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Will a Little Contingency Planning Go a Long Way for Retailers?
A Gartner survey of marketers found 81 percent have contingency plans to respond to disruptions, but just 21 percent follow through.
The survey of nearly 400 marketing professionals conducted last December revealed that 44 percent who enacted a contingency plan during an economic disruption event exceeded their year-over-year profit growth goals.
“With ongoing economic and geopolitical disruption, contingency plans are more important than ever,” said Greg Carlucci, senior director analyst in the Gartner Marketing practice.
Beyond failing to follow through, neglecting or postponing contingency planning appears to be the other significant shortfall:
- A Gartner survey of CFOs from April 2020 found 42 percent were not incorporating a plan for a second-wave outbreak of COVID-19 for the remainder of that year;
- A survey of information security officials from cybersecurity firm Bitdefender taken in May 2020 found half didn’t have an organization contingency plan or didn’t know if they did for COVID-19 or a similar scenario.
Bain & Co. notes that contingency or scenario planning involves defining extreme but plausible scenarios and then testing the impact of each on future business performance. Bain states, “By raising and testing various ‘what if’ scenarios, managers can brainstorm together and challenge their assumptions in a nonthreatening, hypothetical environment before they decide on a certain course of action.”
Alan Price, CEO at BrightHR, stressed in a recent column for Forbes that identifying risks when setting up contingency plans has to be followed by coming up with practical solutions. “Be sure to emphasize the how, not just the what. It’s no good saying you’ll resolve a severe lack of staff by hiring agency workers if you don’t know the cost or process involved. When planning alternatives, keep in mind what’s realistic for your business,” he wrote.
Bonnie Hancock, executive director of NC State’s Enterprise Risk Management (ERM) Initiative, told the NC State’s blog that beyond natural disasters or emergencies, contingency planning “can also be used to plan for more strategic things – like unexpected competitor moves. Companies that aren’t leveraging contingency planning to advance their strategic objectives are missing a huge opportunity.”
Discussion Questions
DISCUSSION QUESTIONS: What tips do you have around contingency planning for retailers? Has the pandemic offered any lessons about contingency plans’ potential benefits and limitations?
Poll
Loading …BrainTrust
Ken Morris
Managing Partner Cambridge Retail Advisors
Shep Hyken
Chief Amazement Officer, Shepard Presentations, LLC
Planning is rewarded by performance, and plans A, B, and C are only worth the effort if you know when to switch plans and then take effective action. I would have thought that 9/11 was a reason to start contingency planning, but almost 20 years later we were hit by the pandemic–and the value of contingency planning was key to survival. Retailers and restaurants are reluctant to spend time and money without a hard ROI, which is why the Gartner survey cited above is so important.
By the way, I think the term “scenario planning” would help retailers make major plan changes with less hesitation than thinking about it as “contingency planning.” Contingency makes it sound like an emergency response only, but today retailers are facing major, non-emergency shifts that need to be responded to as well. Whatever you call it, it involves business process management. And the processes should be flexible enough to adjust to major changes before they can hurt business significantly.
Contingency planning is a worthy top-line discussion. But there must be a recognition that the crisis is never precisely what was expected. The consequences of a significant disruption are never what one speculates. Perhaps that is why so few who make the plans follow through. The file cabinet may have a dozen contingency plans, and not one matches the actual crisis that arises.
Contingency plans are only relevant when some catastrophe occurs. As such, with the day-to-day challenges of growth and profitability getting most of the “attention” these plans are easy to ignore or, worse yet, not make at all. And what contingencies are worth planning for? I would make this a key responsibility of someone around the leadership table, most likely the CIO (who already is overburdened in most companies). Make it a board level discussion as to what contingencies are in place and how ready they are to be implemented. As to any lessons learned from the pandemic, we saw how quickly or slowly companies reacted to a global health crisis. Finally–how could anyone expect a company to have an “in case of a lab leak” contingency plan in place?
The markets continue to be volatile. This month, we saw a significant erosion in consumer confidence. There are issues with changing consumer behaviors, supply chain disruptions, and inflation. There’s a lot going on, and best-in-class retailers should have strategies in place to be more nimble in their operations.
Key is understanding the conditions that might bring disruption and building contingency plans to mitigate the disruption. Technology has a significant role to play here. Retailers can understand local conditions around their enterprise using tools that support operational awareness. The same technology can create digital twins of their networks and supply chain. This enables scenario planning and can be used to model tactics to address issues as they occur.
Looking forward, climate issues, sustainability concerns, and economic volatility continue to drive change and create instability. It will be even more critical for retailers to have the tools to assess the impact of this instability on their operations and to develop plans to move quickly to address issues when they do occur.
I like expressing this as if/then decision tree planning. Nothing ever goes 100 percent according to plan. There are always speed bumps and potholes and detours. And sometimes the road collapses. Every plan needs agility and nimbleness built in. They need thresholds and go/no-go moments built in. Peloton and First Republic Bank didn’t execute appropriate contingency planning. ‘Nuff said.
I believe if you don’t invest in the technology to help you in succeeding with your plans, you are going to have a problem coming up with any other plans that require the resources and tools needed to make those plans.
With all that we have gone through, not being focused on the many possibilities of what may come is like having 100 miles to go with a quarter tank of gas. Prior planning will inform much better decisions and performance than off-the-cuff, desperate actions, the business results of which can last a long time or, worse, leave only memories…
I think that just looking at Main Streets after the COVID-19 experience should be enough to make us all plan ahead.
Business and technology transformations are incredibly challenging, and contingency planning is crucial to driving new business operating models. Companies must self-disrupt their business models to mitigate the impacts of the inevitable marketplace disruptions. Considering the complex and rapidly changing world, the age of sticking to three-to-five year transformation plans without pivoting has ended.
The imperative for contingency plans is well articulated in the Gartner survey. Increasingly, retailers and consumer brands must evolve their business models and leverage the latest capabilities in an agile, scalable, cost-effective, and sustainable way. This requires companies to consistently revisit their long-term transformation plans and make the necessary pivots and strategy changes to keep up with the rapidly accelerated rate of change.
First, full disclosure: I have written literally thousands of scenario plans, which is not really so impressive when you remember that every two x two scenario approach yields four scenarios and — with a little luck — may mean thousands more. I’ve also been through the scenario planning executive course in Oxford, and taught scenario planning to scenario planners working at Fortune 100 companies.
All this doesn’t necessarily make me good, but it has taught me a lot about the strengths and inherent flaws in the methodology. So — with all due respect to Bain — I would suggest that while brilliant scenario planning CAN be a useful tool for contingency planning, most corporate scenario planning actually blinds you to actual potential disruptions.
For example, most scenario plans I’ve seen mention pandemics in passing as a “wild card.” Great, until you realize that depending how you count — COVID-19 aside — there have been almost 25 pandemics in the 21st century. So 24 pandemics, 23 years that would average out to one a year — hardly a wild card if you think about it.
And this is the real problem. Many strategists simply aren’t aware enough of what is actually going on, let alone what might happen in the future. So the best “contingency” plan starts with broader awareness of forces that are building — sometimes called weak signals or foresight analytics. Second, contingency planning is a creative exercise more than an analytic process. Analysis alone is limited to what is “known” by the analyst. Creative strategists have the advantage of being able to dream or, to incorporate clichespeak–think outside the box.
Finally, it seems to me that we haven’t learned very much from the pandemic, at least at a meta-level. Sure, we now know supply chains can be disrupted, but we should have known that. Sure, we know that approximately 30 percent of Americans believed vaccination was a plot. But what I learned from COVID-19 is that we really don’t learn from our own experience–not exactly an earthshakingly new insight either if you think about it.
Agility, being forward-thinking and making the decision to take action when warning signs appear ensure companies can manage through disruption.
In every plan developed, on feature it must have is a risk mitigation section. It is irresponsible not to. What-if scenarios, planning for really good things to happen and exceed the plan is equally important to how best to adapt, respond, and adjust to things going “south” vs. according to plan. It is always helpful to have a broad or regional economic resource to rely on, and to ask — what are the future state trends that might impact my business and how can I best plan accordingly? Documenting the moves to be made, who to rely on, how best to communicate those moves and how best to assess and report on the results is essential. In the case of the pandemic, we saw the fast casual and fast food sector move amazingly fast to save their businesses. Likewise with retail through buy online pick-up at front of store as well as order online and get delivery. So, it can be done and done well!
Retailers are best spending precious and valuable time only the handful of risks which are most likely to stymie the most critical parts of the business.
HEB is one of the best examples of contingency planning, well prepared for storms, natural disasters and power outages, rather than the risk of stores become crippled by these events. Teams mobilize into specific roles at a dedicated command center, using best practices to activate vendor partners, focus on key products, and keeping stores open and operating safely if possible. Moreover, commitment to community and customers is a key driver. Great moves for both the company and customers.
Some plans make sense, some likely don’t (e.g. meteor strikes). My admittedly casual thought – which is of course exactly the kind of thinking you don’t want to use in actual planning – is that companies generally devote too much effort to far-out scenarios, and too little to commonplace ones (flood, fires, blackouts). But of course that’s one of the challenges: the expected value of a one-in-a-million chance of losing two million dollars is greater than a 10% chance of losing ten dollars, but the former seldom occurs; so where is effort best expended ??
The other challenge is what the Pandemic exposed: planning can only do so much, and a systematic collapse may invalidate many of the core assumptions; as an old song lamented “you left me just when I needed you most.”
Contingency planning for retailers need to include risk assessment, scenario assessment, activation planning, and how to return to full operations.
In zeroing in on the plan development, retailers should analyze how to best allocate resources, identify
gaps in implementing a contingency plan, layout steps for actions, communicate, then finally, test, improve, and retest.
Contingency planning is not an option. Every business/retailer should look at the history of the worst things to ever happen to a retailer and ask, “What if this happened again?” Or, “What if this happened to us?” Start there. Make it your Contingency Manual, and update it as you come up with more scenarios you may (hopefully never) have to navigate.
Retailers must always be thinking ahead and considering “what if scenarios,” especially as we navigate one of the most volatile consumer resets in recent history. In order to plan most efficiently, it’s critical that retailers have access to actionable data. With insights into real-time, hyper-local full-category pricing, promotion and assortment data, retailers are armed with the information they need to plan ahead and make any necessary adjustments to their pricing strategies.