Despite crises rising, firms are unprepared - Deloitte study

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Despite crises rising, firms are unprepared - Deloitte study

  • 60% of crisis management leaders believe they face more crises than ten years ago
  • 90% are confident of their capability to respond, but only 17% have simulated/tested their preparedness
  • Asia-Pacific, Middle East and Africa report more crises in the past two years than organisations in other regions and and have experienced more than one type of crisis.

11 July 2018: Despite organisations facing more crises today than ten years ago, almost all leaders overestimate their capability to respond. Tony Morris, Deloitte Australia crisis management leader said: “Organisations are keenly aware of the increasing threat of crises according to nearly 60% of respondents to a Deloitte global survey. Some 80% of organisations worldwide have had to mobilise their crisis management teams at least once in the past two years. Yet only 17% of the 500 senior crisis and risk executives we surveyed actually test their capability.

“From experience we know that it’s the ability to test, rehearse and simulate crises that ensure organisations are ready to respond with skilled leadership and plans that work,” Morris said.

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

“That goes for the external response in market with your customers, communities and third party providers, as well as, and often most importantly, internally, with your people and operators,” Morris said.

The Deloitte study showed that the top types of crises worldwide are cyber-attacks (46%) followed by safety incidents (45%). The findings in this Deloitte 2018 crisis management survey, Stronger, fitter, better: Crisis management for the resilient enterprise, build 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% chance of a company losing at least 20% 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% of board members said it took their organisations up to three years to recover reputation following a crisis. And 16% said it took four years or more. Financial and operational crises had similar long recovery times.

Managing Partner Risk Advisory Deloitte Australia, Dennis Krallis said: “In Australia almost 60% 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% of the businesses, it took more than four years to recover. These are serious statistics that do need to be taken very seriously,” said Krallis. “It is time to act.”

Confidence outstrips preparedness

In the face of these global findings, Deloitte noted it works with a variety of software companies including Noggin, which is launching a new crisis app to collaborate quickly and efficiently on a crisis.

James Boddam-Whetham CEO Noggin described the service as one with a pretty unique technology platform that helps organisations plan, practice and prepare for crises. “And so respond better to issues or threats. This makes sure leadership teams can intervene earlier to prevent crisis situations before they develop.

“It also means they can collaborate more effectively when they do occur, and so make vital decisions quickly using the best information, and so ultimately minimise the impact of any adverse event. The crisis may be internal or external, or triggered by an incident such as a cyber-attack, data loss, supply chain or natural catastrophe, or an issue like a global technology platform failure or poor conduct.

“The exciting element of this app is, it is not just reactive, responding to sudden, physical event type crises, but can help the Board and senior leadership team be proactive, and cater for issue management as well as sudden crisis style events.” 

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% of the organisations that conducted reviews after they had experienced a crisis.

“We know that platform delivered APIs are very useful in both responding to crisis and conducting simulation exercises. They do this by collecting data on the organisation, and pointing to which teams are available, where, and when,” said Morris.

He added: “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.”

Boards and business leaders must be crisis-ready

Krallis said: “Crisis management shouldn’t start with a crisis. Successful crisis management requires overcoming any biases to ensure that the board and senior management look closely at risks. Even those, and perhaps especially those, that they believe aren’t likely to happen.”

The Deloitte survey finds that nearly a quarter (24%) of respondents cite the effectiveness of leadership and decision making as one of their greatest crisis management challenges. “Board and senior management participation in crisis exercises is critical,” said Krallis. “The numbers tell us that four in five (84%) respondents with a crisis management plan in place, and who enlisted their Board’s participation, indicate their crises declined by 21% over the last decade, compared to just a 2% decline in those without board involvement.”

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. Recognising this, 59% of respondents say that 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.

Morris concludes: “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 organisations 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 organisation to emerge stronger.”

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