Take the Cumbria rail crash in February 2007, which resulted in one death and several injuries. The crash involved a Virgin Trains’ train. Immediately after the crash, Richard Branson cut short a family holiday to visit the scene of the accident and the hospitals treating injured passengers. Branson praised the efforts of the train driver, calling him a hero, and the strength of the Pendolino train, which he said was “built like a tank”. “He was there showing concern at the highest level and protecting the reputation of the railway company in which Virgin Group owns the majority share,” says Paul Hopkin, technical director of Airmic and one of the authors of Roads to Resilience, a report by Cranfield School of Management on behalf of Airmic.
Roads to Resilience follows on from Roads to Ruin, which was published in 2011. This first report analysed over 20 significant corporate crises of the last decade to trace their deeper causes. Several of the case study companies did not survive and most of the rest suffered severe damage. The new report looks in detail at eight “high reliability” organisations, identifying five related and inter-dependent principles that might help organisations protect their reputation and achieve their goals.
Radar on risk
An effective “risk radar” can help an organisation identify issues before they develop into major incidents. “Resilient organisations will consider what the negative trends are that could damage the reputation of their sector and/or do considerable damage to their competitors,” explains Hopkin. “The next step is then how to respond.” While the conventional approach to risk management tends to follow a traditional organisational hierarchy, Roads to Resilience advocates have unimpeded communication about risk management throughout an organisation.
Fostering an organisational culture where such information can be readily shared is key to generating the involvement and commitment of all employees, according to the report.
Reputations rely on rapid responses
Resilient organisations are typically able to respond rapidly, notes the Airmic report. They recognise that responding to adverse circumstances is not just about operational recovery or continuity – protection of reputation should be paramount. One example is the InterContinental Hotels Group, which found itself “in the centre of the storm” when the Arab Spring broke out. It immediately went into crisis management mode and even shared its approach with other hotel groups that were adapting to the political unrest. “Reputational risk can arise from almost everything the company does and doesn’t do,” says Dan Trueman, head of cyber insurance at Novae. “It’s not just its actions but its omissions that can affect its reputation in the marketplace.” “Resilience” has become one of the most important concepts in the risk management community, according to Hopkin. It encapsulates an approach which blends enterprise risk management with crisis management. “Resilience is the ability to bounce back and also the ability to roll with the punches,” says Trueman. “The best and most resilient organisations not only think through their risk profiles or the things that could affect them to a greater and lesser extent, but they also plan ad nauseam for when those events happen.
“They carry out business continuity planning,” he adds. “They don’t just pay lip service to it. They practise and train their senior executives for that moment when the CEO is stopped by the media outside his or her front door at 6am in the morning. And if you can think through that in advance of the event actually occurring, that’s where you become resilient.” An increasing number of reputational insurance products are available in the market and are structured as non-physical damage business interruption policies. They are often purchased as add-ons to product or cyber liability insurance, explains Trueman. As well as providing indemnification, insurers can also offer access to crisis management experts. “In the purchase of the insurance product, the assured themselves has built more resilience into their systems, so they’re a better risk profile for us and it’s a multi-win situation,” says Trueman.
For more on this topic see Lloyds website: http://www.lloyds.com/news-and-insight/news-and-features/market-news/industry-news-2014/secrets-of-resilient-companies