Before we rush into the new normal, it’s worth asking: If you had known a year or two ago that a deadly pandemic could strike and devastate the economy, what would you have done differently?
Organizations are usually built with the intention to last. Other than those meant purely for one person’s employment for the length of their career, organizations start with an idea and a dream – and essentially an eternal time limit.
But we live in a short-term era – with stock market pressure for top results every quarter and our own desire for immediate rewards. So long term is hard. It requires careful planning, managing risks well, and organizational resiliency.
That resiliency is being tested now, and many organizations can be proud of how they have adapted. Yet many will only survive with government assistance. For others, even that boost won’t be enough. The dream will die because their planning and risk management weren’t sufficient in the old normal.
The pandemic seems like a Black Swan, risk analyst Nassim Nicholas Taleb’s term for a highly improbable event outside the realm of regular expectations with an extreme impact. Who could anticipate this – a virus shutting down so much of our economy? In his 2007 book named for the phenomena, he told us “Black Swans being unpredictable, we need to adjust to their existence rather than naively try to predict them.” And that’s what we’re struggling to do.
Except he argues this isn’t a Black Swan. Indeed, in that book he warned: “I see the risks of a very strange acute virus spreading throughout the planet.” Reviewing the stock market crash of 1987, he caustically referred to “the four letter-word of interdependence.” In 2005, President George W Bush read historian John M. Barry’s The Great Influenza and reportedly became obsessed by the fact pandemics occurred every 100 years. He felt his administration needed to be prepared. There was warning that COVID-19 was coming to our shores after it struck in China.
Mr. Taleb therefore contends this was predictable. He told Bloomberg that in the aftermath governments are subsidizing companies that were irresponsible and failed to devise buffers. Just as the body has two kidneys when one is enough, he says companies need huge excessive capacity because you might need it someday.
Major companies, of course, are under enormous pressures not to save for a catastrophe. They are expected to use excess cash to buy back their stock and reward shareholders. Or swell profits by launching new products and conquering new territories. They aren’t rewarded for having huge excessive capacity for bad times. Banks are forced to have such reserves by law, but not an average company.
What about small businesses? In 2016, The JPMorgan Chase Institute found the median U.S. small business had enough cash reserves to cover 27 days. For restaurants, the average was 16 days. Is that enough? Can a restaurant with only 16 days cash in reserve be considered a success even if it serves the finest delicacies to huge crowds?
I don’t intend to be mean or to kick people when they are down. I didn’t see this coming and for all Mr. Taleb says I’m not convinced we really could have known. If the medical system was unprepared, how could an individual preoccupied with their small or even big business? Preparing for tough times meant considering a 20 or 30 per cent drop in revenues, not 100 per cent.
But I detect a swaggering these days as we congratulate ourselves for handling the fallout and talk bravely about the new normal. Many businesspeople are like sprinters, waiting for the gun to sound so they can rush off to grab new opportunities – for many businesses, perhaps borrowing money to gobble up stricken competitors.
American geographer Jared Diamond, after nearly losing his life in New Guinea when a boat he should not have boarded sank, adopted a life philosophy of “constructive paranoia.” He imagines what could go wrong because, ultimately, it’s his fault. If the new normal is 27 days cash reserves for small business or share buybacks and scant cash reserves for large corporations, will we have improved?
In their book Built to Last, James Collins and Jerry Porras found companies with sustained long-term success relentlessly asked “How can we improve ourselves to do better tomorrow than we did today?” If you had known a year or two ago that a deadly pandemic or some other catastrophe could strike what would you have done differently? What will you do differently in the new normal – in an interdependent world that can spin out of control – to make your firm truly built to last?
- With the increase of remote teams, Kathy Samuel, head of business partnerships at the London School of Economics and Political Science notes meetings tend to start on time.
- We often hear leaders are best judged in a crisis. Consultant Tim Sackett disagrees: Great leaders should not be judged by how they reacted in a once in a lifetime event, but how they act every day.
- Harvard Business Review has offered many insights on leading in this crisis and they have been collected into a free eBook for everyone, not just subscribers, which may help you to re-evaluate your own situation and plan for what’s next.
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