It has been a difficult few years for those in business. Lockdowns shut down whole industrial sectors worldwide, turning profitable businesses into loss-making ones, while a lot of smaller businesses went under entirely. Many companies have been hoping for a return to some type of normality after the enduring impacts of the COVID-19 crisis. However, there are strong signals that a resumption of how things were is not on the cards any time soon, as the world appears to have entered into an age of accelerating grand crises.
Even before the pandemic hit in early 2020, the climate crisis was increasingly disrupting the world (and the companies operating it in) through extreme weather events. Then, just as some countries had declared their war against COVID to be won, the invasion of Ukraine has not only reshuffled global geopolitics, but also led to a dramatic increase in energy and food prices, having big knock-on effects on a whole host of other sectors. And still yet, as of this summer, brands, including those in the robust luxury space, were cutting down their expectations for the all-important Chinese market in light of the latest wave of COVID lockdowns. (“Forecasted growth for luxury and premium consumer brands was cut by 15 percentage points, and down nearly 25 percentage points for luxury brands alone,” CNBC reported in June, citing the results of an Oliver Wyman survey.)
One day there may be a time after COVID, after the Ukraine war, and even after the climate crisis, but there is unlikely to be a point of general stability any time soon. Humanity is pushing environmental limits to breaking point, risking further crises – whether in terms of disease, conflict, or natural disasters. Businesses, therefore, need to shift how they operate. The most drastic example of such action to date comes by way of Patagonia’s recent restructuring, which saw founder Yvon Chouinard and his family donate their $3 billion ownership stake in the privately-held outerwear-maker in order to “preserve the company’s independence and ensure that all of its profits are used to combat climate change and protect undeveloped land around the globe.”
Short of engaging in an unprecedented shift in ownership, there are things that companies and their leaders can do to respond to current crises, become better prepared for future crises, and address their own role in generating these crises in the first place. Here are three types of business models companies should start adopting now …
1. Respond to Crises
What is needed are reactive business models that can respond to crises at hand. Such adaptability will naturally have a survival element, in which organizations do whatever is necessary to mitigate negative effects on themselves. This means aligning companies’ management practices with the “new normal” after the crisis, instead of holding on to the old normal from before. Where appropriate, such models should also have a crisis-mitigation element, addressing the wider negative effects of the crisis at hand where they can.
It appears fossil fuel behemoths such as Shell and BP might be starting to do just that. Having long been under attack for knowingly contributing to the climate crisis and counteracting shifts to more sustainable energy systems, they appear to now be adapting to crisis forces. These forces include, most notably, the global trend towards phasing out fossil-fuel vehicles. As such, these companies have begun to transform key aspects of their business. A first move, for example, seems to be repurposing their petrol station operations into an electric vehicle charging infrastructure. As they ride the waves of the climate crisis, we can expect to see them make many disruptive greening changes like this.
2. Be Ready for Future Difficulty
Businesses also need to move from stability-based business models to accepting that the business reality is now one characterized by volatility, uncertainty, complexity and ambiguity. Value propositions encompass the benefits a business offers, for example to its customers, employees, and the community. Building business models for this new world means establishing value propositions for companies that are fit for the long run, that can morph into all kinds of crisis scenarios. It also means being agile and quick to adjust.
One form this could take, for instance, is for a business to offer products and services that address timeless and fundamental needs like health, food, or security, rather than short-lived superficial wants like those related to fast fashion or the latest technological fads. A good example of such a business model is that of Chinese electronic goods corporation Haier, which has explicitly tuned in to an ever-changing world, aiming to deliver “products that respond to the constantly changing needs of the modern home.” For instance, Haier responded to Asia’s air pollution crisis by developing an integrated air conditioner and air purifier.
Alongside this, Haier employs its unique “RenDanHeYi” (or 人单合一), which freely translates to “one single person in unity,” way of working, making it a collective of smaller, semi-autonomous companies that gives both individual freedom and collective responsibility to self-organized micro-entrepreneurs. This makes Haier a fluid, agile and resilient organization. By operating as a network of micro-enterprises, each of which works closely with customers to respond to their changing needs and situations, the business can evolve more easily as each new crisis plays out. Because of these features in their business model, Haier has done exceptionally well during and after the COVID crisis.
3. Help Prevent Crises of Tomorrow
Finally, businesses can better set themselves up for the future by adopting models that specifically mitigate or even prevent future crises. While COVID, the Ukraine crisis, and climate change are still ongoing problems, many business models have been geared towards keeping other things from becoming the next grand crisis. Some companies, for example, are adopting business models that promote reconciliation and peace, with view to preventing disruptive future armed conflict. Examples range from former Colombian guerrilla group members building adventure travel businesses that show the previously hidden side of the conflict, to coffee cooperatives in Rwanda designed for Hutus and Tutsis to reconcile through collaboration.
Managing businesses in an age of accelerating crises is challenging. However, transforming business models and managerial practices can go a long way in both making current and future crises manageable, and possibly even mitigating future crises.
Oliver Laasch is a Senior Lecturer in Entrepreneurship and Innovation at the University of Manchester. (This article was initially published by The Conversation.)