When I was a much younger man, I recall being part of a strategic planning session with a business where we discussed our manufacturing strategy. At that time, the business was in the early days of establishing a plant based in China and there was a great deal of discussion about the potential risks of having all our eggs in one basket.
The discussion primarily centred around the political risk and as a result what could happen if access to our product was restricted due to changes in Government policy, either here in Australia or in China. There was also consideration of the economic risks if there was a major change in either exchange rates, labour cost or taxation.
Although we had the foresight to consider the risks of a single supply line at the time, there was no way that we were thinking that the risk of lack of supply could have come from a global pandemic.
Over the years I have seen the world change its view on how good are produced and procured. These days there is a tendency for the prime reason for, as I call it, ‘making stuff’ rests almost solely on lowest cost to maximise profit.
Although the current ‘shutdown of the world’ in this way, due to a virus, is not something that many would have predicted it does give me cause to think that risk management is back on the board room tables with more prominence than ever before. It is now time for business leaders to dust off their old strategic planning tools and look at something like the PESTEL framework when examining risk.
To jog your memory, PESTEL Analysis stands for Political, Economic, Social, Technological, Environmental and Legal. This framework is used to analyse the macro-environmental factors that can impact a business. In my younger days, the model really stopped at Political, Economic, Social and Technological (PEST), little consideration was given to Environmental (admittedly Legal was under the umbrellas of Political and Social back then).
Jump forward a few decades to 2020. The world is now more like one single global Lean supply chain where we look to lower cost, lower inventory and work in a just in time supply framework.
If you have any doubts on this just look at how difficult it was for anyone to get a new computer headset for remote working at the outset of everyone working from home or the insanity of panic buying and stock shortages of toilet paper and some key food items.
Now don’t get me wrong, anyone who knows me knows that I am all for efficiency and cost effectiveness. However, I think I am more of the “optimalist” where we seek out the most prudent, or optimal, approach that balances all the factors in the best way possible.
The global economy is a finely balanced mechanism where every works when everything works. Thinking that everything will always remain in balance over the long term is somewhat naïve. Although predicting the future is extremely hard, preparing for it doesn’t have to be.
If recent lessons have taught us anything, it must surely be for business leaders to frequently ask themselves “What if …?” in a multitude of different combinations and then consider what the contingency plan might be.
John Yealland is a management consultant and process improvement expert who has worked with business leaders in a wide range of industries to help them improve the performance of their organisation.