Build Business Resilience, The Lockdown Will Not Last Forever

The Covid-19 crisis has now reached a new critical phase where public health systems need to act decisively to contain the growth in new epicenters. But the economic impacts are also significant, and many companies are feeling their way towards understanding, reacting to and learning lessons from rapidly unfolding events. Unanticipated twists and turns will be revealed with each news cycle, and we will only have a complete picture in retrospect.

For companies, both large and small, surviving and emerging stronger at the far end of this crisis will require thinking merely beyond the next quarter. Success in the long run will require…

i. Determination to define the scale, pace, and depth of action required

ii. Flexibility to move quickly to address near-term cash management challenges and broader tractability issues

iii. Reorganization to consider strategies for addressing some of the persistent issues affecting the business world to avoid the next such crisis.

Companies across industries must ensure the following:

• Establishing a nexus to steer the organization, serve as the information hub, manage risk and responses and align all stakeholders.
• Protecting employees by making their health the paramount concern and adjusting work as needed.
• Screening and safeguarding supply chains by understanding risks and taking action to address disruption.
• Adapting marketing and sales by identifying and mitigating risks of declining sales while meeting critical customer needs
• Maintaining financial health by improving liquidity, reducing costs and establishing a spend control tower.

There will also come a time when tough decisions will have to be taken such as suspending production facilities and discretionary spending. These decisions will require a comprehensive understanding of the situation, including data-driven scenarios for market evolution.

An example of this can be the automotive industry. It is difficult to predict how the pandemic will affect sales in the EU and the United States, two regions where coronavirus penetration is still emerging. Studies have been ongoing about potential developments by looking at the evolution of auto sales in China over the first quarter, since this country has already “bent the curve” and begun to recover from the coronavirus.

Now, to translate the Chinese case study into scenarios for the European Union and the United States, regional differences in viral spread, economic policies and auto-specific supply and demand drivers such as government restrictions on travel, consumer confidence, and overall loss of economic wealth need to be thoroughly studied. As industry and industry face shutdowns and economic pressures, they should move quickly to address near-term cash management challenges and broader resiliency issues.

Let’s understand what makes companies resilient

• They sustain on organic revenue growth throughout such recession period and out-perform on earnings and revenue during the recovery phase.
• They move faster and harder on productivity, which preserved growth capacity.
• They divest more during the downturn and acquire more in the recovery.
• They maintain clean balance sheets long before the downturn even begins.
• Resilient companies create end-to-end plans to guide their recovery. They identify key risks, both internal and external, and then develop a range of scenarios to predict future outcomes.
• Such companies set up scopes to improve transparency and implement tighter controls.

Finally…

We cannot predict the course of events or their impacts for Covid-19, but we can envision plausible downside scenarios and test resilience under these circumstances. Covid-19 is not a one-off challenge. We should expect additional phases to the current epidemic and additional epidemics in the future. We can run scenarios for a widespread global epidemic, a multi-regional epidemic, and a rapidly contained epidemic, for example. Now that the focus has shifted from containment of the Covid-19 epidemic in China to preventing its establishment in new epicenters overseas, we have arrived at another inflection point, with very high uncertainty. It would be prudent for companies to take a fresh look at worst-case scenarios and develop contingency strategies against each.