The reality of COVID-19, the coronavirus that wreaks the world’s population, has a far more reaching and perhaps lasting impact than the severe acute respiratory syndrome (SARS) outbreak in 2003. Is the current event considered as a “black swan” – an unpredictable event that comes as a surprise along with a major effect? We simply do not know since new information about COVID-19 is constantly emerging. While medical experts in China and across the world are racing to understand the extent of the impact of how the virus spreads and evolves; it is, however, an arduous and lengthy mission.
Daily news of its effect on people and business continues to inundate news channels and social media. Though there may be a temporarily spike in demand for certain commodities due to panic buying which mollifies the freshly inflicted losses experienced by some companies, the cost to businesses across sectors could only be keenly felt in the coming months. Prime Minister Lee Hsien Loong said the ongoing outbreak will have a significant impact on Singapore’s economy in the next couple of quarters.
The broken link
Since the turn of the century, China has become the global powerhouse for production and distribution of goods, churning out world’s leading electronic products and components, as well as driving demand for resources like oil and copper. Such globalization provides companies with the opportunity to build supply chains beyond national borders, making economies much more interconnected.
This lucrative international connection was severely disrupted when a country-wide quarantine initiative was enforced by the government late in January. It further exacerbates the already volatile global economy scarred by the ongoing US-Sino trade war. People are more likely to stay home to avoid getting sick, limiting them from travelling, shopping and working. Doing so stifles demand for consumer goods and services. Tough decisions taken by Chinese companies to temporary curtail production will to any extent strain overseas operations that have direct or indirect link to China.
Inevitably, Singapore companies in certain sectors are experiencing serious issues in operations, in particular, those in logistics have seen a decline as much as 70% in business due to transport challenges in China, this is according to Enterprise Singapore. Likewise, other industries such as retail, food and beverage and tourism are affected and suffer different degrees of impact.
Business survival buried under
In a study conducted by the World Bank, a severe pandemic could result economic losses of 4.8% of global GDP, an equivalent of $3 trillion, whilst a moderate pandemic crisis could have an impact of around half this figure. Mild pandemics (like the 2009 H1N1 flu pandemic) may have economic impacts of less than 0.5% of GDP.
In the face of such impact-laden reality, the immediate response is to alleviate further losses to business and swiftly move on to other business-as-usual affairs. However, it seems a far more important issue is being fudged: toughening up organizational resilience. What about another “black swan” with a far more devastating effect than this one?
Unsurprisingly, the business mentality that emphasises cost, performance and profitability as prime concerns backburners matters that crucially bolster corporate defence in time of crisis situations. It is worth noting though the challenging scenarios of COVID-19 will eventually dissipate, it will no doubt manifest in different guises in the future. Think about the SARS 2003 crisis, what have companies learned from the outbreak? Are companies coping better or worse now?
A deer caught in the headlights
A survey conducted by the Business Continuity Institute and British Standards Institution highlights over half the respondent companies consider organizational resilience as essential element for long-term business survival. It fortifies management ability that steers the company and its business through the height of a storm. However, the competitive state of affairs in today’s business force many to immerse in activities distant from organizational resilience. This is akin to the boiling frog syndrome which the poor animal failed to perceive the danger until it is cooked to death. This metaphor betokens a reality in the corporate world where daily priorities of business are unexpectedly overwhelmed by the speed and scale of a crisis.
Many would appreciate the importance of beefing up defence in business operations; however, do companies really adopt a forward-thinking approach towards planning for the unexpected? If the response is a yes, why are we still getting a great deal of news about breakdown of supply chains along with companies faced disruption in their own production plants (such as automotive and manufacturing industries)? What is more worrying is mismanagement during a crisis event. In the absence of a thought-through process of decision-making and actions prior to an unexpected incident, any last-minute contrived act or decision could prove devastating. The after-effect of such ill-prepared approach has a direct detrimental impact on corporate reputation and impede long-term performance
Organizational resilience in perspective
Though it is a painful time to most companies, it is yet a timely opportunity to adopt a fresh perspective to identify vulnerabilities in business processes. It not only strengthens organizational resilience across the delivery process but improves the management capability in dealing with unexpected circumstances. Incorporating a business continuity management program is an integral part of the organizational resilience initiative. The program establishes a strategic and operational framework that implements an all-essential decision-making protocol and recovery arrangements when key products and services are disrupted or supply network breaks down. Though not all incidents can be prevented, the program effectively serves to limit the sudden impact and loss due to a unexpected event or a “black swan”.
Some suggested pointers are provided here to help assess the risk in the supply chain along with understanding the state of business continuity preparedness amongst suppliers:
- the criticality of the product or service (supplies) the supplier provides;
- is this supplier the only source for that product or service;
- what are the primary risks facing the supplier;
- does the supplier have in place effective business continuity arrangements and the mitigation measures;
- has the supplier assessed its own supply chain risks;
- what priority is the company in the supplier’s list of critical customers; and
- is the supplier’s recovery timeframe (of its critical product and service) acceptable to the company to continue to conduct its critical activities.
Business defence is everything
Facing the reality of economic uncertainty as a result of COVID-19, companies needs to take organizational resilience seriously. A shift in corporate mentality will be necessary to incorporate resilience practice as a business priority across all levels of the organization. Though countless companies have experienced and recovered from the forces of past crisis events, their businesses are still braving the ongoing effects of the current outbreak. Have the outbreak reached a peaking point? We cannot tell. However, one sure fact is that planning to improve business defence against the onslaught of unforeseen challenges is a safe option; as asserted by Benjamin Franklin, “If you fail to plan, you are planning to fail!”.
Wei Ning Zechariah Wong PhD MBCI CBCP is a resilience specialist. He is one of the leading experts who contributed to the development of the world’s first business continuity standard BS 25999/ISO 22301. He is also represented in the Business Continuity Institute (BCI) Technical Committee and has produced a “How-to” Guide. He is the main author of Business Continuity Management System: A Complete Guide to Implementing ISO 22301. He is a managing consultant of INSTRAMAX, a specialist company in business continuity management services.