Amsterdam is crumbling. The capital city of the Netherlands known for its winding canals, historic buildings and beautiful museums is suffering from cracks and sinkholes along its waterways. It was built between the twelfth and sixteenth centuries on a marshland by driving wooden stakes deep into the ground to provide a steady foundation upon which to construct the buildings. While newer buildings were set on concrete foundations, a significant portion of the city remains atop the historic stakes, whose age and quality have caused multistory houses to lean.
Some of their 1600 bridges are also closed for safety reasons. And 200 kilometers of canals need repairs, with walls that are caving in leaving the houseboats that line them at risk. The overall cost of repairs is estimated at close to half a billion euros. For a variety of reasons, the city leadership hasn’t sufficiently addressed the decline. What was once a solid foundation, was not updated to meet changing conditions and is no longer sufficient for the current needs of the city of over 800,000 residents and many tourists.
The same thing is happening in Boston, Massachusetts where expensive real estate built on underground wooden pilings are sinking into the shifting soil. They were placed there centuries ago when the city was constructed on salt marshes and landfills. As long as the pilings sit fully underwater, they’re safe. But once they’re exposed to air, rot can occur, resulting in deterioration of the once solid base.
What’s the Probability?
Many businesses go through exercises to stress test the foundation of their business model and processes against future trends, uncertain events, and economic disruptions. They identify areas of weakness then determine appropriate steps to address them. The probability of the occurrence of the simulated crises is always an issue in determining whether to mitigate the risk. Sometimes such organizations determine that the financial investment to address it is not worth it, or experience difficulty in gathering the necessary support from stakeholders to do so.
That sounds fine until the worst possible thing that can happen, actually does happen. Because who would ever think that shopping malls or restaurants would be closed for months; or that millions of students would be learning virtually; or that hundreds of thousands of office buildings would be closed, their former occupants working from home; or that 50 people gathered in one spot would be considered a crowd. The list goes on…you get the picture.
The foundations that these business models were built upon suddenly crumbled. No matter how prepared they thought they were, they found the holes in their advance planning and are scrambling to shore it up, where possible.
Stress Testing Your Foundation
Your business foundation includes all the assumptions upon which you developed your operating model, processes, marketing, manufacturing, products, and services. A seemingly small change in any one of these can threaten your viability and weaken your financial leverage. While it’s impossible to address every threat, you can strategically decide where you want to take action. Here are some learnings as you do that.
- Broaden your simulation. We’re hearing more incidences of types of events (floods, hurricanes, massive power outages, etc.) that were forecast to happen once every hundred years, now happening every decade or even more frequently. And crises are no longer just occurring back to back, they’re stacked on top of one another. That requires leaders to be more creative in anticipating what could go wrong and forecasting the increasingly limited resources that might be available to address it.
- Be willing to invest in the future. Companies who invested in their IT infrastructure and security before 2020 were better prepared when employees were suddenly banished from the office and forced to work remotely. Organizations with rigorous health and safety protocols were better positioned to protect their employees. The budgetary challenge to make such investments is typically fraught with politicking for limited resources and higher visibility outcomes. Infrastructure improvements to bridges, waterways, airports, railroads, drinking-water systems and wastewater systems, are foundational to society, and where delayed too long will result in a crisis. There’s an opportunity to pay the price now, to ensure a better outcome later.
- It may be messier before it gets better. Living in Michigan, we joke that we have two seasons of the year; road construction, marked by endless orange barrels, and winter. Road construction is a mess; commutes are longer; traffic is snarled. We almost prefer continuing to dodge the potholes and pray that we don’t have a blowout. But when it’s done, it’s so much better. The process is painful, but the result has long-term benefits.
- Identify the lessons learned from the current crises and embed them in your organization. Many companies have now recognized the projects and processes that didn’t really add value in the middle of a crisis. Some have been postponed, others cancelled. Instead, they’ve learned that decisions can be made quicker when they have to, and employees can be incredibly creative and agile when presented with a challenge and given the right support. Identify what’s worked in your organization over the past six months and keep doing it.
If you identify wooden pilings in your foundation, now is the time to consider an upgrade to a concrete or steel footing. The greater your goals for growth, the greater your need for a solid basis to support it. There’s no value in recognizing a crumbling foundation if you’re not willing to take steps to repair or reconstruct it.