COVID-19: The lessons for business preparedness, resilience and business continuity
The coronavirus pandemic (COVID-19) has caused unprecedented political, economic and social disruption and it is now considered the biggest threat to the global economy since the financial crisis of 2008. (Hutt, 2020). Already, the resulting impact is being compared to that experienced during periods of protracted global conflict, particularly in terms of the implications on societies and personal freedoms (Yu & Aviso, 2020; Segal, 2020; BBC, 2020a). This direct disruption is likely to continue for some considerable time (with estimates ranging from many months to at least a year), although the ramifications in terms of issues such as consumer/customer confidence, supply chain resilience, economic prosperity and social cohesion will be felt for many years (He, 2020; J.P.Morgan, 2020). Many Governments already view COVID-19 as a national security threat, demonstrating a willingness to use legislation to robustly enforce compliance measures (Mansdorf, 2020).
This paper will examine the impact on business (taking a UK-centric perspective) in order to consider if the COVID-19 outbreak could have been reflected within corporate risk management and contingency planning approaches (Alexander, 2002). In doing so, it is argued that whilst the specific nature of the virus outbreak may have been difficult to predict, effective business continuity planning and a focus on corporate resilience could have anticipated and mitigated the impact (Borodzicz, 2005).
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COVID-19: Risk and Impact
Due in part to inadequate initial risk assessments, the nature of globalisation and the early concentration of the virus within one Chinese province, COVID-19 has spread for more rapidly and extensively than either SARS (Severe Acute Respiratory Syndrome) or MERS (Middle East Respiratory Syndrome) (Peeri, Shrestha, Siddikur Rahman, Rafdzah, Tan, Bibi, Baghbanzadeh,, Aghamohammadi, Zhang & Haque, 2020). A debate exists as to whether this is a specific risk that could have been anticipated (and planned for) by corporate entities, or if this outbreak should be seen as a totally unanticipated force majeure event (Bennett, 2017; Monto & Fukuda, 2020; Scott, Wilson & Baker, 2018). This focus could call into question the efficacy of corporate risk management approaches in that, arguably, it is impossible to identify and anticipate every event likely to have an adverse impact on business operations (Haimes, 2016). However, adopting a different perspective and considering risk issues in terms of impact rather than cause is more likely to result in the creation of corporate contingency plans with much broader utility (Hubbard, 2009).
In extremely simple terms, the direct impact of the current COVID-19 outbreak has been to deny access - access to consumers/customers, access to resources, access to supply chains, access to staff and access to infrastructure (BBC, 2020b). These constraints have also been exacerbated by Government policies aimed at slowing the spread/rate of infections to ensure that national response capabilities (such as the National Health Service (NHS)) are able to cope with anticipated demands (Monto & Fukuda, 2020; BBC, 2020b). However, these access issues when considered in impact terms may not necessarily be unique (Hillson, 2016). For example, several businesses affected by recent UK floods will have lost their business premises and stock and been unable to engage or retain staff due to loss of footfall and direct customer access (BBC, 2020c). Associated businesses outside of the area may have experienced supply chain disruptions if sole suppliers were in the flood affected zones (Andreoni & Miola, 2015).
The major indirect impact of COVID-19 has been the loss of confidence, reflected in consumer concerns over the ability of modern, lean-focussed supply chains to meet demand during a period of national and international crisis (Hillson & Murray-Webster, 2007). The protracted impact of the restrictions put in place also undermines broader confidence in relation to future personal wealth and the willingness to commit to more discretionary spending (Farlow, 2013). Again, these impacts are not limited to COVID-19 and could be considered corporate risks that may have manifested themselves under different scenarios (Schwab, Sandler & Brower, 2016). For example, the loss of consumer confidence in the UK's meat supply chain in 2013/2014 following the Food Safety Authority of Ireland (FSAI) report identifying horse meat in frozen products (O'Mahony, 2013). The financial crash of 2008 and the protracted economic impact that resulted significantly reduced UK discretionary spending, driving those companies unable to adjust their product/service offerings out of business (Farlow, 2013).
Reaction versus Preparedness
The UK Government is supporting businesses with a range of mitigation measures (UK Government, 2020a). These seek to protect employment and provide the financial and associated guarantees needed to sustain the corporate infrastructure of the nation (UK Government, 2020b). Such interventions will be essential if the current national shut-down is not to become the precursor to an extensive and protracted period of recession (Farlow, 2013; Yu & Aviso, 2020). The intervention measures will continue to evolve to reflect the emerging requirements presented by the pandemic and it can be argued that the UK Government's ability to respond in such a manner demonstrates the effective use of well-rehearsed risk and crisis management capabilities (Walker & Broderick, 2006).
However, whilst the Government demonstrate a significant element of preparation following a risk management and mitigation strategy built upon scientific evidence, the private sector appears to be more reactive in its response (Haimes, 2016). Where measures have been implemented, these have largely been to focus on one route to market over another e.g. restaurants providing delivery and takeaway services (McDonalds, 2020). Many commercial entities found that they had to limit trading even before the imposition of Government restrictions due to factors such as staffing shortages and decreased revenues due to reduced consumer footfalls (Lanktree, 2020). Whilst a Government direction to cease trading cannot be circumvented without significant sanction and censure, prior to this notification it may have been possible to review the impact of COVID-19 in other markets (e.g. China and Italy) and develop more proactive management and mitigation measures (Economist, 2020).
It is recognised that the impact of the COVID-19 pandemic is exacerbated by three key factors - the speed at which the virus is able to spread internationally, the focus on ‘leaning' supply chain operations to maximise operational efficiencies and reduce costs and the globalised nature of supply chains (Hutt, 2020; Chopra & Meindl, 2007). Whilst supply chain resilience measures are in place, these focus on supply continuity measures such as quality, cost, and responsiveness, alongside improved pan-supply chain visibility to address social responsibility concerns (Blowfield & Murray, 2014; Blanchard, 2010). These lean supply chains have been challenged by the unanticipated surges in demand (panic buying) and key point vulnerabilities (e.g. losing distribution capabilities due to staff illness and directions to self-isolate) (Chopra & Meindl, 2007).
Lessons for Corporate Resilience and Business Continuity
In terms of corporate resilience, the COVID-19 outbreak appears to have reinforced the importance of corporate incident management systems (IMS) address operational impacts rather than causes (Dillon, 2014). Even a small business entity should be able to identify those regarded as ‘key workers' in the company and what to do if and when these vital personnel become unavailable (Alexander, 2002). Whilst the sheer scale and nature of COVID-19 could reasonably be regarded as a high-impact, low probability event in risk management/evaluation terms, such approaches may have helped to keep businesses operating for longer in the earlier phases of the pandemic (Crandall, Parnell & Spillan, 2013).
The focus on lean supply chains must now be critically reviewed to introduce a broader perspective that considers resilience, agility and adaptability (Blanchard, 2010). Whilst such a review will not resolve immediate operational restrictions as a result of COVID-19 containment efforts, it is important in terms of post-event recovery and corporate resilience in the face of a similar scenario in the future (Crandall et al, 2013). Those entities whose streamlined supply chains resulted in an almost exclusive reliance on Chinese manufacturing and distribution capabilities found themselves to be much more vulnerable in the early phases of the pandemic (Economist, 2020). Also, considering parallel or alternative supply chains that are focussed on local/regional sources can reduce these operational risks in the face of national restrictions such as those initially implemented in China (Chopra & Meindl, 2007). Such a policy revision could also add value by meeting stakeholder concerns around sustainability, social and environmental issues (Blowfield & Murray, 2014). Also, if such changes to supply arrangements are potentially offsetting any additional costs involved (Henry, 2018).
As well as considering supply chain operations from a sourcing perspective, the impact of COVID-19 means that it is also appropriate to consider challenging lean policies around stock holdings (Slack, Brandon-Jones & Johnston, 2016). The pandemic is providing vital corporate data around consumer behaviours and purchasing patterns at a time of particular stress (Lanktree, 2020). This information should be used to consider where supply chain weaknesses emerge and what needs to change to address them (Bennett, 2017). Whilst it is not argued that this should become routine practice (given the costs and inefficiencies involved), putting in place call-off contracts which can be activated early when similar threats being to emerge in the future would enhance resilience (Chopra & Meindl, 2007).
The ability to provide consumers with extensive choice has been a point of competitive advantage for many businesses, using brand loyalty and targeted marketing efforts to leverage associated purchasing power (Henry, 2018). However, as demonstrated by the rapid acquisition of market share by discount supermarkets following the 2008 financial crisis, competitive positioning built around brand(s) is eroded quickly at a time of consumer stress (IBIS World, 2019). More fundamentally, when these changed purchasing habits meet immediate consumer/customer requirements these behaviours become engrained (as evidenced in the established presence of these discount supermarkets) (IBIS World, 2019). Consequently, companies must also look at stock rationalisation (e.g. sourcing the same product staple from a range of local suppliers, rather than different brand versions from extended international supply chains) (Blanchard, 2010). Examples could include the supply of just two versions of bread during a crisis - non-branded sliced brown and sliced white - rather than the current extensive selections (Slack et al, 2016).
The most effective risk mitigation and business resilience/continuity measures which are emerging during this COVID-19 outbreak address the challenges of access highlighted (Haimes, 2016). Those businesses with several routes to market (e.g. internet sales portals as well as stores) and who have flexible working systems that maintain productivity from alternate locations (e.g. home working) have proven more resilient in facing the challenges presented (Slack et al, 2016). Reviewing the capabilities and operating practices needed to enable such access is vital, as is identifying the critical vulnerabilities that would undermine these more flexible approaches (Hillson, 2016). These could include factors such as data storage and considering if cloud-based solutions are more resilient, the support and tools needed by staff to deliver more resilient business operations (e.g. laptop computers rather than static office desktops, the provision of high-speed internet at home as an employee benefit) and rehearsing operational revisions (e.g. video-conferencing to maintain social distancing) (Dillon, 2014). Examining the potential answers to relatively simple questions such as “what do we do if we can't work from here?” or “how do we reach customers if they can't come to us” often provide the essential insights needed to craft robust business resilience strategies (Alexander, 2002).
Even where such options are not realistic for the commercial entity concerned (such as a supermarket designated a critical business for the supply of essential goods), the ability to access replacement personnel efficiently and quickly during a pandemic is a key business continuity requirement (Borodzicz, 2005). Whilst it is hoped that these measures would be unusual, companies should consider the use of relevant ‘keeping in touch policies' with ex-employees so that they can mirror the call to suitably qualified personnel currently being undertaken by the NHS (BBC, 2020d). At the very least, rapid recruitment policies should exist so that revised approaches can be activated quickly, especially as competitors will also be wishing to take forward such actions (Alexander, 2002).
Summary and Conclusions
Despite it being a very low-likelihood event in risk management terms, the COVID-19 outbreak is not unique when considered from the perspective of business impact given the nature of past pandemics (such as the 1918 Spanish Influenza), global conflicts and climate events (such as the Australian fires). What may be unique is that UK businesses no longer have the luxury of being able to consider such issues as factors that happen elsewhere, especially given the globalised nature of modern corporate relationships. Also, whilst this initial outbreak could be regarded as an extremely unusual or unanticipated event, the risks of it being replicated in the future now appear to be much higher.
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Given these factors, UK businesses must take a much broader perspective of risk management and consider mitigation strategies that address these low probability, high-impact events. COVID-19 has exposed particular supply chain and operational weaknesses that must be addressed within business resilience and continuity plans. Whilst the future causes of disruption may be difficult to predict, the business effects of a major incident can be anticipated. At the very least, a renewed focus on resilience and the delivery of more robust operational practices must challenge deeply-embedded lean management attitudes.
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