Beware of binary thinking, especially about globalization.
The tendency to interpret shocks and potential responses to them in all-or-nothing terms can lead to overreaction, distracting decision-makers and damaging resilience. This pattern is especially prominent — and problematic — in assessments of globalization. Just as expectations about new technologies erasing the effects of borders and distance have repeatedly been overblown, globalization’s setbacks are also frequently exaggerated.
In April 2020, 83% of executives told EY researchers that their companies were contemplating reshoring or nearshoring in response to the pandemic. But by October, more measured assessments began to take hold and only 37% still contemplated such changes. While reshoring and nearshoring make sense for some companies, there is probably still some excess hype about these shifts. During the pandemic, major economies in Europe and North America have actually imported goods over longer rather than shorter distances, on average.
At DHL, institutional memory, forecasts, and close contact with customers helped the company to avoid overreaction when trade began to plummet in March 2020. DHL’s leadership team had experienced how supply chains recovered from prior disruptions, such as the 2010 volcanic ash cloud over Europe and the 2011 earthquake and tsunami in Japan. Executives also paid careful attention to the range of available business forecasts and considered how customers in some industries expected to need more rather than less of the company’s services. One of DHL’s key decisions early on was to focus on avoiding layoffs. This turned out to be the right approach. By the end of 2020, the company had actually added thousands of new employees to its payroll.
To keep a balanced perspective amid rapid shifts, executives should recognize what DHL Global Connectedness Index co-creator Pankaj Ghemawat has called the “globalization yo-yo effect.” Binary thinking feeds into swings between belief in a “flat world” and the “end of globalization.” Neither is a recipe for resilience, since both can lead to overreliance on a single location, the former abroad and the latter at home. But the reality of global trade has always stood between those two extremes. Trade can suffer setbacks, but the diversification it enables has proven, time and again, to make companies more rather than less resilient.
People are the key differentiator when shocks render plans obsolete.
As the pandemic unfolded, DHL Express had to reconfigure its operations to react to developments no network planner could have foreseen, such as a sudden surge of PPE flows to China and then even larger volumes rapidly shipped in the opposite direction, followed by an unprecedented cross-border e-commerce boom. During just one week in May 2020, DHL’s global network accommodated more requests to change aircraft movements than in the entire year before.
The key factors that made such rapid adjustments possible were put in place well before the pandemic. Longstanding cultivation of employee skills and investment in an agile company culture enabled DHL’s people to quickly tackle novel challenges as they unfolded. For example, DHL Express’s “Certified International Specialist” program, started in 2010 with an investment of €100 million, melds training and culture-building with employee engagement, and has since grown into a group-wide initiative reaching more than 370,000 employees. Empowering a skilled workforce to solve problems — contributing very tangibly to urgent societal needs — led to a five percentage point jump in DHL’s internal employee engagement metric in 2020, which the company tracks via an annual workforce survey.
Companies should treat investments in workforce skills and culture as key pillars of corporate resilience. This fits with research highlighting the importance of an organization’s ability to improvise and develop new operational heuristics under pressure. These capabilities, in turn, depend on knowledge and training, and they can be elevated by greater workforce diversity and a clear corporate purpose.
Size and direct control of assets can make a company nimbler.
This goes against the typical narrative that scale and asset-intensity are associated with inertia. But in this pandemic, size and reach were clear advantages for DHL and other global enterprises, fostering more resilience. With its worldwide network and breadth of industries served, DHL was able to accommodate fast-changing trade flows and to facilitate the surge in e-commerce.
While new technologies are powering the growth of asset-light strategies, direct control of assets still has a role to play in boosting resilience. A major challenge for logistics companies during the pandemic has been the collapse of international air travel. Grounded passenger planes — which normally carry freight in their bellies — led to a huge shortage of air freight capacity. On some key trade lanes, this took up to 50% of air cargo capacity out of the market. DHL’s control of a fleet of 250+ aircraft, coupled with operational changes, such as quick turnarounds to avoid quarantining pilots, significantly reduced the impact of this disruption on the company and its customers. This scale of aircraft assets also enabled DHL Express to maintain service to 220+ countries and territories, maintaining critical lifelines for countries all around the world.
DHL’s global reach also offered an advantage when it came to areas such as fast learning about how to safely keep operations going through the pandemic. As the pandemic swept the globe, operational changes developed in one country could be shared and adapted to suit the rapidly shifting conditions in other countries.
The dramatic rebound of world trade and DHL’s experience during the Covid-19 pandemic highlight the importance of not overreacting to shifting trade forecasts, treating investments in people as key enablers of resilience, and using corporate reach and control of assets to move faster. With trade continuing to flow, companies and countries will continue to rely on global and regional supply chains. Optimistically, these vital enablers of prosperity will be strengthened by the challenges of the past year, contributing to greater resilience in future crises.