How to Prepare for a Black Swan in strategy+business offers good advice to assess exposure to disruptive events, but misses key elements a strategy can and should cover.
In summary, the advice is [1] map the firm’s operations, supply-chain and sales channels [2] list potential disruptions [3] ask ‘what if’ these happen [4] set up contingency plans. Work on risk in utilities shows several additional strategy responses are both possible and desirable.
- Reduce the risk that an event will actually cause disruption, e.g. by investing in resilience. In utilities, critical equipment can be ‘hardened’ to make it less likely to fail if hit by a damaging event. Similar hardening investments can make supply chains, internal operations and distribution channels more resilient in other cases.
- Reducing the damage from any disruptions that do occur, e.g. by building in ‘redundancy’. In utilities, stand-by equipment at critical points can radically cut the risk of actual power cuts for a small incremental cost. In strategy, options for alternative supply-sources or distribution channels cut risk in a similar way.
- Minimising the time to recover, by making sure the business is not operating ‘on the edge’. In utilities, a small percentage of spare equipment or excess staff can radically cut the time needed to get service back online after a disruption. In strategy, obsessive ‘ratio management’ not only leaves business vulnerable to damage if disruptions occur, but make it that much harder to recover if they do.
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