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A New Crisis Playbook for an Uncertain World

Here is an excerpt from an article written by John E. Katsos and Jason Miklian for Harvard Business Review and the HBR Blog Network. To read the complete article, check out the wealth of free resources, obtain subscription information, and receive HBR email alerts, please click here.

Credit:  Marie Emmerman/Skizzomat

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We’re entering a period of unprecedented instability. Is your business prepared?

The Big Idea Series / Preparing for the Era of Uncertainty

Today we stand at the precipice of not one but three converging and potentially catastrophic long-term trends: climate change, globalization, and growing inequality. On their own, each of these makes the occasional crisis worse: We might see a more destructive hurricane, a more widespread financial meltdown, or longer or more violent civil unrest. Together, though, these trends magnify challenges. The Covid-19 pandemic, for example, was not just a health crisis but an economic and political one as well.

Welcome to the era of uncertainty, when constant crisis threatens every business in every place on earth. We see it in supply shortages that are no longer merely short-term inconveniences but disruptions that drag on for yearsIt’s evident in power outages that last for a week or more, and in social unrest and protests over injustices that have persisted for decades. Millions of managers are desperate to do the right thing in these situations, but they have no clue just what that is or how to figure it out. That’s because the most common ways companies have responded to crises in the past are no longer applicable today.

For the past two decades, for example, many have argued that the key to weathering a storm is nimble, decisive action by a courageous leader. Advocates of this approach assume that a crisis is a singular event — typically a market-related or other financial upset — that happens, requires a response, and is then followed by a return to business as usual. Other executives and managers believe that when their companies are fighting to survive, prioritizing ethical action is a luxury. They do whatever it takes to protect themselves. A third approach is to use avoidance mechanisms, such as promising but never delivering solutions, in hopes that the crisis will simply pass.

As upheavals become more common and complex, those strategies will fail. Things will not simply go back to “normal” after pandemics, wildfires, and socioeconomic turmoil. Firms that act selfishly are not immune from struggling during a crisis; indeed, because they burn every bridge at the first sign of trouble instead of building critical relationships, they are likely to fare worse than their peers. And claiming to be ready to tackle a challenge without following through exposes companies to reputational damage; consider, for example, the public dissatisfaction with organizations that pay lip service to supporting the Black Lives Matter movement but then do precious little to make meaningful changes.

Some firms, however, have learned and perfected ways to manage the uncertainty that constant crisis brings. They do so in some of the most volatile places on earth: conflict zones. To understand what works in those conditions and why, we have conducted interviews with more than 300 business owners and managers in conflict-torn regions; held discussions with leading practitioners and scholars; and researched affected companies. In total, we studied hundreds of cases of businesses thriving, scraping by, or crumbling as they faced a broad range of violent and nonviolent political and social conflict from 1985 to today.

What we found was that successful companies intentionally made more contributions to their local communities than their peers did. In some places they helped stop wars. In less-fraught settings, they reminded people who disagreed with one another that they needn’t be perpetual enemies. Whether the companies were small entrepreneurial ventures or large multinationals, they had a blueprint for engaging with society in a positive way.

Preparing for Crisis

Business leaders often recognize political, social, and environmental changes as they happen. But in interview after interview, owners and managers told us they regretted not taking those developments more seriously. Why did we keep hearing the same laments? For one simple reason: a mindset that left leaders reacting to crisis, rather than preparing for it.

It’s tempting to worry that a proactive approach creates a signal-versus-noise problem: How do you know you’re preparing for the right crisis? With so much information to consider, it can feel like searching for a needle in a haystack. But we’ve learned that successful crisis preparation is more like holding up a giant magnet to the haystack, revealing the needles and extracting them before they can do damage. Once you realize which problems might impact your operating environment, you can get ready for them.

Our playbook outlines the three most important lessons we took away from our fieldwork and illustrates them with real-world examples. In all these cases, the red-flashing danger signals were always apparent to anyone reading the local news or talking to local people. The companies we studied — even the ones that failed to cope well with crisis — were all trying to do what they thought was the right thing. But the ones that both survived and thrived had more than good intentions or strong leadership. The secret to their success involved three strategies: paying as much attention to the community as to the business, looking beyond local authorities for solutions, and making principled political choices even when they may be unpopular. These practices can help any company trying to navigate the age of uncertainty. And we’ve found empirically that they constitute the most profitable approach.

Partner with the community.

You can’t do effective strategic risk planning without understanding your sociopolitical context. Our research showed that companies that had little engagement with local communities, viewing them merely as sources of consumers or raw materials, were unlikely to outrun upheaval. When crisis hits, such companies often cut local ties by closing factories or country offices, laying off workers, or withdrawing in other cost-saving ways. Shutting out the local community multiplies the risk that the project at hand, or even the company itself, will fail.

Small corporate social responsibility (CSR) initiatives, such as sponsoring a local sports team or funding scholarships, are wonderful, but they don’t go far enough and aren’t likely to last. Instead, companies must build deeper ties with the broader community, because those connections are integral to business survival during crises. This means developing relationships with local leaders within and beyond the corporate world and working across societal dividing lines instead of siloing within the “safest” segment of the community.

A cautionary tale comes from the Lake Toba region of Sumatra, Indonesia, where, around 2010, Starbucks started buying coffee beans from local farmers and sharing the profits from the resulting (and pricey) limited-edition product. Initially, community members we interviewed thought the project was promising. The U.S.-based coffee chain worked with the farmers on enhancing production, building their capacity, and improving the quality of their goods — the hallmarks of creating shared value. But by 2018 it all ended.

When Starbucks came in, it introduced CAFE Practices (industry standards for ethical sourcing) and paid a premium to its suppliers, some of whom got involved in politics with the money. But the “land mafia” — an extensive network of criminals and politicians with de facto control over the local farmland — reportedly countered the new threat to its power by destroying farms and threatening disappearances. As a result, we learned, some of Lake Toba’s most productive farmers stopped growing coffee.

Farmers and distributors told us that they think those operations could have been saved had Starbucks studied more about local politics, learned how to defuse the mafia’s influence, and worked with the growers. But that didn’t happen. And buyers for the company said they instead turned their attention to more productive valleys, depriving the local farmers of a promising livelihood and depriving customers of Lake Toba’s most exceptional beans.

Compare that story to another — this one involving the National Beverage Company (NBC) in the Palestinian Territories. In 1993, shortly after Israel and the Palestine Liberation Organization signed the Oslo Accords, CEO Zahi Khouri struck a deal with Coca-Cola to bottle and bring the iconic soda to Palestinians. It was a gamble. Through its 40 years of operating in Israel, Coca-Cola was loathed by most people in the Territories because it was seen as a collaborator with the occupation. Khouri’s timing was also terrible. While he was trying to set up NBC, a right-wing Israeli group assassinated Israel’s prime minister, triggering a violent Palestinian rebellion. The peace accords were in tatters, and each new attack jeopardized Khouri’s investment. But he pushed on with opening his bottling facilities, even as people told him it was financial suicide.

Today, after two intifadas, multiple failed peace negotiations, and intractable economic troubles in Gaza and the West Bank, NBC boasts more than $100 million in annual revenue and employs hundreds of Palestinians, all while indirectly supporting the livelihoods of thousands more through supplier and contractor networks. NBC was one of the only startups from that period that survived.

How did Khouri do it? He wasn’t harder-working or more ambitious than leaders and managers at other companies in Palestine at the time. But he was smarter about engaging key community leaders and building bridges. He leveraged his business experience with Western brands to persuade Israeli companies and officials to let him ship supplies through Israeli-controlled ports and border checkpoints. He then leaned on the trust he’d built with Palestinian leaders to get their help processing shipments and win their support for the operation, patiently explaining how it would provide jobs and a popular consumer product.

Khouri took major financial and reputational risks to engage with both communities. He could very well have been blacklisted by one or the other for “working with the enemy,” which could have meant losing both the substantial sum he’d invested and the relationships he’d spent years cultivating. But he didn’t shy away from those risks, and he was transparent about his plans. Everyone knew he was partnering with both sides (without favoring either one) to create something important.

Khouri’s example illustrates the first rule in the new crisis playbook: Leaders must gain the trust of all the stakeholders in the communities where they operate.

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Here is a direct link to the complete article.

John E. Katsos is an associate professor of business law, business ethics, and social responsibility at the American University of Sharjah, in the United Arab Emirates, and a research affiliate at Queen’s University Belfast. As a scholar, he has published dozens of academic and media articles, as well as reports for boards and international organizations. He has done fieldwork in Iraq, Lebanon, Cyprus, Syria, Sri Lanka, and Hong Kong and is considered one of the world’s leading researchers on business in crisis zones. As an educator, Katsos teaches undergraduate, graduate, and executive students in the United States, Europe, the Middle East, and Africa how to manage more ethical and sustainable organizations for a better world.
Jason Miklian is a senior researcher at the Centre for Development and the Environment, at the University of Oslo. He has published extensively on the topic of business and peace, including award-winning articles based on fieldwork in Bangladesh, Colombia, India, and the Democratic Republic of Congo. Considered a top global expert in the field of business, peacebuilding, and crisis, he sits on numerous boards and high-level expert panels. Miklian has also written for or been cited in an expert capacity by the New York Times, the BBC, Foreign Policy, The Economist, and other news organizations, and he is a coauthor (with Scott Carney) of The Vortex: A True Story of History’s Deadliest Storm, an Unspeakable War, and Liberation (HarperCollins, forthcoming).

 

 

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