Part – 1
Perhaps for the first time in history we are witnessing the coalescing of a series of interlocked crisis feeding on each other to create a state of ‘Permacrisis’
It was the winter of 2019, the last first week of the last month of the year, when a technology summit in Kolkata, themed around VUCA; an acronym that unwrapped stands for volatile, uncertain, complex, & ambiguous. Speakers presented their prescriptions about surviving in a VUCA world. A few months laterthe world came to a grinding halt as the World Health Organization, announced a global pandemic on March 11, 2020. A little after midnight on December 30, 2019, a Canadian artificial intelligence platform BlueDot picked up on a cluster of “unusual pneumonia” cases (by analysing social media chatter and air traffic movement) happening around a market in Wuhan, China, and flagged it. The company had spotted what would come to be known as COVID-19. Corporate clients that subscribed to BlueDot services had been forewarned with enough time to respond.
In March 2021, satellite imagery from Maxar Technologies, a US-based space technology company,detected massing thousands of Russian personnel and military equipment near Russia’s border with Ukraine and in Crimea. Nearly 11 months later Russia attacked Ukraine on February 24, 2022. There were enough indications that something was amiss in the region. Cyberattacks from Russian groups had started in 2021 itself, the most damaging one being on SolarWinds a US digital supply chain organisation. Nevertheless, companies continued their business-as-usual operations in Russia. As of this month over 1000 multinational corporations have exited the country.
What changed now
While it seems that we are living in a chaotic world without precedence, the fact is that new tools and technologies had cautioned us about the coming storms. It is also a fact, that uncertainties have been a constant factor in our lives. So, what changed now? Perhaps for the first time in history we are witnessing the coalescing of a series of interlocked crisis, that is feeding on each other to create a state of ‘Permacrisis’ or as some economists have labelled it as ‘Polycrisis’.
The two events described at the beginning were the trigger points that sparked the Permacrisis. While COVID-19 halted and changed our lives, the Ukraine war has led to a new Cold War, techno-nationalism, an energy crisis, inflation, and a recession. Global economic growth forecasts are being slashed every month.
Looking back at the last 50 years we see that globalisation, as we’ve known it, has been fuelled by three things: cheap capital, cheap energy, and cheap labour. They’re all ending now. Interest rates are going up, energy is more expensive, and wages in Asia are rising. Economic pendulums always shift, and ours is shifting right now from unfettered globalisation to more regionalisation and localisation.
On the business front, de-globalisation, supply chain crisis, semiconductor shortages, and massive layoffs are making headlines every day. Once again, satellite images from portals like Marine Traffic had alerted us about blockages outside Chinese ports which were under the government’s Zero-Covid lockdowns.
Reading the signal; embracing volatility
There are lessons to be learnt from these catastrophic events that have reshaped our known world beyond recognition. There is a greater need to use the intelligence that new technologies and tools are bringing to us – from big data analytics, satellite imagery, to geopolitical riskmonitoring. Nevertheless, Permacrisis is also creating a paradigm shift in the very nature of Leadership. The new breed of leaders will be those with skills to read the signals of disruptionand prepare for a fluid future, creating agile organisations to navigate through the dense fog of uncertainty. And, above all they must be comfortable with the idea of being continuously uncomfortable to embrace extreme volatility.
There are enough instances of companies demonstrating their strength in leading the change, rather than being overwhelmed by it. Major organisations understood during the initial days of the pandemic that work will be hybrid, and communication will continue to be the lifeline of economies, despite a retreat from the global community in favour of national interests. This trend sees countries seeking greater ‘digital sovereignty’ or creating‘splinternets’ of national internets and digital trading environments. It could start to challenge the approach to the global standards that have shaped mobile connectivity in the past, and possibly require a new model for global network collaboration. It consciously undertook at decision to reduce its real estate footprint, redesign workspaces into more human-centric places which allowed hybrid work, and worked with the political systems to continue to serve its customers.
As a relentless tsunami of crisis hits us, organisations have shown the agility to transform their processes when disruptions occur. Take for example Toyota, the originator of lean concepts, fared better than most of its competitors and passed General Motors to become the top seller in North America in 2021. People concluded that it must have turned its back on its principles of minimal inventories.
Toyota takes a strategic approach to inventory planning which stands on three legs: strategically sized inventories in the right locations to act as a buffer to meet changing demands, safety stock that factors in the risk of disruption, and a nuanced view of lead times. It has been pointed out that the company learned a great deal from the Tōhoku earthquake and tsunami of 2011, after which it identified parts vulnerable to disruption and, as a result, were candidates to be stockpiled.
Many firms view dual sourcing primarily as a way to drive down costs by making suppliers compete. But for Toyota having two suppliers means it can enjoy resilient capabilities. Trust and supplier support are core principles of supplier relations. This means relationships should be built around long-term partnerships and should not be transactional in nature. When a supplier encounters problem, Toyota offers to help them address those.
Maersk, the global shipping giant, created an innovation centre in 2021 to help it address supply disruptions, long-term challenges such as the need to de-carbonise, and further digitise its operations, deploy, and leverage AI capabilities, and address endemic staffing and retention issues. Its ports, terminals, warehouses, and distribution centres were becoming global chokepoints, and labour shortages made the situation worse.
Maersk responded by redeploying ships from less-travelled routes to transpacific trade lanes, expanding the hours of operation in its facilities, upgrading its tracking systems, and opening new warehousing and distribution locations. The company earned record profits from the sheer volume of pent-up demand, not to mention the premiums companies were paying to expedite their deliveries. It was an unprecedented opportunity to fund solutions that not only addressed the immediate crisis but also long-cycle trends, building resilience into its operations.
The shipping company also used the crisis to find solutions to chronic problems like inventory leakage with an outside-in perspective from partners. Leakages unaccounted for or misplaced pallets in warehouses amount to 6% of the goods on hand. The solution it chose used autonomous drones flying through warehouses collecting images, videos, and 3D scans. These are then processed via video analytics and AI to locate the missing pallets. The drones and their software were fully developed, tested, and deployed in warehouses in less than four months. Leakage was reduced to near-0%, and the system is now being scaled up.
[To be concluded]
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