Board decision-making in a crisis: Looking ahead and understanding the bullwhip effect
We are experiencing unprecedented times, and with that comes the need to have a conversation and start thinking about equipping business leaders (particularly those in the boardroom) to think through the decisions we need to make in a time of crisis, and how to do just that.
It is also about thinking through the implications, the impact of these steps, take the decisions you have to take in a responsible but effective way and essentially to position yourselves to see this thing through. And what we mean by position yourselves is obviously on the various fronts that we are involved.
We are all being challenged in terms of our roles and positions and relationships and that is the context we believe a director works in. But the key context is the team and the boardroom. The pivot upon which the lever sits and it is thinking some of the challenges and questions we have to ask ourselves: who do we have in the boardroom and do we have the right governance structures to handle what we are going through? Some of the foundational thinking I believe will talk to some of that.
It is then important to apply the principles of governance. It is very easy in a crisis to drop everything and become irrational and unreasonable. We have seen that in some of the news flows, some of the responses and unfortunately in some of the countries that are being hit by this unfolding crisis, the blizzard that is unfolding around the globe. We have seen countries and companies react too late. I believe in Africa what we have seen is we have seen a fairly early response. I am hopeful, optimistic, but I do understand that it is going to be challenging. In our boardrooms we need to be having conversations as soon as possible if you have not started already, because ultimately it is the director on the board applying the principles of governance that leads to an effective, accountable and sustainable business. Right now, the challenge is going to be sustainability. We do that by ensuring accountability for actions, because part of the process is making sure that everybody has a clear idea of what to do, and ultimately understanding and thinking about what an effective company will look like as we look to the future.
Perhaps to start a good place to think about is to say well what do we think is going to lie ahead, anticipating what lies ahead in terms of timeframes. Having done a lot of work with organisations and especially thinking about supply chains, my mind has dwelt on it and thought about what we can think about in terms of timeframes. If we think about a timeframe and a timeline going forward into the future, we have got to think about the present chaos. Then we have got to think about the next three months, the next six months, the next 12 months and beyond.
The next three months it is going to be serious crisis management. It is going to be crazy and we are going to see a lot of externally imposed things, we are going to see decisions made and we are going to have to make decisions that are really challenging. Those decisions, however, need to be taken with at least the 12-monthiew on them. In the short term, the danger is we are going to get lost in the short term and we are going to lose a lot of focus. If we can think about what the business will look like and this is where in a crisis, strategically what tends to happen is that the time horizon is shortened. I think the danger is we shorten it to the immediate instead of keeping a picture in mind of what through looks like.
In supply chain thinking, there is this concept of what is called the bullwhip effect. This relates to a small disruption which tends to grow over time. It is called a bullwhip because that is what tends to happen when you use a whip. The challenge is that a disruption in the short term has a long term effect, and part of thinking through what we are going to be going through in 12 months’ time, is to ask the question what is the nature of the disruption happening right now in our businesses. For some, it is going to be severe, but for others, it is going to be mitigatable by doing the right thing and by asking the right questions.
Those of you who have been following the news will have seen the concept, and a lot of this is built upon the concept of what is called flattening the curve, and the main reason just to draw it is that we are seeing incredible restrictive actions being taken, is that if we do not we are going to see a spike in cases and this spike is going to overwhelm our systems and our processes, our health care systems. And that is what China managed to do in this space, they added hospitals. Most of our countries cannot do that. Italy is going through the spike. So, the idea of the restrictions, and it applies in our businesses as well, is we want to try to flatten the curve. The assumption there is not necessarily that there will be less people overall infected, but it tries to keep the infection rate under this critical threshold of crisis. And so that is some of the thinking that I think we are all facing, and we are all challenged by going forward.
In my next blog, I will explore two key concepts relating to this: liminality and requisite variety. And if you would like to learn more about effective decision-making in times of crisis, you can watch our full on-demand webinar here: