Universities need to prepare better for high risk crises
This is the prototypical example of what the risk literature refers to as a ‘Gray Rhino’ (popularised by the author and policy analyst Michele Wucker). The danger is clearly visible, explicit warning signals have been given (such as safari leaders or lodge managers reminding their guests not to get too close to wild animals), yet individuals remain ignorant.
University leaders are currently facing a Gray Rhino, the coronavirus. Everybody is hoping that it can be contained, that the spread of infection will soon abate and that the impact will remain confined to older people with underlying health problems.
Internal group think suggests a need to rationalise why so many are still waiting to take action, although herd behaviour reinforces the perception that this is the smart way forward.
But university leaders should, for a moment, entertain the thought that the coronavirus rhino is already charging at them.
Let’s remind ourselves which higher education institutions will suffer most from a virus spreading on the scale that it has in China: low-tech universities relying on face-to-face teaching as the sole mode of delivery, those carrying high debt with small liquidity buffers and those with high fixed-to-total cost ratios.
Heavy reliance on foreign student recruitment also matters, but geographical diversity is not very relevant. Thus, the coronavirus rhino has an overwhelmingly financial flavour in terms of impact and subsequent consequences.
Gray Rhinos are high-probability, high-impact events that institutions choose to ignore. They sit in the red zone of risk heat maps but are not addressed because of their overwhelming fuzziness and the potentially significant resources required for mitigation.
University leaders should, however, think again: What if a super spreader (an extremely contagious and potentially even symptom-free individual) visits their university campus and creates a local infection cluster?
The campus and surrounding area would go into immediate lockdown, the face-to-face delivery of classes would stop immediately and applications for the next academic year would probably drop into nowhere land, especially those from abroad.
As a consequence, current tuition income would need to be partially set aside against potential losses and future drops in enrolment would translate into reductions in income that carry through until the incoming class graduates.
It is time to get ready and look the coronavirus rhino straight in the eye. It cannot be stared down, but it can be distracted with the right set of countermeasures.
I share the view of Martin Reeves, chairman of the BCG Henderson Institute, that the handling of information is key: university leaders must reach beyond potentially biased news reporting to get a sense of contagion dynamics, but avoid being trapped by expert doomsayers.
Information needs to be updated much more frequently and there need to be administrative response drills that help universities to move around and beyond the limiting celebration of bureaucratic rituals.
Further action points can be identified by focusing on the enhancement of organisational resilience, by applying some of the key learning points from the study of critical systems failures and, if possible, by strengthening the institution’s anti-fragility mechanisms.
In this context, it is important to move beyond the obvious, using financial flexibility and, if possible, enhancing this further or obtaining contingent funding to cover short-term liquidity gaps.
Resilience enhancement has potentially many ingredients. For instance, it challenges university leaders to improve everybody’s awareness of challenging situations, can involve the activation of partnership networks to address short-term student needs and run stress testing drills to clarify crisis management roles and provide an additional protective layer.
As with resilience enhancement, critical systems failures carry one clear message: as different outcomes are generated by more complex organisational structures, it becomes more likely that small errors create havoc on a grand scale.
Take, for example, two health centre workers who are unclear about who should trigger crisis protocols when dealing with a potentially infected student with barely recognisable symptoms. To address this, universities need to foster a culture often observed in start-ups where individuals assume broader responsibilities to prevent “critical balls being dropped on the floor” while everybody is watching.
Lastly, anti-fragility mechanisms build on institutional resilience and also aim to generate strategic benefits as a result of the disruption. If an institution has less of a vested interest in a certain mode of operation, is more responsive to change and more willing to make adjustments to find the best way forward, then it can potentially improve its market position relative to others and reap the rewards accordingly.
While most university executives may look towards a ‘pressing the button’ event that resets everything after a campus shut down, a more disorderly response with a multitude of different pathways back to normal operations may be preferable. Moreover, looking again at what ‘normal operation’ actually means for the different units of a university may create an additional advantage for the university.
Ulrich Hommel is professor of finance at EBS Business School in Germany and specialises in risk management as well as restructuring in higher education. He has published extensively on these topics.