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Resilience in small businesses – a new style of crisis management

Updated Wednesday 8th January 2014

What makes a business resilient so that it can ‘bounce back’ from an acute crisis?

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A sign displaying 'Caution Deep Water' stands in a flooded street Creative commons image Icon Cheltenham Borough Council under CC BY-NC-ND 2.0 licence under Creative-Commons license The reasons why businesses grow and endure through changing economic times has long been a focus of policy makers and academic scholars.  However, I have become interested in how businesses deal with sudden and acute crises – the kind that may be caused by natural disasters, accidents, deliberate criminal acts or terrorism.

Recent research about crises in organisations tells us that formal planning (which can take many forms including ‘business continuity planning’, ‘disaster recovery planning’ and ‘risk management’) is not enough in itself to survive an acute crisis (1). Instead, organisations need to be able to absorb the impact of threats because of their ‘resilience’, much as a boxer absorbs punches in a boxing match. In this case, training and technique help but they don’t account entirely for the boxer’s capacity to keep on fighting.

I have become particularly interested in what makes a business resilient, so that it can ‘bounce back’ from an acute crisis. In some cases, a business may not survive the crisis, or it is significantly damaged and recovery to its pre-crisis state is slow and difficult. In contrast to this, an extreme event may also provide a business with an unexpected opportunity for renewal that wasn’t previously foreseen (2).

Studies on crises management in organisations often focus on internal management problems such as factory accidents or product recalls, but businesses can also be caught up in circumstances that are largely beyond their control. For instance: around 100,000 small firms are said to have been affected by the BP oil spill in the Gulf of Mexico in 2010; some 250 business (including many small and family businesses) went out of business after the 1996 Arndale Shopping Centre bombing in Manchester; and around 500,000 small and family businesses were affected by the 2011 floods in central Thailand (3). In particular, natural disasters serve as a reminder of the widespread damage that can result across a geographical area, taking with it homes, communities, businesses and public infrastructure. After the rioting in London during August 2011, the family-owned furniture retailer House of Reeves suffered a burned-out commercial property that had to be demolished. The business began its recovery the day after the fire with staff helping to relocate the business to a nearby building. Some two years after the blaze, however, the site remained derelict and uncertainty remained about whether the 147-year-old business would ever return to the site (4).

For smaller businesses, the key vulnerabilities centre around loss of a key customer (and its significant impact of cashflow) and the loss of key personnel, including the business owner. Resilient businesses tend to have adaptable resources and processes that allow them either to avoid a disruption, or to respond quickly to challenging circumstances. However, what makes the biggest difference is whether owners and managers are thinking strategically about these vulnerabilities, and whether they are taking active steps to address them (e.g. investing in measures to reduce the effects of avoidable interruptions such as the loss of electronic data and power failures) (5). While smaller firms generally lack the formalised planning and resources of larger businesses, they do benefit from agility, flexibility and adaptability in times of crisis (6). With less bureaucratic structures, they have the potential to make decisions quickly, and to tap into family, social and community networks.

We are also learning more about how small business owners think about and act in crisis situations. For example, my own recent research on crisis management in the UK (7) indicates that small business owners recognise a positive link between formal planning and improved business resilience even though in many cases they still don’t have a formal crisis management plan. Also, this study identified that small business owners think about the financial impact of a crisis not simply in terms of the direct loss of sales but also the costs of finding new suppliers and the costs associated with legal action. Crisis management and day-to-day management are perceived by owners to be intertwined activities and this reflects the continuous alertness needed to assess and address risks that the business faces. These new insights suggest that a new style of crisis management for small firms is characterised by resilience rather than just the planning approaches used in large firms.

Acute crises shouldn’t be thought of just as short-term challenges. They may reflect long summering problems or vulnerabilities, and they may take a long time to resolve (if at all). A longer and historical view of businesses shows us that growth and change will result from combinations and cycles of events and actions that include management choices and market conditions, punctuated by the ability to respond to acute crises.

References

  • (1) Johnson, N., Elliott, D. and Drake, P. (2013) ‘Exploring the role of social capital in facilitating supply chain resilience’, Supply Chain Management: An International Journal, Vol. 18, No. 3, pp.324- 336.
  • (2) Macpherson, A., Herbane, B and Jones, O. (2012) ‘Learning To Cope With Resource Constraints and Uncertainty: Entrepreneurs Practicing Purposefully’, Organisational Learning, Knowledge and Capabilities (OLKC) 2012 Conference, Valencia, 25-28th April.
  • (3) Herbane, B. (2013) ‘Exploring Crisis Management in UK Small- and Medium-Sized Enterprises’, Journal of Contingencies and Crisis Management. Vol. 21, No. 2, pp.82-95.
  • (4) BBC News (2011) Riot-hit Reeves furniture store in Croydon resumes trading, 26th August 2011. (Last accessed 8th December 2013)
  • BBC News (2013) 'Nothing' done for London riot victims, 6th August 2013. (Last accessed 8th December 2013)
  • (5) Herbane, B. (2010) ‘Small Business Research – Time for a Crisis-Based View’, International Small Business Journal, Vol. 28, No. 1, pp.43–64.
  • (6) Sullivan-Taylor, B. and Branicki, L. (2011) ‘Creating resilient SMEs: why one size might not fit all’, International Journal of Production Research, Vol. 49, No. 18, pp.5565-5579.
  • (7) See Herbane (2013) - See previous reference
 

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