THE ECONOMIST: A manager’s guide to handling crises

No boardroom cliché is more hackneyed than the idea that this is the age of uncertainty. Annual reports and executive speeches repeat that things have never been less predictable, that crises have never hit with such force and frequency.

That might surprise people who had to cope with bubonic plague, ice ages, Vikings, world wars, colonisation and the rest. But it is true that managers everywhere have had to navigate unexpected events in recent years, and that crisis management — the subject of the latest episode of our Boss Class podcast — is a big test of a leader’s mettle.

One way to think about handling a crisis well is that managers have to resist their natural instincts. An obvious temptation, despite all the rhetoric, is to put off preparing for disaster. No company’s risk register would be complete without mentioning cyber-attacks. Yet a quarter of large British businesses still lack a formal incident-response plan in the event of one.

Table-top scenarios and planning workshops are not really about predicting the future. They are a way to hone thinking, to press organisations to articulate their guiding principles, to create the building-blocks from which an actual crisis response will materialise.

Paul Ingram of Columbia Business School tells the story of a former student who drew up multiple crisis scenarios in his role as a logistics commander for the US Navy in the Pacific; they included a tsunami, a nuclear accident and an earthquake. The fact that none of his scenarios envisaged all three occurring at once, as happened in Japan in 2011, did not make the exercise futile. Planning is not about “developing a complete response”, says Mr Ingram, but “elements that are going to be recombined into a pattern that suits the unexpected”.

When a crisis does strike, a second urge is to centralise: for bosses to set up command centres, form task-forces and start using words like “sitrep”. But by its nature, a crisis confronts organisations with novel, fast-moving problems. Previous experience counts for less; running things up the chain means delays.

In a paper published in 2015, Eric Anicich of the University of Southern California and his co-authors looked at the outcomes of more than 5,000 mountain-climbing expeditions in the Himalayas. Their conclusion was that climbers from more hierarchical cultures achieved more summits but also suffered more fatalities. Their explanation was that hierarchy enabled greater co-ordination in normal circumstances, but also meant people were less likely to voice concerns if they thought things were going wrong.

Svein Tore Holsether, the boss of Yara, a Norwegian fertiliser giant, is an advocate for a decentralised approach. The firm handed much more control to local managers to get through the initial phase of the COVID-19 pandemic, and found it worked so well that it reorganised along regional lines in May 2020.

Mr Holsether argues that this structure served the firm well again in early 2022, when it had to respond to another crisis — Russia’s full-scale invasion of Ukraine. Russia was a huge supplier of the raw materials that go into fertiliser; Ukraine was a big sales market. Local employees scrambled to change procurement deals, plant operations and distribution channels to cope; things did not need to go back to Oslo for approval.

When a crisis hits, a third instinct is to focus on getting through the immediate problem. But it pays for bosses to look ahead to a post-crisis future. When the pandemic took the wheels out from under Lime, whose bright-green e-bikes may well block a pavement near you, its boss, Wayne Ting, faced tough choices.

Plenty of people advised him, for example, to outsource the manufacturing of Lime’s vehicles in order to slash costs. He ignored them, because making the most durable bikes and scooters was critical to the firm’s long-term success.

Keeping production in-house was the best way to achieve that goal. “Whatever we cut,” he says of that period, “we don’t cut to the core because then we have nothing to come back from.”

Plan. Decentralise. Prioritise. As advice, this might seem clichéd, too. But it will make a crisis more navigable.