How to Deal with a Global Crisis
Read time: 5 minutes
What is a crisis? The word crisis stems from the Greek word krísis (κρίσις), which refers to a massive disturbance of a social, political, or economic system that could last for an extended period. But, in the end, a crisis doesn’t have to be an existential threat. Crises also hold the opportunity for improvement.
The Impact of Crises
A good example is the 2006 U.S. real estate crisis, when cheap home loans, even for bad debtors, gave the impression that house prices were rising steadily. But as interest rates went up, the real estate market collapsed. Prices began to fall, and more and more debtors defaulted.
In the beginning, only U.S. mortgage banks were negatively affected. But it quickly swept to banks, fund management companies, and insurers worldwide. Lehman Brothers, which filed for bankruptcy in 2008, was the most prominent victim of the crisis. Bailouts by governments and central banks saved other institutions and avoided a worldwide banking crisis. A sharp recession followed.
If you look at a timeline from the 1970s until today, you can see that crises regularly reoccur, but despite them you can see consistent development of MSCI. All these crises developed over a certain period, were limited to the business world, could be contained by fast actions (mostly by governments and central banks), and had no lasting impact on the long-term stability of the global economy.
A Cluster of Crises
From 2020 until the present, we’ve had several crises in parallel, including the ongoing COVID-19 pandemic, increasing climate issues, and the war between Russia and the second-biggest country in Europe, Ukraine. All this plus the energy crisis, the trade war between China and the United States, and a supply chain crisis that is impacting many businesses. This is an ongoing cluster of crises with no end in sight.
This is also a new structure of crisis. In the past, economic crises mainly impacted corporations. But these are world crises with wider impact. Health and climate issues, trade wars, and wars of conquest reinforce each other. This is an entrepreneurial challenge never seen before, but also an opportunity for companies that accept the challenges and make structured, fast, and proactive moves. For smart companies, crisis management will become — at least for the time being — part of the daily business of a company. There is simply no choice.
Preparing for a Crisis
Crisis management begins with preparation. How can we best prepare for a crisis?
I think the best approach is to compare it with a military defense action. Proper resources and their allocation, training, quick action, fast evaluation and learning, and adaption of your actions are success factors. The strategic goal for your company is the same as in a defense action: end the crisis with minimal casualties, save the integrity of your organization, and resume normal business operations as fast as possible.
How to systematically prepare in practice? Collect as much information as possible to raise the likelihood of identifying critical scenarios. Use information from your network, your own employees, outside expertise, media, and social media to build scenarios. Based on these scenarios, work out action plans, manuals, concepts, or handbooks — whatever fits best for your team and your company.
And now, it’s very important to have the right people in your crisis response team. Diversity in the persons and functions that work in your crisis response team is of the essence. Do not include only senior management. Do not include only the working level. Have a good mix of both. So then you will have a team that can cope with the crisis. Also, think about what equipment is needed. Do you need a room? What IT support is needed? And do you need external resources, for example, with regard to communication? Start training the day “X” with your team.
How to Act in a Global Crisis
First, you must determine if a crisis is a threat to your organization (I’ve laid out the indicators in GLG’s webcast Crisis Management for Corporations). If those criteria are fulfilled, sound the alarm immediately. Call in the existing task force and crisis response team, even if you are unsure if the people on this team are the right ones to deal with the crisis.
Start with an overview of the situation. Who is immediately needed for this concrete crisis scenario? What is needed? And, what first measures should you take? Again, the goal is always to establish an orderly process for an unprecedented situation where many crises align to create a significant threat.
Your best basis for coping with global crises is to create a geopolitical risk map or dashboard. And based on that, develop a business continuity plan. In my experience, immediate measures in a global crisis are essential. Speed and focus are successful factors.
Crisis as Opportunity
How can we see crisis as a chance for strategic repositioning and renewing competitiveness for our companies? After the actual crisis is over and the survival of your organization is secured, most of the time there is probably no going back to the old norm. So the question is, what will now happen in the medium and in the long term?
A Boston Consulting Group survey showed that out of more than 400 participating companies, a majority favored short-term measures and a wait-and-see approach. Corollary studies indicate that this can cause great damage in the long term.
A 2019 study among 5,000 companies conducted by the Bain firm shows the opposite. It confirmed that the most successful companies in and after a crisis applied a mix of smart defensive and offensive measures. They reduced complex processes, optimized their financial management, and made significant investments. For example, research and development sales and marketing budgets in these companies were not cut. This study found the EBIT of these companies went up on average by 17%, and they showed strong growth after the crisis of about 13%.
There are so many reasons to take the crisis as an opportunity to set up a proactive strategy process, even in the crisis. So the lessons learned during the crisis are not wasted and form the basis for your future success and value creation.
To build a strategic road map in the crisis, you might want to follow these steps: analyze your new environment and evaluate opportunities and risks; adjust your short- and long-term strategic goals and criteria accordingly; take the chance to adjust your project portfolio; create a new strengths and weakness profile; renew your strategic planning; and establish a dynamic process for continuous adjustment and controlling.
This article is adapted from the GLG Webcast “Crisis Management for Corporations — An Entrepreneurial Challenge and Opportunity in Stormy Global Waters.” If you would like access to the transcript for this event or would like to speak with experts like Michael Götz or any of our approximately 1 million Network Members, contact us.
About Michael Götz
Michael Götz has played a key role in the growth of the industrial business at K+S (2001-2021), most recently as Senior Vice President Public and Governmental Affairs (2020-2021) and Senior Vice President Environment and Regulatory Affairs (2018-2020). Michael can draw on advanced market knowledge and practical crisis experience, affording him a unique perspective on how corporations can use successful crisis management to quickly adapt to challenges and take advantage of upcoming opportunities. Michael is founder of APUS Partners GmbH, a consulting firm with a focus on crisis management.