The repercussions of “Brexit,” Britain’s momentous decision to exit the European Union (EU), will reverberate across the globe for some time. But one striking conclusion from the many analyses of the June vote is that companies were not prepared for this game-changing event.
“Businesses were largely taken by surprise by [the] vote to leave the EU and few had contingency plans,” reported the Financial Times. Even the British and the EU governments seemed ill-prepared. According to an analysis in the Wall Street Journal, “Europe’s frustration at the lack of a British plan shouldn’t obscure the fact that the European Union doesn’t have a clear roadmap to deal with the Brexit crisis either.”
Which begs the question: Is it possible to prepare for a Brexit-like disruption?
On the one hand, it seems almost foolhardy not to be prepared. After all, it’s not as though the referendum came out of the blue. The date was known for some time, and the event attracted intense publicity in the preceding months. Moreover, for those who believed that the British would elect to stay in the EU, ample warnings that the vote was very close were issued during the months leading up to the event.
On the other hand, the economic, geographic, social, and political ramifications of such a change are so wide-ranging that it’s difficult to fully gauge the fall out ahead of time. There is also an element of extreme uncertainty to contend with. Reading voters’ intentions and the actions of politicians with their own agendas in a highly charged environment is fraught with difficulty.
On balance, however, there is surely no excuse for being totally unprepared given that the Brexit vote was expected, even though the result was unknown beforehand.
When a large-scale, potentially disruptive event is anticipated, there are measures companies can take to prepare for the worst.
Here’s an example. In 2008, the Black Thunder mine in Wyoming — the largest coal mine in the United States — planned to install a massive, 500,000-pound new conveyor tube to move coal to a silo for loading trains. To complete the maneuver, the huge structure had to be suspended above three nearby train tracks that were used by 80 trains per day. Those trains served a crucial purpose: They hauled almost a million tons of coal destined for power plants in the Midwest and the East Coast. There was a chance that the installation would proceed without a hitch, but the two railroads that used the tracks, BNSF and UP, decided to be as cautious as possible and halted traffic during the lifting operation. BNSF went even further: It sent two repair crews equipped with large tractors to the site, and put another team on alert at BNSF’s Forth Worth headquarters. The railroad’s preparedness paid off when the crane doing the heavy lifting collapsed and the huge tube crashed across the three tracks. With all its advance preparation, the BNSF team was able to remove the structure in 21 minutes. Trains were running normally later that day, and the railroads avoided lengthy disruptions to their operations as well as the power stations served by the tracks.
While this incident is very different from a Brexit, it is similar in two key respects: The timing of the lifting operation was known well in advance, and although a positive outcome was desired and expected, the best scenario was by no means guaranteed.
Sending emergency crews to the UK for the Brexit vote was not an option, but companies affected by the new reality could have taken many measures to prepare. Here are some examples of steps companies can take to prepare for a potential disruption.
Take stock. Organizations facing a looming, potentially highly volatile incident should have a clear, accurate picture of the commitments that could be impacted. That includes how many people they employ who are at risk, how much product they import and export in that area, and the value of the assets are could be affected. That picture should be updated on a regular basis — more so as the event approaches — so that if the disruption occurs, the organization is fully informed about its involvement.
Create a cross-functional advisory committee. Organizations need a designated committee that is responsible for monitoring a big event, evaluating its consequences, and updating company leaders. Importantly, the committee will be a vital resource in the event’s aftermath, when other enterprises might be scrambling to figure out where they stand. The committee’s knowledge will help leaders make better response decisions that could give their organization first-mover advantage.
Play scenarios. Companies should simulate different outcomes of a potential crisis using scenarios and desk top exercises. They should use these scenarios to hone the preparations of their cross-functional advisory committees and to keep senior management abreast of the options.
Evaluate the current supplier base. One of the leading causes of supply chain disruptions in crisis situations is supplier failures. Companies need to review suppliers’ ability to ride out potential storms — both literal and figurative. Where necessary, look at multi-sourcing possibilities to spread the risk. Intel, for instance, uses a five-level risk management method to analyze supplier resilience. The first four levels reduce risk by shortening the time to a company’s recovery. Only the fifth level involves implementing a dual source strategy.
Proceed with caution financially. Companies should slow their investment activity in the region or countries at risk well before the event. They should initiate hedging programs for currencies and raw materials that are vulnerable to market fluctuations.
The overriding need in highly disruptive situations is to systematically gather as much information as possible prior to the disruption. The more informed an organizationis, the better able its leaders will be to respond when the crisis actually hits — even when the disruption is as huge as Brexit and the uncertainty it creates endures for a long time.
This article originally appeared in MIT Sloan Management Review, and was written by Yossi Sheffi, Elisha Gray II Professor of Engineering Systems at MIT, and Director of the MIT Center for Transportation & Logistics. His latest book is The Power of Resilience (MIT Press, 2015).