Despite crisis rising, firms are unprepared – Deloitte study

Tony Morris, Deloitte Australia crisis management leader reveals that according to a recent Deloitte global survey of all industries including financial services, some 80 per cent of organisations worldwide have had to mobilise their crisis management teams at least once in the past two years.

In our region of the Asia-Pacific, as well as the Middle East and Africa, there have been more crises in the past two years than in other regions. Our region also experiences more than one type of crisis. And 60 per cent of the 500 senior globally based crisis and risk executives surveyed believe they face more crises today than 10 years ago.

Yet despite the fact that 90 per cent of organisations are confident of their capability to respond to a corporate scandal, only 17 per cent actually test their capability.

We know from experience that it’s the ability to test, rehearse and simulate crises that ensure organisations are ready to respond. They need skilled leadership and plans that have been tested, are understood and work.

That applies to the external response in the market with customers, communities and third party providers, as well as, and often most importantly, internally, with employees and operators.

Being prepared is critical and knowing how best to deal with incidents or issues led crises, and how to respond to them swiftly and appropriately, are all skills necessary to successfully protect customers, employees, operations, and of course, reputation and brand.

What are the most common type of crises?

The Deloitte study showed that the top types of crises worldwide are cyber-attacks (46 per cent) followed by safety incidents (45 per cent).

The findings in this Deloitte 2018 crisis management survey, Stronger, fitter, better: Crisis management for the resilient enterprise, built on those of the comprehensive Deloitte’s 2015 study A crisis of confidence.

That report showed that the organisations that take a systematic approach to avoiding potential crises are adept at crisis management and can swiftly manage those that happen. The result is better care of their clients and better value in market.

The stark fact – according to the Oxford Metric and Aon Reputation Review – is that there is an 80 per cent chance of a company losing at least 20 per cent of its value (over and above the market) in any single month over a five-year period, due to the impact of a crisis on reputation. And in each case researched, the value loss was sustained.

The Deloitte Crisis of Confidence survey also revealed that 70 per cent of board members said it took their organisations up to three years to recover reputation following a crisis. And 16 per cent said it took four years or more. Financial and operational crises had similar long recovery times.

In Australia almost 60 per cent of big businesses surveyed said it took them between one and three years to recover both their business’ reputations, as well as their operations. Half of the board members said it took the same time for financial recovery. For 10 per cent of the businesses, it took more than four years to recover.

Experienced a crisis before? Key learnings drive preparedness for the future

The Deloitte report found many crises could have been averted according to almost 90 per cent of the organisations that conducted reviews after they had experienced a crisis.

Given the need to improve detection and early warning systems, and we now know, invest more effort in prevention, it pays to be able to do more to identify potential crisis scenarios. We now know that platform delivered APIs are very useful when it comes to responding to crisis and conducting simulation exercises. By collecting data on the organisation, and pointing to which teams are available, where, and when, is the value of working with software companies.

Deloitte, along with many other large organisations, works with a variety of such companies including Noggin, which is launching a new crisis app to collaborate quickly and efficiently on a crisis.

Boards and business leaders must be crisis-ready

Crisis management shouldn’t start with a crisis. Successful crisis management requires overcoming cognitive bias to ensure the board and senior management look closely at risks. Even those, and perhaps especially those, they believe are unlikely to occur.

The Deloitte survey found that nearly a quarter (24 per cent) of respondents cited the effectiveness of leadership and decision making as one of their greatest crisis management challenges. To this end four in five (84 per cent) respondents had a crisis management plan in place. And they reported that those that enlisted their Board’s participation, indicated their crises declined by 21 per cent over the last decade, compared to just 2 per cent for those without board involvement.

Third parties are part of the problem — and the solution

Crises often emanate from the actions of third parties (also known as the extended enterprise of an organisation) such as suppliers and alliance partners, but the same third parties often play an important role in helping to manage and mitigate crises. Recognising this, 59 per cent of respondents say they participate in crisis exercises with third parties, examine third parties’ crisis plans, or both. Bringing in outside organisations and coalescing internal teams is an important part of addressing, and potentially preventing crises.

To conclude

Not all crises are inevitable. Many of them are avoidable and those that aren’t need to be proactively managed, which is why smart business leaders invest in crisis management capabilities. These strengths can help their organisations avoid (or at the very least minimise) costly, and sometimes irreparable damage to finances, employee morale, brand, and reputation.

This article was first published in Asia-Pacific Banking & Finance.

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