Whilst it is not possible to forecast disruptive events, it is possible to prepare for them – integrated business planning provides the framework
How do you plan for something you can’t predict? – By Stuart Harman and Rod Hozack
As Covid-19 spread rapidly across the globe, businesses and governments were scrambling to deal with the impact. The number of those in New Zealand with the virus has been comparatively low compared to other parts of the world. Nonetheless, the impact on business has been significant.
The slowdown of shipping from China impacting the supply chain into New Zealand has meant delays on consumer goods, not least tech products. Related to this was a surge in consumer panic buying in supermarkets. Most shockingly this led to abuse and violence towards shop workers during the lockdown period.
Since New Zealand started emerging from lockdown in April, the press has published the extent of this violence and the New Zealand Herald reported that the amount of abuse towards Countdown staff during lockdown increased by a huge 600%.
Tourism has been especially hard hit owing to borders being closed. The knock-on effect has meant that income for tourism businesses has been next to nothing, with a resulting loss of jobs. In early May, for example, tourist operator Ngai Tahu Tourism announced it was going to cut 300 jobs and put most of its businesses into hibernation.
The lockdown has also meant that music and sporting events have been widely affected with all rugby frozen and the All Blacks’ test series against Wales and Scotland in July postponed. It has been reported that, as a result, New Zealand Rugby is forecasting up to a 70% decline in revenue.
At Christmas, the world hadn’t heard of Covid-19, yet nearly five months later, it has become a pandemic that is pushing the global economy into recession.
More disruptive events to comeWhat lessons can businesses learn from this? Firstly, there will be more ‘unforecasted’ major disruptive events. Covid-19 is not the first unforecasted event to have had a significant impact. The SARS outbreak in 2003 and the Japan tsunami of 2011 also had far-reaching impacts that nobody, or at least very few, saw coming. And neither will Covid-19 be the last such event, so we should all be prepared. Learn from history and put the time into understanding previous different case studies.
Being prepared provides business advantage. Whilst it is not possible to forecast which events will occur, it is possible to prepare for them. In their book ‘Great By Choice’, Jim Collins and Morten Hansen identified a core behaviour of ‘productive paranoia’, employed by what they call ‘10x companies’ (those companies that outperform their industry peers by a factor of 10). The authors describe the leaders in these companies as constantly asking ‘what if’ and developing plans to exploit or defend against possible outcomes.
Their research indicated that 10x companies were no more or less lucky than their peers, but were able to use their preparedness to react more quickly and take action to mitigate or exploit events.
Ask the questionsYou don’t have to predict future events accurately to be prepared. Businesses across New Zealand should ask the following questions to uncover the types of event that can seriously disrupt their company:
• What if we lose our number one customer’s business?
• What if there is a pandemic locally or in a region where our customers or suppliers are located?
• What if our major raw material availability dries up?
• What if there is a technological breakthrough that makes our products less useful (as Uber did to the taxi industry)?
• What if the industry becomes commoditised?
Each of these specific events has happened somewhere, so the impact and lessons are well documented and easy to find, allowing organisations to think about the implications and prepare.
Focus on the futureCreating a framework to focus on the future is valuable. While most organisations would recognise the value of ‘preparedness’, relatively few effectively take this approach. To prepare for and take advantage of unexpected events, organisations can benefit from a process that drives an external or outside-in view of the business, that pushes the planning horizon out past the short term, and makes the integration points between functional plans in the organisation clear so that when unplanned events occur, the critical areas of focus for the business are understood.
A recent discussion with a pharmaceutical products supplier was an example of the time and effort that can be wasted when integration points are not well understood. While the company’s sales and manufacturing operations worked on plans to increase production of a sanitising product to meet the extra demand caused by Covid-19, nobody had spoken to procurement who could have told them that the pump mechanisms for the product, sourced from China, were currently in short supply.
Executives need to constantly be asking ‘what if’ and driving preparedness. The issue for many executives is too much time and energy spent in the ‘here and now’, accurately predicting results for a month to a year, rather than looking out over the next five years.
A business management process such as integrated business planning (IBP) provides the framework and operating cadence for organisations to regularly take an outside-in view to identify areas in the business with the greatest uncertainty, and to run ‘what if’ scenarios that enable contingency plans to be put in place.
So, how well are you planning for the unknown?
Stuart Harman (left) and Rod Hozack are partners at international business improvement consultancy Oliver Wight