The unprovoked invasion of Ukraine by Russia has led to a major humanitarian crisis, with numerous lives lost and several millions of people displaced as they have fled for their safety.
As one of the most significant geopolitical crises of our time continues, businesses — whether or not they have operations or exposures in Ukraine or Russia — are facing new and escalating challenges.
Their immediate attention should remain focused on the safety and wellbeing of staff and their families in that region and beyond. But consideration should also be given to what this crisis means for longer-term business resilience.
Wide-ranging business challenges
The Ukraine crisis is taking place at a time when countries around the world are still dealing with the repercussions of the COVID-19 pandemic. While primarily a human crisis, the pandemic demonstrated the fragility of the global economy and modern supply chains when faced with big macro shocks. The Russia-Ukraine crisis is further stressing these fragile supply chains, an issue exacerbated by the highly complex and evolving set of sanctions and counter-sanctions involving Russia and restrictions on air, sea, and land transportation in the region.
As the conflict continues, many raw materials and agriculture commodities are becoming more expensive and there may be shortages. And single points of failure will be put into sharp focus. Nickel, for example, which is critical for the battery revolution, is heavily sourced from Russia and a large portion of the neon gas used in semiconductor production is sourced from Ukraine.
For countries and businesses that rely on imports of wheat, corn, and sunflower oil from Russia and Ukraine, there may be more severe impacts, such as potential food scarcity and price stability issues that could lead to social and political unrest. Similar concerns have been raised in relation to the increasing costs or shortages of fertilizer — of which Russia is a major exporter. This could impact crop yields in other countries at a time when the Ukraine harvest is affected by the ongoing war, and extend the impact of the crisis well beyond the region.
An escalation of events in Ukraine could draw bordering countries directly into the conflict and could lead to the conscription of eligible employees to shore up local defense forces. There are also wider implications for locations many miles away from the region that could be heavily impacted by macro changes to geopolitical risk.
In addition, the threat of cyberattacks, either directly targeting entire industries or organizations, or where companies become collateral damage, has also been elevated.
Organizations need to adapt to this new reality, paying particular attention to how these events may challenge business models and strategies in the region and globally. For example, locations that have previously represented a relatively benign risk may now present an increased threat of disruption to an organization’s operations.
Five steps organizations can take now
While the situation remains fluid and there is no certainty as to what may happen in the short or long term, organizations can be more prepared both for the ongoing crisis and future disruptions through five main actions.
- Shore up your crisis management plans. As the situation continues and potentially evolves, risk managers should regularly refresh crisis management plans and retrain teams so they are able to respond effectively. If you don’t have crisis management plans in place, now is the time to prepare your organization for what is likely to be a prolonged period of disruption.
- Understand your immediate supply chain concerns. It is critical to identify suppliers that are likely to be most vulnerable to the direct consequences of events in Ukraine and Russia, including sanctions activity.
- Make and retain contact. Where possible, speak to suppliers and trading partners that are either based in the region or have operations there. Ask how they are impacted by the ongoing events. And ask what additional impacts they may expect and what could trigger them. Where possible, validate their responses with information from credible and trusted sources to minimize the risk of taking important decisions based on misinformation.
- Make a plan for today. Prepare a plan that allows you to respond to challenges related to each critical supplier and trading relationship. Your response plan should set out options in case of disruptions of the services and products each of your partners supplies.
- Think about the future. Major events, like the ongoing crisis and the COVID-19 pandemic, challenge the ‘just in time’ approach to managing supply chains. As organizations look to the future, they need to set out a strategy that allows them to build back stronger, and allows them to tackle future, and perhaps even greater, challenges.
Focus on resilience through scenario analysis
As senior leaders continue addressing the immediate challenges, they should not allow today’s priorities to stop them from preparing themselves for tomorrow’s problems. Instead, they should continue improving longer-term resilience by focusing on two time-horizons:
- What needs to happen today and over the short term.
- What will need to be done to protect the business in the longer term.
Scenario analysis can be an important part of business planning. By structuring how impacts are likely to materialize over time, businesses should become more proactive in their approach to dealing with issues just over the horizon.
As they focus on improving today’s outcomes while also preparing for tomorrow’s risks, organizations should:
- Ground their analysis in delivery outcomes. Instead of starting with specific risks, look at different potential types of failure, damage, and impacts that could affect your core business goals. Looking at individual points of failure can help you to build a more comprehensive all-risks approach, especially amidst uncertainty about how they might materialize.
- Embrace a diverse set of resilience strategies. When faced with unknown risks, organizations should be prepared to respond through a variety of approaches, allowing them to cover as many bases as possible and reduce the risk of single points of failure, such as when you have a single team, location, technology, or critical supplier. This diversity can provide you with the resilience you will need to absorb shocks or adapt to changing circumstances, which will need to be balanced against the costs involved in maintaining it.
- Connect resilience efforts with other goals. There is a substantial crossover between resilience and other initiatives to improve your operations, including wider environmental, social, and governance (ESG) activities. Having competing or, worse, conflicting initiatives can be harmful to the wider goal.
The Russia-Ukraine crisis and the COVID-19 pandemic have shown us how unexpected shocks can impact organizations and test their resilience plans. Resilience is about adaptation, so it is critical to continuously learn from exercises and actual crises. And then, by implementing those learnings within your resilience strategy, you can emerge stronger, more agile, and better prepared and alert to changing circumstances that may demonstrate elevated risks and course correct as needed.