In the emergence and development of a crisis, the media and public focus is most often on the obvious negative consequences, which causes fear due to uncertainty among citizens. This natural approach to crisis causes paralysis of the individual, and often of the system as well. Therefore, it is necessary to constantly emphasize not only the consequences but also the fundamental factors and mechanisms on which the emergence and development of the crisis rests. At its core, a crisis represents a change in the way of life and business, i.e. 'logic' within which we have learned to live and work. How much we will feel the crisis depends on how many assumptions change and how strongly each of them changes in relation to what we considered 'normal'. Numerous and strong changes result in a significant change in social, political, and economic life.
While the system functions successfully, no one has the incentive to engage in a thorough study of the foundations on which the system operates, let alone the limitations of that logic. We focus on the usual and neglect the crises that 'others' face. We all believe that our future will unfold according to the same rules and principles that applied in the past, and we refuse to make decisions that would bring about changes. Additionally, when we perceive information that could reveal the limitations of existing logic, our confirmation bias affects our brain to relativize everything that is not in line with previous knowledge and beliefs, and we seek information that only confirms what we believe.
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However, despite ignoring changes in the logic of business, a crisis at the company level arises if the company fails to change in accordance with the new principles of the industry; when it continues to operate according to logic that no longer applies to that industry. A crisis at the company level (regardless of how large) affects owners and employees and ultimately results in the revaluation or disappearance of the company, without significant effects on society as a whole.
If the entire industry ignores the change in the logic of business, a crisis at the industry level arises. New competitors emerge who completely change the logic of business, and the 'Pain valley' represents the cost and risk for existing players to transition to the new logic of industry operation. Society does not perceive such a crisis as a 'crisis' but often as progress through disruption. A crisis at the industry level reduces the value of sluggish companies, while the value is often compensated by new companies that operate according to the new logic of the industry.
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A crisis can also manifest at the market level when certain actors (e.g., consumers) fail to adapt to the new realities of society (e.g., continuing to invest savings in real estate, even though real estate is losing value). Society perceives such a crisis as a problem and blames the individual for wrong decisions (e.g., investing in stocks). It manifests itself through the emergence of a change in the functioning of something that the individual/group does not take into account, and it is resolved by eliminating the negative consequences arising amid unpredictable changed circumstances.
Ultimately, a crisis can also arise at the level of the entire society, in such a way that the basic rules and principles of functioning change. Often, attempts are made to resolve it by returning to the old ways, however, due to more permanent changes, this is not optimal (e.g., consumers buy online in the context of the crisis caused by the pandemic), but it is necessary to redefine the logic of societal functioning.
Crisis as a Constant
If we view a crisis as a change in logic, or the way society or business operates, then it is possible to identify a crisis at any moment. Geographically, there is always a crisis present in some part of the world (e.g., war, famine, epidemics, etc.). Politically, there are always efforts to change the current political/social system or political options. The economy regularly goes through its cycles, and recession is a regular occurrence (e.g., the oil crisis of the late 1970s, the collapse of the Eastern bloc in the late 1980s, the dot-com crisis of the late 1990s, the financial crisis of 2009, the COVID-19 crisis of 2019). When we look at individual industries, at any moment, some industry is on the brink of disruption, going through it, or recovering from the last disruption. From this perspective, it can be concluded that crisis is a constant – constantly confronting someone with a change in what was previously considered 'normal'.
Returning to the Old as a Natural but Wrong Response
An organization in crisis loses what is familiar and what it has invested in for years, while the value of something it does not have increases. As humans, we are more sensitive to losses than we are to the same level of gains. For this reason, during a crisis, we are focused on avoiding losses in a way that we want to return to the old and usual way of life/business. However, we forget that the old rules no longer apply and that what was once optimal is no longer valid, and that it will become increasingly difficult to recover the costs of the crisis. Thus, although psychologically 'returning to the old logic' seems like a good solution, in reality, it is difficult to achieve the expected. In such an oriented system, recovery takes a long time and the crisis becomes an excuse. A better approach is to understand the new principles and rules that apply during and after the crisis and to build a new logic of business. Such an approach builds new systems and solutions (e.g., 'sharing economy' as a response to the new logic of business that emerged after the previous crisis of the late 2000s) that have significant potential for success and rapid compensation for losses incurred during the crisis. The approach involves raising awareness of the existing status quo and its assumptions and (re)defining the rules and principles of the industry, market, and organization in order to build a strategy as the optimal logical response to the new rules and principles that apply in business.
Understanding and Adapting to the ‘New Normal’ as an Unnatural but Correct Response
Often, a crisis brings to light the problem that the organization or society has not adequately considered the assumptions we take for granted. Operational plans are treated as strategy, and potential problems are not noticed in time and/or are ignored until they become so large that they grow into a crisis. If a company must choose between strategically important and operational decisions, it chooses short-term goals, thereby losing the ability to simultaneously maximize both strategic and operational goals. Resources ultimately become focused on survival under the justification that it is necessary to do operational things to survive the present, and that the future will be considered in the future. However, exceptional individuals and organizations are willing to make bold decisions that can turn the challenges and limitations of a crisis into opportunities. They maximize the current state while simultaneously building a new context, rules, and principles that will bring them success.
The detailed report of the Institute for Innovation 'Crisis as a Part of Business' which describes the causes of the crisis, the method of evaluating the situation, and specifying responses to the crisis can be downloaded here.
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