Organizations that rely on reactive risk management techniques often face recurring threats that significantly impact the customers' perception of their professionalism and security. This can damage their reputation and force consumers to find other companies that they can trust.
However, a proactive strategy defines risks in advance so businesses can implement preventative measures and reduce the probability of reoccurrences.
What is a Proactive Strategy?
A proactive strategy identifies potential threats from various business events to reduce their likelihood of occurring. In order to do this, managers must generate different scenarios to define risks and the elements that drive them. This enables businesses to target the root cause of the threat to evaluate the probability of each risk's occurrence.
Through thorough assessment, companies can accurately prioritize risks to improve their management practices and contingency plans. This strategy is necessary for organizations to protect their valuables in advance, rather than focusing on damage control once the threat has already occurred.
For example, businesses should protect their sensitive data with firewalls, verification stages, and other safety measures to detect and block hackers before they can access information. Otherwise, the company must locate the hacker and reenforce their data system afterward, which is often more challenging and requires more funds. By this time, the information is already leaked, and the organization's reputation is tarnished.
What is a Reactive Strategy?
A reactive strategy is virtually the opposite of the proactive approach, in which the company responds to risks once they have already happened. This means that all contingency plans are limited to and based on previous events. Therefore, inaccurate and undescriptive audits can significantly impact how well a business can react to future events.
This approach is deployed once the incident has happened, in which risk managers investigate the event to determine the root cause. Once all of the particulars are defined, they resolve and document the issue in order to prevent a reoccurrence.
For example, a retailer that uses reactive strategies may find themselves scrambling to find another supplier when their primary vendor has terminated their contract or exhausted their inventory. In this case, the business would need to quickly locate a new supplier and settle an agreement so they can begin restocking products. In the meantime, customers are forced to wait or find their desired items elsewhere.
Many businesses choose the reactive strategy because there is no preparation or planning done beforehand, requiring multiple employees and significant resources. Therefore, companies can use this time to focus on other tasks rather than researching risks that may not even occur.
Reactive vs. Proactive Strategies
Most, if not all, modern businesses prefer the proactive risk management approach over reactive strategies, as it reduces the impact of threats.
With proactive strategizing, companies need to invest their efforts into pre-emptive planning, which considers their most critical assets. Once each threat is evaluated, managers are responsible for informing all employees of how, why, when, and where each threat can occur so the entire staff can be on guard.
The proactive approach also enables organizations to prioritize threats, based on frequency and impact, so they manage the most severe risks first.
However, it is important to recognize that proactive planning requires significantly more time, resources, and labor than the reactive approach. It also comes with the possibility that some risks planned for may not even happen, resulting in a surplus of contingency plans.
Still, having excess precautions is always better than being unprepared for a risk that could potentially threaten a business's operations, financial stability, and reputation.
How to be more Proactive During the Pandemic
Now more than ever, with the COVID-19 pandemic, businesses must finetune their proactive strategies to ensure their stability. Organizations need to consider their customers, inventory, and model to be able to adequately respond to modern market challenges.
Depending on the threat at hand, companies should consider implementing one of these three strategies.
Different Sales Channels, Same Inventory
The quick spread of COVID-19 led to several federal and state regulations, which forced many businesses to close their doors. While this meant the end of traditional operating strategies for many brick-and-mortar stores, other companies were able to maintain sales by venturing to other platforms.
Many businesses responded to the stay-at-home mandate by extending their sales channels to online platforms, enabling customers to virtually order their favorite products. Retailers with online channels can offer traditional delivery and curbside pickup so consumers can choose the option that best fits their comfortability level and schedule.
Not only has e-commerce saved many businesses during the pandemic, but it has also allowed them to save expenses that are exclusive to traditional stores, such as rent, utilities, and other overhead costs.
Different Inventory, Same Infrastructure
Unfortunately, the pandemic has significantly reduced the demand for inessential goods and services. As a result, many factories no longer reach capacity and establishments are empty, creating an obsolete infrastructure.
However, the decrease in demand for some products has led to an increased need for others. In response, some companies are using their established model but shifting their inventory to meet the new demand.
For example, at the beginning of the pandemic, many breweries ditched their original operations to manufacture and distribute hand sanitizer. This was both an effort to fight the virus and maintain business by capitalizing on the short supply of disinfectants.
Different Infrastructure, Same Inventory
Businesses that found themselves over capacity trying to meet the significant influx in demand needed to adjust their infrastructure so they could increase production.
Changing an established infrastructure is often considered the most difficult option because it requires collaboration from external partners, such as vendors and distributors. Expanding businesses also need to onboard several new employees to orchestrate the newest operations.
For example, many consumers either switched to or increased their online shopping habits during the pandemic in order to avoid crowded stores, significantly increasing Amazon's demand. As a result, the company had to hire 100,000 new employees to handle product picking, order fulfillment, and delivery.