10 Reasons why your business is in trouble due to unexpected events and what you can do to prevent it.

VUCA & BANI

In today's rapidly changing world, "change" is no longer the exception, but rather the norm. The business environment has become extraordinarily complex, steeped in uncertainties, and clouded by ambiguities. This is often described as a VUCA situation, an acronym that stands for Volatile, Uncertain, Complex, and Ambiguous. Yesterday's certainties evaporate one by one and never return. In fact, this dynamic has led to what experts call a "BANI" condition, which stands for Brittle, Anxious, Non-Linear, and Incomprehensible.

In this VUCA world, companies often find themselves in BANI conditions. As a business leader, you may feel that control of events is slipping out of your hands and that you are being swept away by the waves of change, complexity and uncertainty caused by a constant stream of unexpected events. This puts companies in trouble for several reasons. Let's explore some of the key factors that can affect this.

1.????? The effect of uncertainty on your goals:

Business operations typically operate in an environment permeated by uncertainties and a range of risk factors. Unexpected events, such as economic recessions, natural disasters, political shifts, and pandemics, can abruptly disrupt business operations and expose them to various losses. Suddenly, these unexpected events can jeopardize your business goals, resulting in a cascade of negative consequences that can seriously threaten the continuity of your business.

2.????? Limited resources:

Companies operate within the confines of limited resources, of which capital, labour, and technology are the backbone. But in a world full of unpredictability and contingencies, this delicate balance can quickly falter. For example, imagine you're a successful manufacturer, relying on global supply chains and advanced technology to manufacture your products.

Suddenly, a natural disaster, such as an earthquake in a major manufacturing region, paralyzes your supply chain. Raw materials are becoming scarce, and costs are skyrocketing. Moreover, due to economic uncertainty, consumers are starting to spend less, which further reduces the demand for your products. The result is a cascading effect that erodes your operational efficiency and jeopardizes your profitability.

Then imagine that you do not have sufficient financial reserves to cope with this crisis, or that you do not have the flexibility to quickly find alternative sources of supply. In such a situation, the lack of resources can be fatal. The importance of being adequately prepared for unexpected events and having a well-thought-out crisis management plan becomes clearly visible.

3.????? Dependence on external factors:

Many companies rely heavily on external factors, such as suppliers, customers and markets, to make their business run seamlessly. For example, imagine a company that relies on multiple suppliers for the supply of essential components. If one of these suppliers is suddenly hit by an unexpected event, such as a prolonged strike or a sudden bankruptcy, it can set off a chain reaction. Disrupting the logistics chain of these components can then lead to production delays, shortages and ultimately to loss of market share. This example illustrates how a single weak link in your supply chain can lead to a domino effect that can jeopardize your entire business. Companies today are increasingly facing serious challenges of contingencies that they must address quickly in order to survive.

4.????? Lack of preparation:

It happens that companies are insufficiently prepared for unexpected events. This can often be attributed to a combination of a lack of effective risk management, inadequate financial reserves, and inflexibility in their business model.

For example, imagine a company that has optimized its operations for maximum efficiency and profitability. This may include minimizing financial reserves to keep costs down. One day, an unforeseen event occurs, such as a major accident or an unannounced strike, causing production to drop for days. Until then, this event may lead to significant operational disruptions and loss of revenue for this company. The lack of financial reserves and the inflexibility to respond quickly to this unexpected event can leave this company vulnerable to financial problems and threat its business continuation.

This illustrates the importance of adequate preparation for unexpected events, as they can not only jeopardize operational continuity, but also seriously threaten the financial health of a company.

5.????? Natural disasters:

Earthquakes, floods, hurricanes, and other natural disasters can cause significant physical damage to property and critical infrastructure. Such natural disasters often come unannounced and can have devastating consequences. Take, for example, a situation where your business is located in a region that historically hasn't been prone to severe flooding. You may never have considered developing comprehensive contingency plans because the likelihood of such a disaster seemed low.

However, in a world ravaged by climate change, extreme weather phenomena such as sudden downpours and floods are occurring more and more frequently. Imagine that your company is not prepared for such an unexpected event. The consequences could be disastrous. Your business environment and nearby infrastructure can be severely compromised. You may not be able to keep your employees safe or protect critical assets.

A lack of well-thought-out contingency plans can lead to crucial decision-making errors in such cases. This can not only cause financial losses, but even put human lives at risk. In the worst cases, this can mean the end of your business, as recovery from such setbacks is sometimes impossible without appropriate preparation and response to natural disasters. It highlights the importance of proactive measures and contingency planning to ensure the resilience of your business.

6.????? Customer behaviour:

Another type of unexpected event that can have significant consequences for your business is a change in consumer behaviour. Take an economic downturn, for example. During such a period, consumers often adjust their spending patterns, which can directly affect the demand for products and services. This means that what was popular yesterday may no longer be in demand today. It's even possible that your product or service will become obsolete, and demand will steadily decline, leaving your business vulnerable to market changes.

Let's look at the example of the film industry to illustrate. Previously, physical DVDs and moviegoing were the norm. However, with the rise of streaming services, consumers' viewing habits changed dramatically. Companies that did not respond to this trend in time were trumped by rapidly changing consumer preferences and ran into difficulties. This illustrates how the unpredictability of consumer behaviour and rapidly changing market trends can force companies to adapt to stay relevant.

Therefore, in a world characterized by continuous innovation, the ability to think ahead and constantly adapt your offerings is crucial to staying competitive and keeping your business on track. It means being willing to rethink your business strategy, invest in research and development, and proactively respond to changing consumer trends to maintain your place in the market.

7.????? Legal and regulatory changes:

In our increasingly globalized and hyper-connected world, awareness is growing about the harmful effects of certain business practices on society. The era in which entrepreneurship was the 'Wild West' is far behind us. Today, virtually every aspect of business is cast in a web of regulations to guide and control the impact of business activities on society.

Compliance with these regulations is critical, as your company's "license to operate" can be at stake. Let's clarify this with an example:

Imagine that you have a company dedicated to the production of electronic devices, and you have a strong position in the market. You have always operated profitably by using cheap raw materials and efficient production processes. Everything seems to be running smoothly until unexpected legislative changes are made, imposing new environmental standards and labour regulations. These require you to adapt your production processes to meet the stricter standards, which entails significant additional costs.

Failure to comply with these new regulations can have serious consequences, ranging from fines to legal disputes and public outcry. In short, your "license to operate" is under threat. To save your business, you need to invest in more environmentally friendly technologies and improved working conditions, which can erode short-term profitability.

This example illustrates how unexpected changes in laws and regulations can force companies to adapt their business practices, which comes with significant costs and potential profit decline. In the worst case, failure to comply with these regulations can even lead to the forced closure of the company. Now more than ever, regulatory compliance is essential to ensuring a company's sustainability and reputation.

8.????? Technological changes:

In this age of unstoppable technological progress, it is imperative for companies to constantly look ahead. The rapid development of technologies can render existing business models obsolete in the blink of an eye. Companies that are unable to innovate or adapt quickly run the risk of getting into trouble.

An excellent example of this can be found in the rise of e-commerce at the expense of traditional stores. In the not-so-distant past, brick-and-mortar stores were the cornerstone of retail, and shoppers spent their time visiting brick and mortar stores. However, with the rise of online shopping and giants like Amazon, consumers have changed their behaviour. Companies that were unable to build a strong online presence and meet the expectations of the modern consumer began to lose customers to e-commerce competitors.

This technological shift sent shockwaves through the retail industry and led to a rethinking of traditional business models. Companies that stuck to old methods, without the flexibility to innovate and embrace online channels, quickly found themselves in a vulnerable position. The ability to quickly adapt your business to changing technological landscapes is crucial to preventing obsolescence of your business models and ensuring the survival of your business.

9.????? Geopolitical risks:

Changes in geopolitical situations can have a significant impact on companies operating internationally. Take, for example, the complex world of trade wars, sanctions, and political instability in some regions. These factors are not abstract concepts but have direct consequences for business results. Let's look at it with a concrete example:

Imagine that you are a global company that produces components for specific devices. You have production facilities in different countries and a worldwide customer base. Suddenly, a political dispute arises between two major trading partners, leading to new tariffs and trade restrictions. This conflict results in higher import duties on the raw materials your company needs to manufacture its products.

These increased costs, caused by the geopolitical discord, disrupt your supply chain and cause price increases for your products. Customers, both domestic and international, are feeling the pain of these price increases and rethinking their purchasing decisions. You see a drop in demand for your products, and sales start to fall.

Moreover, the continuing uncertainty surrounding the geopolitical situation is leading to hesitation among investors. The value of your company on the stock market starts to fall, which limits funding for future growth.

This is just one example of how geopolitical changes can trickle down directly to the business world, affect supply and demand, and lead to a cascade of adverse consequences. It emphasizes the importance of understanding and managing such risks for companies operating internationally.

10.? Technical failures and cyberattacks:

Technical problems and cyberattacks are an ongoing threat to businesses. They have the potential to disrupt operational operations and compromise sensitive business data. In some cases, your company may even be held hostage, with cybercriminals taking control and demanding a ransom. A weak IT infrastructure can be completely taken over, with devastating consequences for the operational integrity of your company.

Let me give a concrete example: Remember the global ransomware attack 'WannaCry' in 2017? This attack took hostage the systems of numerous organizations, including hospitals, transport companies and financial institutions. The result? Hospitals could no longer consult patient records; logistics companies could no longer deliver, and financial institutions were temporarily paralyzed. The financial damage and loss of reputation for these organizations were considerable.

This example highlights the real threat that technical problems and cyberattacks pose to businesses. A robust security infrastructure and a proactive approach to cyber risk are critical to preventing your business from being exposed to such serious damage and disruptions.

The effect of uncertainty on objectives can be positive, negative or both.

It's important to note that unexpected events don't always have negative consequences for businesses. Some companies can adapt and see opportunities in changing circumstances. Resilient companies often have plans and strategies in place to adapt to unexpected events and overcome them as best they can. The ability to respond flexibly and proactively to changes in the environment is essential to the survival and success of a business. But how can you as a company become more proactive in managing your objectives? How do you avoid getting into trouble due to unforeseen circumstances?

A solution for any company or organization, regardless of the size or sector to which it belongs.

The situation you and your company are currently in is the result of previous decisions you and your team have made in the past. These decisions, made with the best of intentions, may not always have produced the desired result. Sometimes it has even been decided not to decide, which in itself is also a decision. Over time, a pattern develops, a decision-making system that stems from the mindsets of the decision-makers. One person sees danger everywhere, while another sees danger nowhere. Some are guided by emotions, while others rationalize everything and follow their own logic.

It goes without saying that the best results come from the best decisions. But what are the best decisions? We live in a complex society, where judgment can often only be made afterwards. Sometimes we don't even know afterwards what the best decision could have been. It's not easy to consistently make good decisions in the best interest of your company and its stakeholders, as not everyone always shares the same goals and insights.

The challenge you face now is how to evolve towards better decision-making, both by executives and team members. You want to make the effect of uncertainty and impact on your objectives and those of your company as positive as possible and minimize, if possible, negative effects and their consequences, or even completely eliminate them. This is something that you can integrate into the company culture in a process-based way. Imagine how powerful it would be if everyone in your organization made better decisions, including yourself.

Intuition, emotion, and delegation

ISO, the International Standardization Organization, defines 'risk' as the effect of uncertainty on your objectives. For ISO, an 'objective' is simply a desired result, and an 'effect' is any deviation from what you expect. In other words, risks are those unexpected events that can affect your goals and their achievement. How you deal with these events and their effects depends on the decisions you make.

This concept is essentially not new. Managing risks actually starts from the moment you are born. From childhood, you make decisions because you want to achieve something, and you bear the consequences of those decisions. You quickly learn that some choices are not wise and do not achieve your goals. Other decisions lead to better results. That way, your life is a succession of countless small and big decisions. Often you rely on your knowledge and routine for day-to-day business, but when important decisions come your way, you most likely approach them more consciously.

As a successful entrepreneur, you understand all too well the weight of the decisions you make. You intuitively feel which opportunities to seize and which ones you can better miss. Your intuition is reliable, but you also know that emotions and intuition are not the same thing. Decisions based purely on emotions rarely end well and can lead to loss.

However, in the business world, there is always a degree of uncertainty. While your expectations and experience can help you make decisions, our modern, complex, and rapidly changing society (the VUCA environment) is changing the rules of the game. Uncertainty grows because events deviate more easily from what you expected. It is therefore becoming increasingly challenging to base decisions on experience and knowledge.

It becomes even more complex when you have to delegate decisions. You look for people with the right knowledge to make good decisions, maybe even someone who understands and shares your intuition. This can be a challenge because your perspective is unique. People who decide purely rationally often lack the broader perspective and the bigger picture within which a decision must fit. This inevitably leads to inadequate decision-making.

Even if you try to explain what is expected, it is still uncertain whether the message has been properly understood. So, what's next? How can you effectively manage uncertainty and minimize the impact on the objectives of you, your company, your team, and other stakeholders?

ISO 31000

In 2009, ISO issued a guideline to help organizations meet this challenge of unexpected events. This is ISO 31000. Unfortunately, this directive has not been received with the same warmth by everyone and not everyone has understood what it is really about. This means that the connotation that is attached to it is often wrong. This directive is only about 15 pages long and is very general. As a result, any organization, regardless of size or sector, can benefit from it. Unfortunately, this makes it difficult for many to understand this directive correctly and to understand its importance.

Many follow only a small part of this guideline. This often happens because risk management is seen as a separate function. People in this position are mainly concerned with assessing risks and making beautiful reports of them. They also draw up risk registers and then hope that others, the people who really have to manage the risk, the decision-makers, do something with it, which often happens, of course, but sometimes not.

But that is not the intention of ISO 31000. ISO 31000 is aimed at the decision makers themselves. It is they who actually take and run risks. So, it is they who have to manage those risks, because they make the decisions that will affect the effect of uncertainty. The ISO 31000 process is therefore aimed at leading decision-makers to the best available knowledge and insights, so that they can make better decisions. That doesn't just happen. For this you need a framework within which clear responsibilities and lines of communication are placed. You also need the necessary resources and top management support and that is what ISO 31000 is really about. In general, ISO 31000 is the solution towards making better decisions! What are you waiting for?