Planning in good days paid off in crisis
If the unimaginable happens to your company, how will you respond? While there is business optimism across the UAE and much of the Gulf, there remains caution, given questions about financial stability in Europe and the US. After all, leaders are wary of the prospect of crawling through another period that is like the past three years.
These days, many are grappling with questions such as: what will the repercussions be if the euro zone's economy crumbles back to the pre-EU days? What will happen to your business if it is faced with another set of unexpected events?
Such events can have an extreme impact. The essayist Nassim Nicholas Taleb calls these high-impact, unexpected events "black swans". While we hope we will not be faced with another round of black swans, we need to learn and apply the lessons of the last global financial crisis.
Across the region, the two primary black swan responses have been for leaders to stick their heads in the sand and act as if nothing will happen, or to believe they are too big to be harmed. But good leaders need to prepare for the worst. The probability is high that an unimaginable event will happen at some point. Therefore, leaders need to be prepared to respond in time. But relying on risk management systems is not enough, because they do not predict the rare event that can bring a business to its knees.
Leaders also need to plan for the future while a business is strong, preparing for growth and being ready with a response in case the market takes a turn for the worse. Leaders need to excel at "what if" scenario planning. During the boom in 2005, and well before the financial crisis was even speculated about, one company was creating a "what if" plan and preparing for the worst. Caterpillar, a US manufacturer of heavy earth-moving machines, was busy planning for a bust, knowing the volatility of its market and that the impact of a downturn could be enormous.
Each of Caterpillar's business units was required to prepare a strategy to model the worst trough in that unit's history and say how it would make money if that trough emerged. When the most recent recession hit, all that Caterpillar executives had to do was pull out their trough plans and put them into action. Each business unit went into crisis mode, which resulted in record growth.
Last year, Caterpillar was the best-performing stock among the 30 companies in the Dow Jones Industrial Average. How did a company that requires huge sums of financial capital, and whose products are expensive investments that last for years, outpace even businesses such as Apple? It planned for the unimaginable.
Unfortunately, there seems to be an aversion to "what if" planning across the region. While we can hypothesise about why this aversion exists, we would be better off investing that time in planning for that rare rainy day. Dr Tommy Weir is an authority on fast-growth and emerging market leadership, author of The CEO Shift and the managing director of the Emerging Market Leadership Center.