has provided the impetus and expeditionary force that otherwise often faced delays or bureaucracy. According to McKinsey, companies that “moved early and invested strongly ahead of the recovery increased their earnings before interest, taxes, depreciation, and amortization by 10 percent on average.”
Finally, it is all well and good to have such plans, but businesses must also be prepared to act. Covid-19 brought about rapid change across the entire global economy and demonstrated how traditional annual strategic planning exercises will no longer suffice. In the McKinsey survey, almost half of the executives expected to implement a process that enables them to accelerate their plans. Monthly, rather than annual, strategies can help ensure your business is able to continually evolve and adapt.
This kind of thinking is not only crucial for owners of a company but is also important for those looking to invest in a business. When speaking with startup founders, for instance, seek out people who take contingency planning and resilience strategies seriously. Have this inform your investment decisions. Bold moves are important but so is having enough confidence in the future and business strategy of an organization. Contingency planning is more important than ever, and it is here to stay, even long after Covid-19.