In the lead: business resilience.
Take it from me – in the last year, my firm and many of our clients have operated throughout a period of widespread civil protest on the streets of Hong Kong. Now, at the time of writing, the authorities are ramping up measures to combat the spread of the coronavirus, which has just claimed its first fatality here.
Many, especially larger scale enterprises, take a structured approach to identifying, managing and mitigating business, financial and market risk.
Viruses, cybersecurity breaches, financial crises, societal unrest and natural disasters – are all events capable of testing businesses to the limit – and nobody can predict what’s around the corner.
Building business resilience is any company’s best way to navigate disruption, and as an adviser to businesses in many sectors, here’s my advice on key areas of focus.
Overall, ensuring your business is healthy in ‘peacetime’ means that when disruption strikes, there is the ability to cope.
That means carefully managing your cost base, even when your served markets are thriving, and keeping a close eye on your financial gearing. Leverage can support taking advantage of market opportunity, but when a crisis strikes, it can leave a business vulnerable.
Cost management is worth looking at in more detail. The phrase conjures images of recently-fired employees going through the exit door with a cardboard box filled with their belongings.
But reducing headcount is very often the last place any business wants to go to lower cost: it takes vital skills out of the business and upsets company culture. Instead, reducing cost can be achieved by improving productivity and investing in this. If you can produce the same outcomes for less, that is a no-brainer. Often, in a business affected by disruption, teams can be more creative about generating efficiencies. Once in a crisis-situation, a ‘burning platform’ can create in teams a strongly shared sense of coming together to drag the business in the right direction.
Delayed investment can work as a way to steer through a downturn, provided that your business recognises the right time to reinvest when things look better. Also critical to consider here, is what impact postponing investment will have on your value chain – how will a delay now, impact your ability to generate future profit and capture demand?
Finally, on the cost side, it is worth considering how flexible your business model is. Can you still protect margins during a downturn? If demand falls, can you bring down costs without affecting quality and customer service? How ready are you to ramp up to capture market growth?
Cost management creates the potential for a truly resilient business to come through challenging times with the ability to invest ahead of competitors. This can be game-changing. Effective control of cost, through targeted cost-cutting and deferral of activity, alongside non-core divestment, can ensure your balance sheet provides the firepower. A resilient company also has a clear plan about where capital can be invested and accelerated as soon as the business can push beyond the crisis event. Taking full advantage of a recovery can be a true differentiator for the resilient business.
Beyond cost, business resilience also means recognising that no company operates in a vacuum. You are an organisation that lives or dies not only by effective cost control and a smart business model, but also through the relationships you nurture.
Effective relationships and engagement with customers and suppliers in good times and bad, ensure support and understanding. This will occasionally involve sacrifice and a willingness to walk a mile in the shoes of your key stakeholders, but long-term, there is no better investment of your time in making sure your customers and suppliers can trust and understand you. When disruption hits, they are more likely to stick by you as a consequence.
Most important of all in business resilience, is effective engagement with your people. Communicate openly, enrol them in supporting the business through a time of disruption, and reward them for doing so. If you engage honestly and let good people support the company through bad times, nothing builds effective business resilience like engaged and informed colleagues.
Helen Tang is Managing Director of Moore Hong Kong