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.
Normally, we plan for growth and success—not for depressions, bushfires or the Coronavirus.
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.
There is nothing wrong with efficiency except to have too much of it.
“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!
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Great piece, Ken! This has inspired Shanghai-based me to arrange calls with my network of partners around APAC. I will share your article as a precursor to the call.
Secondly, I really identify on a personal level due to my current experience dealing with the coronavirus. I have been less efficient - zero sales, zero client visits, zero workshops delivered - but have been very effective - new course design, catching up with passion projects, learning new skills (mainly related to virtual workshop deliveries).
I am also wary of taking on tasks simply to fill time and to feel busy. I am trying to focus on work that can bring value to the clients, whenever they reappear over the horizon.
Interesting piece, Ken. The statement that struck me most was "In other words, diversity and connectivity are the building blocks of resilience."
I can't recall how People Potential weathered the SARS epidemic, but somehow we did manage it without retrenching anyone. But I do recall that for the 1997 financial crisis, the Think On Your Feet(R) network helped us pull through. Or more precisely, you noted that one member, Magdalene Sik, needed a trainer and then you connected the two of us. That partnership outlasted SARS by a few years. :-)
Great read, and it reminds me of the concept of antifragility of Nassim Taleb.
I am currently working on my thesis on the exact topic and I wondered whether you would have the time for a quick chat about it. It would help me tremendously.
I have send you a connection request on Linkedin, hope you can reach out to me that way!
Reply to Terry Netto's comment:
Terry, The Asian Financial Crisis (1997) situation you refer to created an 'arbitrage opportunity' (taking advantage of different prices for the same asset).
A Singapore customer needed our services, but his budget was cut due to the crisis. While the Singapore dollar went down, the Malaysian Ringit plummeted much further!
The genius our Singaporean colleague came up with was to sub-contract a facilitator from Malaysia (at his full Ringit rate) and deliver the saving the client needed. All parties benefited!
So good - I am sharing this article with my team. Our focus has been on how we communicate with compassion. I offer this article for the community. https://next-element.com/how-to-communicate-with-compassion-during-crisis/
Thank you Ken and Nate for your articles which took me off into almost 2 hours of Sunday reflection lah lah land! I know about more about your company Nate, philosophy and book. Both articles, reinforced my decisions to focus on the power and potential of community and the validated an email I send to a few key clients with a message of compassion and empathy in January as CV was breaking. It spurred me to action a further idea on the offerings I have through CatalystHk on resilience, positive leadership impact and contribution. Thank you
A very perceptive article, Ken. Two thngs come to mind - "The first thing we learn from history is that we never learn from history." Oft quoted but not sure of the derivation.
The other is more practical. Institutions funded by governments are constantly required to deliver "efficiency dividends". Which really translates into organisations (such as the ABC) cutting services, and which, in this environment, turn out to be essential to a functioning democracy.
Best wishes to toyfnet when we see the light at the of the tunnel.
We first visited Haier headquarters in Qingdao, China in 2017. We enjoyed an extended conversation with CEO Zhang Ruimin. He told us "there is no such thing as a successful company. There are only companies that move with the times". Those words intrigued me. In hindsight, I never truly understood them. Now I think I do. Let me explain.