Developing a Business Continuity Plan
Encouraging mental flexibility and resilience
Avoiding excessive concentration
Financial institutions are required to implement ‘Business Continuity Management’ implying a 'Business Continuity Plan' (BCP). Since the crisis of 2008, the rules to do so have become stricter. These days, we must take the drafting and updating of a BCP more seriously than ever and extend the practice to other industries and organizations. In doing so, excessive centralization and soft skills, in particular resilience, must receive emphatic attention.
Calamities happen more and more frequently. Covid-19 is a disaster beyond any category. The years before, we faced geopolitical tensions and tradewars. Rare events that come as a surprise and have a major impact are called 'Black Swans', as explained by Lebanese-American author Nassim Taleb. In 2007, this scientist and former derivatives trader wrote The Black Swan: The Impact of the Highly Improbable, a book that pays particular attention to the human tendency to retrospectively find simplistic explanations for these events.
To absorb shocks caused by highly unexpected events and safeguard their future, organizations should get a continuity plan. Business Continuity Management (BCM) is in fact a framework to reduce the potential financial, legal, operational and reputational impact arising from a crisis and to avert a disruption of key business activities. The Business Continuity Plan reflects a set of actions that organisations should take in order to keep on performing critical business activities.
In Belgium, the federal government has imposed additional obligations on the financial sector in the wake of 2008 credit crisis. Stricter provisions were introduced for the BCM including BCPs, Recovery plans and Resolutions plans. A BCP maps and analyses the processes and activities. It takes into account the plausible scenarios to which an organization may be vulnerable. The plan includes the measures to be taken in a crisis situation for the organization to continue functioning. These measures relate to systems, activities and people. A BCP should be tested and if necessary adapted on a regular basis. Maintenance of the plan is important.
Practice shows that such plans do not pay enough attention to the mental flexibility that employees need in unpredictable situations. The Corona crisis once again shows that this flexibility is by no means a superfluous luxury.
Being able to anticipate without slowing down the development of the organization is a balance that we need to find more and more
Soft skills such as resilience, analytical skills and a critical attitude have become increasingly important. Being able to react appropriately to events is no longer enough. It all comes down to early detection of upcoming events and taking appropriate action on the basis of incomplete information. Being able to anticipate without slowing down the development of the organization is a balance that we need to find more and more. Self-directed and autonomously working teams, where the right and flexible mindset prevails, are best able to do so.
Working in a network organization where knowledge sharing is the rule increases the performance of those teams. In a global, strongly interconnected world where the 'Butterfly effects' occurs more frequently, having major consequences on all continents, knowledge sharing is actually a necessity. Perhaps the 'Pangolin effect', named after the scaly anteater that would have caused the Corona crisis, will also be mentioned from now on.
In addition to taking soft skills into account as critical factors for success, the danger of excessive concentration, also in the way of working, deserves ample attention. The globalisation of the economy is a good thing, but it can tip over. The Corona crisis, for example, shows that we became too dependent on certain regions in the world for strategic goods.
At the level of an organization, it is dangerous to rely too much on one customer or one supplier. Depending on one supplier is a strategic risk and a strategic management failure. Nor is tight, hierarchical and centralized leadership a good thing in a world where change is happening faster and faster. These are considerations that should play a prominent role in thinking exercises intended to ensure the continuity of an organization.
The globalization of the economy is a good thing but it can tip over
A crisis has three phases. First, it comes down to holding out. Absorbing the first shock, in which a lot of attention goes to guiding the teams. In phase two, there are actions to deal with the problems, such as the lack of liquidity. Structural reforms based on the lessons learned from the crisis are carried out in the third and final phase. All this requires resilience and flexibility in an organisation, which has the task of training and helping people in it.
Never waste a good crisis is not only a truism. We must learn lessons from the Corona crisis and use it as a catalyst for necessary change. Today, banks and insurance companies are in a stronger position in the storm because of the adjustments they made in the wake of the financial crisis.
Organizations are overwhelmed by the amplitude of the current crisis and its consequences. All the energy goes to staying afloat. Eventually the Corona storm will calm down and organizations will be aware that there should be given a lot more attention to Business Continuity Management. We as TriFinance are ready to help our customers to do so and together come to the best elaborated policy for them.