managemnet company strategy managemanet Has Your Organization Acted on What It’s Learned in the Pandemic?

Has Your Organization Acted on What It’s Learned in the Pandemic?

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BCG research has found that 15% of companies outperform their industry in more than 80% of crises. Berkshire Hathaway, for example, outperformed its peers in 15 out of the last 17 turbulent periods.

This consistent outperformance is possible because these companies built resilience. Instead of relying on ad hoc measures, hedges against specific scenarios, or the surge performance of individuals, they’ve built the capabilities that enable them to thrive through adversity. In other words, they’ve institutionalized resilience.

As the pandemic marks a third anniversary, business leaders around the world are eager to move on. But few companies have systematically institutionalized what they’ve learned from their Covid-19 experience. We suggest a three-step approach to do so.

Step One: Evaluate

The first step is to review empirically how well you performed during the Covid-19 crisis. Your assessment should include the following elements:

Review your competitive performance.

While financial and operational metrics, such as factory utilization or product availability, are important factors to review, an often-overlooked aspect of performance is how you fared competitively. Compare your company’s sales, profitability, and total shareholder return (TSR) against those of your competitors.

Examine performance over time.

Competitive outperformance during a crisis can be broken down into three components:

  • How well you absorb the initial impact of a shock. Companies that anticipate, recognize, and prepare for threats in advance create a cushioning advantage that mitigates the shock’s initial impact. This creates competitive opportunities, for example, by signaling stability and reliability to customers, partners, and investors. To measure Covid’s initial impact on your company, you can look at the difference between your performance pre-Covid-19 vs. in Q1 of 2020, for example.
  • How fast you recover. Companies that quickly identify and implement what’s needed to restore operations have an adaptation advantage. They recover more quickly, for example, by leveraging operational flexibility or by shifting their portfolio mix. One way of measuring your firm’s recovery speed is to look at the time it took to return to pre-Covid-19 performance levels.
  • The strength of your recovery. Companies with an adaptation advantage also often end up with a shaping advantage, which helps them recover more strongly than competitors, because they can capitalize on structural changes in demand and rewrite the rules of post-crisis competition. You can measure recovery strength by looking at the difference between your pre-Covid-19 performance and the new level at which your performance metric stabilizes.

De-average performance across teams.

In addition to looking at the competitive performance of the entire firm, you must also look at different business units and functions in order to identify lessons, positive and negative.

Collecting and analyzing this data will help you identify which areas of excellence to amplify and institutionalize and which areas of weakness you need to address. For example, animal health giant Zoetis found in their evaluation that they had achieved nearly double the growth rate of competitors and that a key differentiator had been their ability to quickly reallocate capital to winning markets and product segments. Identifying this strength was a critical step towards ensuring repeatability of their outperformance.

Step Two: Extract

Once you’ve looked at the numbers, you also want to understand what drove performance, why certain decisions were right or wrong, which organizational structures proved helpful or obstructive, and which capabilities were missing. An after-action review, a tool originally developed by the U.S. military, can help you learn from periods of stress. A few elements are essential to a fruitful after-action review.

Involve all protagonists.

To ensure that all relevant perspectives feed into the evaluation, and that lessons are disseminated broadly across the organization, it’s essential to involve all the employees who played a role in managing the Covid-19 crisis — not just senior leadership or a few frontline functions.

Include an assessment of pre-Covid-19 preparedness.

Resilient companies were often better prepared ahead of the crisis — not because they foresaw or forecasted the pandemic, but because they took measures to promote general resilience. When executing the after-action review, take a longer timeframe to review this aspect.

Simulate the information conditions at different times.

Covid-19 was a moving challenge — not only was the virus itself mutating, but our knowledge of it, our responses to it, and the business landscape were as well. As such, you don’t want to only assess decisions by the results they produced. Evaluate them against the information that was available at the time, and how it was sourced, shared, and used.

Disentangle learning from judging.

Many review exercises are geared towards identifying accountability. This can hinder an objective and open approach, which is necessary to extract learnings. For that reason, passing judgement should be kept separate from the after-action review.

Look at what went well.

A common mistake of after-action reviews is to focus only on errors, performance lapses, or missed opportunities. While it’s important to study failure, it’s also essential to carefully assess which aspects of crisis response you got right. Identify which factors enabled your successes, and bake those into your organization.

Learn from competitors.

Don’t miss out on the opportunity to learn from others’ successes and mistakes. Dive into the choices and practices that helped your competitors do better or worse than you.

In an interview, the CFO of American Express, Jeff Campbell, stressed the importance of his company’s after-action review:

In the latter part of 2021, the world had stabilized enough that we decided to go through a comprehensive exercise with groups across the company to extract learnings from the previous 18 months. This culminated in a few days of discussion with key business leaders and the board, which led to a revised strategy for the recovery phase and a new roadmap with more aggressive growth ambitions. Taking the time to reflect on our approach during Covid-19 really changed our view on how to approach the future.

Step Three: Implement

Extracting learnings is important but insufficient. If the findings from the after-action review are dusted off only once the next crisis is on the doorstep, leaders will find that a key window for action has already passed.

To become one of the 15% of companies that consistently secures advantage during periods of turbulence, it’s essential to preemptively build the capabilities identified by your after-action review. Our analysis of resilient companies suggests that there are nine actions that can help institutionalize resilience:

1. Write a crisis playbook.

A playbook provides stability and predictability when emotions and tensions rise, so codify the findings of the after-action review into generalized, practical learnings that can be used to guide action in the next crisis. “It’s better to rely on a process than just people,” says Don Allan, CEO of Stanley Black & Decker, “so you do not create unnecessary stress and even burnout for your organization.”

Playbooks should be written at the levels of both the overall company and individual functions. A leading venture capital firm, for example, has written a crisis playbook that it uses to train the senior management of its portfolio companies. Playbooks do not need to be tailored to individual crisis scenarios; they should lay out the general principles for crisis management. Campbell told us that American Express’ playbook for an economic downturn helped the company navigate the pandemic.

2. Use scenario planning.

In complex and volatile times, it’s impossible to predict and plan for the future precisely. But it is possible to be prepared for plausible disruptions. “We have now systematically changed how we build plans,” says Kristin Peck, CEO of Zoetis. “We no longer believe that a single plan is going to help us make the best decisions, but instead we use multiple scenarios so we can be more adaptable in today’s uncertain world.”

To build effective scenarios. leverage tools such as imagination games to identify potential threats, such as sudden shifts in consumer preferences, or the emergence of competitors that are betting against your business model.

3. Invest in intelligence-gathering capabilities.

Scenario planning and crisis management are fueled and triggered by good intelligence. “You need to make sure you have a good pulse of what’s happening,” says Don Allan of Stanley Black & Decker.

It’s rarely sufficient to rely on public experts, whose analysis is typically broad. Instead, build a dedicated intelligence team to gather reliable, timely, and industry-specific intelligence. Focus on anomalies to spot emerging trends and discontinuities early. You can also leverage a network of external partners and crowdsource insights from within the company.

4. Become a real-time company.

In stable times, companies typically focus on the efficiency of their own operations and adjust only episodically or gradually to external trends. Information flows tend to be slower and decision-making mechanisms less flexible.

In times of crisis, it’s essential to become an organization where the aggregation and dissemination of information occurs very rapidly, and decisions are made in daily cycles. To become a real-time company, it’s necessary to increase the cadence of decision-making meetings, as well as to provide those meetings with timely and reliable information.

“During the pandemic, we started a ritual to get the senior leadership team together in a meeting every single morning at 8 am,” says Jeff Campbell of American Express. “Everyone in the company knew that they could get a decision on anything important within 24 hours, and any issue that came to our attention got solved within days. This has led to a huge culture change in the company, and this new speed and integrated focus has been invaluable to us also since the pandemic.”

5. Create flexible collaborative structures.

Organizational partitions are important: They allow specialization, simplicity, and efficiency. But in a crisis, your organizational divisions can become an obstacle to rapid adaptation.

Resilient organizations continuously redesign their collaborative structures around emerging needs. To cultivate this capability, it’s essential to keep your organizational divisions fluid in normal times, using approaches like project-based teaming, temporary rotations, and diagonal collaboration. External collaborative structures also require flexibility, which can be provided by participating in dynamic ecosystems.

6. Ensure fluidity of capital and capacity.

“One of the key things we did well,” says Peck of Zoetis, “was to think creatively about reallocating capital based on rapidly changing dynamics. We continuously moved investments to regions, segments, and sales channels with stability and opportunities for growth.”

To ensure fluidity of capital, managers need to break with the idea of spreading resources relatively evenly across business units, and rather be ready to meet extreme circumstances with decisive reallocations: Exploring and piloting new models under changing conditions is only half of the race. Companies that want to succeed in scaling up new solutions need to allocate sufficient capital with sufficient speed, shifting the center of gravity of their business.

Fluidity of capacity can be enhanced, for example, by having slack in manufacturing facilities or redundancy in supplier networks — both of which require navigating the trade-off between resilience and efficiency.

7. Retrain employees to foster resilience skills and mindset.

Many companies are traditionally geared towards improving efficiency and avoiding failure. In times of crisis, however, experimentation is necessary to capitalize on new patterns of demand and competition. Experimentation requires failing fast and learning quickly. Employees are often hesitant to adopt this new mindset when tolerance for failure is low.

Peck stresses that to become resilient, you need to focus on your people. “We are now baking themes such as empathy, constant change, and learning agility into our training and development programs,” she told us. “We want to inspire a culture of continuous learning and change, so that people can see it as a standard part of business.”

8. Commit to open leadership.

Crisis management requires a high degree of trust and open communication. Leadership needs to set an example by being transparent and empathic. Communicate openly and regularly with employees, whether things are taking a turn for the better or worse.

Leaders must also be receptive to signals from your employees, who are often closer to customers and who will pick up on new trends and emerging disruptions first. “You need to be willing to listen to the bad news that your employees bring to you,” says Don Allan of Stanley Black & Decker. “Otherwise, they will keep you in the dark and you will be late to adapt.”

9. Don’t lose focus on the long-term.

The essential challenge in navigating a crisis is that it simultaneously poses short-term business continuity risks, which require prudence and fiscal discipline, and also durable shifts in the patterns of demand, which require experimentation and investment.

To succeed on both ends, a company needs to be competent at multi-timescale management that continuously balances short-term and long-term objectives. Campbell emphasizes that “what matters most in a crisis is to focus on the long-term while competitors are distracted.”

Several tactics can support this. One is to designate certain teams to analyze long-term considerations and represent this perspective in the decision-making process. Another is to adopt the principle of regressive reversibility: Cut costs first in places where the effects can easily be undone, while continuing to fund teams where damage would be lasting. Lastly, laying out clear rules can help to reduce the complexity of decision making — a rule could be that investments in core product innovation cannot be cut, for example.

. . .

While Covid-19 seems to have subsided in many parts of the world, we still find ourselves eye to eye with a plethora of other crises like war, energy shortages, inflation, climate change, disruptive AI, cyberattacks and, in recent days, financial system instability. It’s impossible to tell what the next crisis in your region, industry, or company will look like, and when it will arrive.

Thriving under this uncertainty is the new normal. Now is the time not to merely pursue resilience but to institutionalize it as a repeatable capability. To win in the aftermath of Covid-19, learn by looking back so you are prepared for what is ahead.

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