Date: Fri 06 Mar 2020

Covid-19: A Note for Leaders 6th March 2020

Back in 2005 I attended a two-day wargame in what was then the Department of Trade and Industry, which simulated the UK’s response to a fictional pandemic of the H1N1 virus which causes Severe Acute Respiratory Syndrome or SARS.

At the end of the two days, the moderators declared that the players had done quite well, as the country had suffered only a few more casualties than during WWII.

Wargaming is a tried and tested method for creating robust systems and preparing minds so that, like soldiers training for war, people are ready when they need to be.

Now it is happening for real. Nobody involved in the wargame doubted that this would occur. The only question was ‘when’, and how virulent the virus would be. The traditional media are predictably engaged in saturation coverage, social media are spreading information, rumours and disinformation, and advice on what to do is flooding the internet. In 2005, ‘fake news’, confusion and public panic were all elements of the wargame. All are to be expected.

Until the last few days, some people had been dismissing Covid-19 as just another flu outbreak. Others are panic buying. The focus, for reasons which psychologists are still trying to fathom, is still on toilet roll, but the list of goods is lengthening.

One thing I learned from that wargame is that in threatening situations with high levels of uncertainty you should not expect people to behave rationally.

Neither should you expect groups of people to change the behavior demanded by the system in which they make their careers.

In the notes I made during the wargame I observed that communications from the government were designed to reassure and create the perception that everything was working smoothly – which it wasn’t. The messages from the media were designed to arouse suspicion and create the impression that everything was a complete shambles – which it wasn’t.

In between were groups of scientists and doctors who were trying to get a grip on reality and solve the problem.

As business leaders, we must join them. This is a time for leadership.

My colleagues Rebecca Homkes, Anthony Freeling and I have devoted a lot of time to working out how best to handle uncertainty. Here are a few thoughts drawn from that work.

Thinking Forward

We all need to react fast, now. The current focus of action is rightly on safety and survival, both of employees and the business itself.
But top leaders need to think forward and prepare for what could come. If they don’t, and allow themselves to be drawn completely into current operational priorities, nobody will think beyond the immediate crisis and they will create two problems: they will start duplicating the efforts of those below them who are responsible for operations; and at the same time they will fail to provide those operational leaders with the direction they need to make good decisions.

There is no data about the future because it hasn’t happened yet. But there is data about what has happened and is happening that could shape the future.

So we can form beliefs about what is more and what is less likely, and what principles should guide our decisions. Decisions are determined by beliefs, but outcomes are determined by reality. So if we are to act responsibly as leaders, we must form beliefs which are as close to reality as we can get.

In forming our beliefs there are a few precepts we can follow.

We need good sources of information, and we need to make sense of the information by looking for patterns. Covid-19 is novel, so there are no exact parallels, but there are precedents. The further back we look, the further forward we can see. Past precedents can provide helpful clues, but we must also beware of thinking that they will simply repeat themselves.

So the first thing to do is to both look for precedents and then also to ask how the current case is different.

There is a new variant of flu every year, but occasionally novel, more virulent strains break out as a result of transfer from animals. This has happened on varying scales in 1957, 1968, 2003 (SARS) and 2009 (Swine flu).

The H1N1 virus behind the 2009 swine flu epidemic was the same one that just over 100 years ago caused the most devastating pandemic of modern times, known as the Spanish flu. It infected about one third of the world’s population and killed 20-50 million people between 1918 and 1919, more than died in the horrendous world war which was still raging when it broke out.

The huge variation in estimates of the casualties indicates how little reliable data there is about the Spanish flu pandemic, but the main facts are clear.

Like Covid-19 it was transferred from animals to humans and probably started in a troop staging and hospital station in France which also housed a pig farm.

The first wave of the outbreak was in March 1918, and was similar in its effects to ordinary flu. Because of news censorship in the warring countries it was not until cases were detected in neutral Spain that news of it came out - hence its name.

It is thought that 75% of French and 50% of British troops on the Western Front caught it, but though there were some deaths the effects were usually not severe.

The real crisis was when the virus mutated and came back in the autumn as the war was ending, and this time it was a killer. Casualties peaked between September and November 1918. It was spread by troops returning from the war and there was a third outbreak in 1919.

The implication is that the version we are dealing with now is just the first wave, there will be a lull in the summer, and a mutation will hit us at the end of the year – just when everybody is so far been expecting recovery and postponed meetings will be scheduled to take place. The report from Imperial College London released on 16th March suggests that Covid-19 may behave in a similar way.

However -

Most of the world’s healthcare systems are far more advanced than in 1918, reactions have been wargamed in many countries, and there is no world war.

Importantly, the international reaction today is the opposite of the non-reaction in 1918. The data we have so far does not allow us to be sure how lethal the current form of Covid-19 is, but it does show that the death rate is highly dependent on the response.

Critically, a vaccine might be ready by the end of the year, but it could take 18 months before it has been manufactured at scale and can be administered. The measures being taken now are designed to allow our health systems to cope and forestall a second wave, the current probability of which is low, but by no means zero. The government has some difficult choices to make. To quote the Imperial College report: ‘The more successful a strategy is at temporary suppression, the larger the later epidemic is predicted to be in the absence of vaccination’.
Establishing facts about past events, let alone current ones, takes a lot of effort and you never get everything right.

Set A Compass Heading

The good news is that you don’t have to. You just have to be directionally correct and not specifically wrong. We do not know what the end state will be, so do not try to determine the destination. Instead, set a compass heading which is about right. Don’t try to be precise, try to be accurate. Precise sets of shots are ones which are grouped tightly together, whether or not they are close to the target. Accurate sets of shots are ones which are close to the target, whether or not they are tightly grouped.

So put together a small group of people to work out the most accurate set of beliefs they can and constantly update them as new information arrives from reliable sources. Good groups are diverse and free from pre-conceptions.

Setting up such a group will avoid duplication of effort and allow them to develop some expertise. Don’t give the job to ExCo – they have enough to worry about. This job requires specialization and focus. They should report to Exco regularly and frequently and put forward proposals. We may reach a steady state. For now, daily briefings may be in order. ExCo should take the decisions.

A good belief is one which is accurate, useful and honest. It is open to testing - in other words it is a hypothesis. In order to be useful it must make choices which can guide decision-making. In order to be testable it must make a statement which can be disproved by experience.

For example, at the beginning of March we might have believed:

‘On past evidence of similar outbreaks and the infection rate in China, the virus emergency will be over by the summer.
When re-scheduling large meetings and events, aim for any time after Q2.’

This makes a choice about the meaning of current evidence and has an explicit implication. It is also open to revision based on new events. As governments shift their public health policy from ‘containment’ to ‘delay’, the effects should be less severe but more extended. Two weeks later we might have revised our belief to something like:

‘Steps being taken by some governments suggest it is their intention to delay the spread of the virus, which will extend the period over which restrictions will apply.
When re-scheduling large meetings and events, minimise commitments and do not plan on any taking place before Q4.’

As evidence builds up that we could be in for a long haul, this belief may be subject to further revision.

When updating, consider your sources.

They will typically be people who have an interest in the truth, like scientists and doctors. For myself, I am unfashionably fond of experts, except ones with pet theories, in which case they are just bigots who happen to know more than most of us about one particular subject. The ones to listen to are those who live off their reputation and whose communications and commentaries will subsequently be scrutinized for accuracy. That means that their interests are aligned with truth-seeking rather than telling people that ‘everything is working smoothly’ or that ‘everything is a shambles’.

The medium is not the message – don’t confuse them. Lies can be put about on TV and in newspapers as well as Facebook, and truths can be propagated on any of them. In China, following outrage at the government’s early suppression of inconvenient facts, its propaganda continues to be challenged on social media as well as the independent business publication Caixin (see The Economist, March 7th -13th 2020).
Look for second and third order effects. They can be practical, systemic and psychological.

When schools shut down, what will this mean for parents? They may be working from home, but they will have more to do than their jobs. Think about how they can be supported.

As demand for home-delivery suddenly increases, how can the infrastructure of even the likes of Amazon cope? If you are in a B2C business, think about the implications of channel shifts.

If you are over 70, fit or otherwise, you have now been told for some time that you are ‘vulnerable’. What does that do to your state of mind and ability to cope? Think about the style and tone of your communications. Of course you mean well, but don’t assume you understand what it is like to be on the receiving end of them.

Thinking Forward – A Structured Sequence of Decisions

Then there is the question of what to communicate and what to do.

If you constantly change direction, it looks as if you are dithering. If you set an accurate compass heading without too much precision you can make light adjustments to steering without a fundamental change in direction. A sequence of decisions of this kind is the opposite of dithering.
You need to decide when you are ready to actually give some guidance. When you issue it, be clear that it is open to revision. When you can, express your guidance in terms of constraints. In the examples, we do not tell people to re-schedule events for Q4 (which is an instruction), but that in order to lower the risk of further cancellation they should not schedule anything before it (which is setting a constraint). This still gives people room to make choices.

Be clear when you are issuing guidance for people making independent decisions, and when you are stating matters of policy which are binding (such as a travel ban). Don’t take decisions others should take. For example, do you need a corporate policy on facemasks, the efficacy of which is disputed, or let individuals make their own decisions?

When you do need to take decisions, the precept is to optimize them for robustness. To put it in blunter layman’s terms, we might say ‘avoid killers and look out for kickers’.

Today the focus is rightly on killers: protecting staff, supply chains, and liquidity. We are all preparing for a bad year, watching the signs to gauge just how bad.

But senior leaders also need to start thinking about what happens when things ‘get back to normal’ - for the ‘normal’ we get back to is unlikely to be the familiar one we have just departed from. As we are forced to change our behavior now, some of those changes are likely to stick, and not all of them are bad. There may even be some kickers on the horizon for some.

Beyond the Pandemic

New working habits which involve less travel may stick. The news bulletins will highlight the devastation for airlines, their suppliers, and hotels, some of whom will be pushed to the edge. But suppliers of teleconferencing and communications platforms will experience growth. Within the market mayhem, the share prices of some of them have already been rising.

Demand for aviation fuel may fall permanently and the current drop in oil prices may be long-lasting. That will help in the fight against climate change, a global threat that has not gone away just because our attention has shifted. All the more reason for energy companies to lead the transition to non-fossil fuels.

Working from home may become the norm. Bad news for renters of office space. Good news for company costs.

There will probably be more investment in public health. The UK has just announced some. Good news for the healthcare industry.
Covid-19 will also have social and political consequences.

Governments across the world are on trial. Their citizens will judge how well they are able to look after them when they are under threat from something quite different from terrorism. Authoritarian regimes will claim that only they can act quickly and decisively enough to deal with a crisis. Liberal regimes need to prove that open societies can handle a crisis without losing public trust.

But the as yet hidden silver lining to this dark cloud is that it may, by force majeure, lead companies to adopt some of the practices needed to deal with the high uncertainty which is a permanent feature of the C21st environment.

It might will force us to learn how to make good decisions when we cannot make good predictions. We can face up to uncertainties by thinking through what we can learn from the past and what is novel; have some hard-nosed discussions to formulate what we believe about the current reality and the principles which should guide our decisions; do some analysis to work out where we are vulnerable and do something about it before the vulnerabilities are exposed; and get used to practicing strategy as a sequence of decisions leading in a general compass heading instead of a plan that leads to a specific destination.

That would do us all some good.