Brands and businesses are keenly aware of the increasing threat of crises, but display little indication that they are prepared to handle one, according to new research from Deloitte Global.
The tax advisory and consulting firm’s new crisis management survey, Stronger, Fitter, Better: Crisis Management for the Resilient Enterprise, finds nearly 60 percent of respondents believe that organizations face more crises today than they did 10 years ago, yet many may overestimate their capabilities to respond.
The study, which builds on the findings of its 2015 study, A Crisis of Confidence, surveyed over 500 senior crisis management, business continuity, and risk executives about crisis management and preparedness.
“Today’s organizations face a global business environment with change happening quickly and crises on the rise,” said Rhoda Woo, managing director in Deloitte & Touche’s Risk and Financial Advisory practice and leader of Deloitte’s crisis management practice, in a news release. “But those who take a systematic approach to steering clear of crises and effectively managing ones that do arise, especially by engaging senior management and board members, can avoid the devastating impact a crisis can have on financial performance, employee morale, sales and reputation.”
Confidence outstrips preparedness
This year’s study uncovered dramatic gaps between a company’s confidence that they can respond to crises and its level of preparedness. The gap becomes even more evident when evaluating whether organizations have conducted simulation exercises to test their preparedness.
Nearly 90 percent of respondents are confident in their organization’s ability to deal with a corporate scandal, yet only 17 percent of organizations have tested the assumption through simulation. The gap is reminiscent of the 2015 findings, which illuminated the fact that board members believed they could respond well if a crisis struck, yet playbooks of likely scenarios failed to exist.
Experienced a crisis before? Key learnings drive preparedness for the future
Eighty percent of organizations worldwide have had to mobilize their crisis management teams at least once in the past two years. In particular, cyber and safety incidents have topped companies’ crises (46 and 45 percent, respectively).
Many who have already experienced a crisis are learning from them. Following a crisis, nearly 90 percent of organizations have conducted reviews. The major insight from these examinations is that many crises may have been averted. This appears to prompt organizations to act to forestall future crises. Respondents identified the need to improve detection and early warning systems, invest more effort in prevention, and do more to identify potential crisis scenarios.
Boards and business leaders must be crisis-ready
When responding to a crisis, strong leadership skills and situational awareness are critical. The survey finds that nearly a quarter (24 percent) of respondents cite the effectiveness of leadership and decision making as one of their greatest crisis management challenges. To help leaders be prepared to navigate their organizations through a crisis, organizations should consider: organizing leaders ahead of time, clearly defining their various roles and responsibilities; training leaders in the tools and techniques that can help them through a crisis; identifying, improving and counterbalancing leadership tendencies and styles which, while they may serve as strengths in normal situations, could cause trouble in a crisis.
“The survey results reinforce the need for senior leaders to take an objective and detailed look at their organizational approach to crisis management,” said Deloitte Risk and Financial Advisory CEO Chuck Saia, in the release. “Today’s complex business environment requires a risk management program that’s agile, disciplined and proactive. Leveraging scenario planning like war-gaming and cognitive technologies like reputational sensing can strengthen crisis preparedness and protect reputation, one of an organization’s most valuable assets.”
Board and senior management participation in crisis exercises is critical, as is their involvement in developing an organization’s crisis plan. More than 4 in 5 (84 percent) respondents say their organizations have a crisis management plan in place, and those who enlist the board to participate say the number of crises has declined over the last decade (21 percent), compared to those without board involvement (2 percent).
Third parties are part of the problem—and the solution
Crises often emanate from the actions of third parties, such as suppliers and alliance partners, but the same third parties often play an important role in helping to manage and mitigate crises. Recognizing this, 59 percent of respondents say that they participate in crisis exercises with third parties, examine third parties’ crisis plans, or both. Bringing in outside organizations and coalescing internal teams is an important part of addressing, and potentially preventing, crises.
Crises aren’t inevitable. Many of them are avoidable, which is why smart business leaders invest in crisis management capabilities. These strengths can help their organizations avoid costly, and sometimes irreparable, damage to finances, employee morale, brand and reputation. Truly effective crisis management goes beyond being reactive and simply protecting existing value. It also enables resilience and powers future performance, thereby enabling an organization to emerge stronger.