Coronavirus, Bushfires, Depressions. And Their Lessons...
Normally, we plan for growth and success—not for depressions, bushfires or the Coronavirus. Yet, about every 5 years (in our experience) there is a significant externality that throws your plans out the window. Over 25 years, examples included the 1997 Asian currency crisis, 9/11, SARS, and the Global Financial Crisis (not to mention tsunamis, or the volcanic ash that cancelled a meeting of our network).
The most recent example is the Coronavirus—and I am reminded of the lessons we learned 17 years ago with SARS (Severe Acute Respiratory Syndrome). Surprisingly, this was one of our best learning experiences, and a validation that—by pure luck—we had chosen a fairly robust business model. Actually, it chose us. We didn’t have enough money for staff in every Australian state, let alone the 30-odd countries we eventually reached. Instead, we recruited independent local affiliates.
What we learned was revealing. Maybe it will help others. Let me trace the Confrontation, the Surprise and the Learning.
The business lounge of the Grand Plaza Hotel, Singapore is almost deserted on the evening of April 2, 2003. Doreen, the lounge manager, tries to look busy. Scott, the hotel’s G.M., joins me for a cocktail. We know each other well. This is my 46th stay.
He is worried. The hotel is losing money hand-over-fist because of SARS. It appeared around November 2002 in China, and spread rapidly across Asia. Travel and hotel bookings have plummeted.
Scott’s dilemma? Should he let staff go? If he doesn’t, the accounts will hemorrhage red ink and the shareholders will become very difficult. If he does, he will lose experienced staff and face the hassle of recruiting replacements at some time in the future.
Doreen is one of his best. She is a mother of three, and would happily take time off. But this is not attractive to some other staff. Hotel policy means Scott can’t offer individual packages. He has little flexibility.
Why am I here? The Singapore Institute of Management (SIM) is still running workshops, and I am due to start one the next day. Scott’s dilemma prompts me to check. They confirm it will run. I go out for dinner. On return, a message is waiting. The workshop is now off. Now, Scott empathizes with me over the futility of my trip to Singapore.
Next morning, Changi Airport is eerily quiet. The few flyers feel they are fleeing a ‘danger zone’.
More hazards arise in Sydney. My son and business partner, Peter, requests I wait before visiting my grandchildren. Makes sense to me. A colleague calls to ask if I still want to use his conference room next week. He seems uncomfortable, so we ditch that idea. I am a kind of social pariah until the incubation period passes.
SARS has a big impact. Income plummets by 50%. This is not something we’d spent a lot of time discussing in planning sessions! Fortunately, our fixed costs are low. But I worry about our independent affiliates. “How can we help them?”, I ask Pete. Sensibly, he suggests I call some to see how they are coping. I pick up the phone.
The results are surprising. Andrew, in Hong Kong, is pragmatic: “I’ve been so busy, Ken, that I am way behind. My website is out-of-date. My materials need revision. I have clients waiting for reports. I have plenty of things to do.”
Elizabeth, in Singapore, surprises me, too: “This is a God-given opportunity to refresh my spiritual life. I’ve neglected it because of so much work. I plan to spend my spare time in reflection, meditation and reading.” Wow! That’s unexpected, but clearly satisfying for Elizabeth. She is coping very well, thank you. And she appreciates my call.
Malcolm, in Australia, is laid-back and pragmatic. “I guess I’ll have to fly economy class now, and drink cask wine for a while.”
I couldn’t believe our good fortune! In the midst of this crisis, Scott’s options are limited. Doreen is suffering—demoralized and bored stiff. Meanwhile, our network, by and large, has hunkered down productively until the storm passes. Are we just lucky? Or is there something in our business model that buffers external threats like SARS?
I begin to see that, yes, there are advantages in our model. The independence enjoyed by affiliates means they immediately see it as their responsibility to decide how to respond. And each does, in their own way. Their reactions are a function of the next-best use of their time and values. The combined result is systemic advantage. In short, we all survive by absorbing the pain in our own way.
It now occurs to me that a sustainable business model is a major plus. I wonder if there is explanation for the robustness of our model? It turns out there is. The key is in the variety of responses available across the ‘system’.
For this insight, I thank Bernard Lietaer. An ex-senior executive at the Central Bank of Belgium, and named by Business Week as “the world’s top currency trader” in 1992, he is author of fourteen books, including The Future of Money. I was fortunate to be introduced to him.
Lietaer says: “A…breakthrough…now proves that all complex systems, including our monetary and financial ones, become structurally unstable whenever efficiency is overemphasized at the expense of diversity, interconnectivity and the crucial resilience they provide.” (Options for managing Systemic Bank Crises: Paper for the World Academy of Arts and Sciences, Hyderabad, India October 22, 2008.)
In other words, diversity and connectivity are the building blocks of resilience. Think back to my phone calls. Each affiliate responded in a way that made sense to them. Not all are individuals. Some are companies with 100+ employees. Nevertheless, in their diversity lies a previously unrecognized strength. If this diversity was previously judged in any way it was normally negative: inconvenient, messy and inefficient, as in “Why can’t we run the business exactly the same way in all places?” Sometimes, it was put more pointedly: “If we could own all these outlets, we could rationalize the systems, cut out overlap and make more money.”
There is nothing wrong with efficiency except to have too much of it. When times are good, when nothing is going wrong, when all the graphs go up, they go up faster in highly efficient systems. But when there is a crisis, they unwind even faster. There’s a trade-off that favors diversity. It makes systems more forgiving, more flexible and more sustainable. Variety, unpredictability and self-organization are characteristics of sustainable systems.
“Resilience is a network’s reserve of flexible fallback positions…that can be used to meet the exigencies of novel disturbances.” (Lietaer)
Scott’s system was efficient. The owners made sure of that. His key measures were occupancy, yield and profitability; in other words, throughput. But these were not balanced by measures of sustainability. It turns out, happily, that his hotel survived the crisis. But many organizations did not. Is that, ultimately, the worst kind of inefficiency?
For our part, the decision to take the network route—made solely because we didn’t have enough money to do otherwise—turned out to be fortuitous. It led us to appreciate the benefits of the networked organization model and, specifically, its resilience.
From Confrontation, to Surprise, to Learning: That was our journey. Perhaps it will help others.
And let’s hope the Coronavirus scare passes quickly!