In today’s rapidly changing and increasingly complex business landscape, the once-rare ‘black swan’ events – a term popularised by renowned Lebanese-American mathematical statistician and author Nassim Taleb as a metaphor for high-impact events that are difficult to predict under normal circumstances – have become an ominous regularity. These high-impact, unpredictable disruptions, akin to the financial crash of 2008 or the more recent tremors arising from climate change, have reframed how the playbook for business continuity is being written.
Hence, embracing a proactive ‘just-in-case’ mindset rather than relying solely on ‘just-in-time’ measures emerges as a key continuity strategy.
How businesses can build crisis preparedness
There are several steps that businesses can take to build crisis preparedness. These include:
Conducting an environmental scanning and vulnerability assessment: Identifying the potential crises that could affect your business is the first step to preparing for them. This involves assessing your business’ vulnerabilities and developing plans to mitigate those risks.
Developing a crisis management plan: A crisis management plan outlines the steps that will be taken when a crisis occurs. This plan should include clear roles and responsibilities, communication protocols, and procedures for handling different types of crises.
Ensuring internal and external stakeholders are informed: This can be done through crisis training to help employees, as well as with key internal and external stakeholders, understand their roles and responsibilities in the event of a crisis. It also teaches them how to identify and report potential crises, and how to respond effectively when a crisis occurs.
Testing your plans: Regularly testing your crisis management plans is essential to ensure that they are effective. This can be done through tabletop exercises or simulated crisis events.
Resolution planning builds financial system resilience
Businesses do not exist in a vacuum; a robust financial system is vital for thriving businesses. Hence, a resolution authority, such as Perbadanan Insurans Deposit Malaysia (PIDM), is vital to ensure that financial systems continue to be resilient in the face of uncertainties.
PIDM takes a three-pronged approach that involves its own readiness, readiness of financial safety net players, as well as member institutions and service providers to build collective resilience. As the resolution authority for its member institutions, PIDM also aims for each one to be ‘resolution ready’ by building customised resolution plans or ‘living wills’ that set the strategy and operational processes of how a member institution will be managed just in case it fails.
By identifying and addressing impediments to resolution, be it institution-specific or industry-wide impediments, PIDM can put in place the necessary capabilities to carry out a prompt and effective resolution should such need arise.
Ultimately, PIDM’s goal is for member institutions to achieve a state of ‘transfer readiness’ – a resolution strategy that involves the sale of either assets and liabilities or shares of a failed member institution to either a third-party acquirer or bridge institution owned by PIDM. As a strategy, it confers numerous advantages such as ensuring continuity of critical functions, minimising disruptions, protecting depositors and preserving public confidence, which essentially makes up PIDM’s resolution objectives.
For SMEs, a similar approach could entail mapping out strategies for business continuity, asset protection and customer retention in times of unforeseen disruptions.
Not a zero-failure regime
The approach to resolution planning emphasises preparedness without seeking a zero-failure regime. Such a regime would stifle financial institutions’ risk-taking capabilities, hindering growth and innovation. Instead, fostering greater collective resilience becomes pivotal against unforeseen risks.
SMEs, similarly, shouldn’t aim to eliminate risks but should focus on fortifying their businesses against potential disruptions.
Conclusion
In essence, while SMEs may not operate in the same sphere as financial institutions, the principles of crisis preparedness are universally applicable. By adopting a proactive approach, learning from past crises, and fostering collaborative resilience, SMEs can arm themselves against unforeseen storms, emerging not unscathed, but stronger and more resilient.
