Post-Coronavirus Crisis: the Good, the Bad, and the Ugly

Coronavirus19 has fractured countries, districts, and even urban areas all over the world. Many people were afraid to be infected by “outsiders”. In order to prevent the contagion of the Coronavirus almost all governments in the world have imposed social distancing, also called physical distancing. It means respecting a physical distance between people and reducing the number of times people come into close contact with each other.

Social distancing has played a crucial role in the containment of the health crisis. However it has also turn the health crisis has turn into an economic crisis. Forced social distancing has blown demand and supply at the same moment. Factories could not run anymore while consumers were no longer physically shopping. At a time there were almost no workers and no orders

Now the fight is moving from health to wealth and social distancing will be also key for solving the economic crisis. Social distancing will help customers and employees to move from fear to trust.

Social distancing is important to revive both supply and demand. For supply, social distancing is imperative to guarantee the safety of the work force and employees. In some countries, at least in Europe employees may decide not to come back to work if they feel that the condition for their safety are not here. In France, Unions have sued Amazon for not taking adequate steps to protect workers from the risk of the coronavirus. The company had to close the warehouses for two weeks and put 10,000 employees on paid furlough.

Even in countries which are less sensitive to the working conditions of their employees, such as in the US or Brazil for example, social distancing will be necessary to reactivate the demand and to restore customers ‘confidence to engage with business.

Consequently, situation is changing now in western countries. Many companies have adapted their process to make sure their employees are respecting minimum distances between themselves. The same is happening with retail shops who are asking customers to respect distances between themselves. However all sectors are not equals when it comes to maintain human distancing.

Social distancing by sector depends on “where” and “how” work is done. Social distancing depends on the physical environment of work and its process. Some businesses can be run remotely while others cannot. For example, social distancing is easier to achieve in machine intensive factories with few operators; it is much more difficult for barbers or restaurants.

Consequently, we have mapped the industries according to their degree of exposure or need for social connection and their ability to adapt to the new rules of social distancing imposed by the coronavirus crisis. We have used the data coming from a recent study by McKinsey[i] as well as a research by Koren and Peto[ii], as well as our own evaluation.

The analysis identifies three main categories. A first group is doing well. A second one is facing bad conditions which can be fixed. The third group is in an ugly situation which will require tough adjustments and dramatic changes in the way to do business.

The first category encompasses industries which do not require a lot of physical contacts at demand level. They can also quickly adapt their process to the new rules of social distancing. In this category are the software firms, the telecom companies, as well as financial and insurance industries. Software and telecom operations are mostly technology-based; they can easily be made remotely from home.

Similarly banking and insurance operations are principally digital now. They require little interaction with customers. Traditional retail banking have been constantly reducing the number of employees per branch during the last decade. For instance, in response to the coronavirus crisis JPMorgan Chase, the biggest U.S. bank by assets has closed about 20% of its branches and reduce staffing in the ones remaining without affecting its customers they serve.

In the second group are industries which have more difficulty to adapt to social distancing. It includes technology hardware, professional services, pharmaceuticals, automotive, energy, real estate, utilities, and chemicals. Those sectors are mostly industrial business. Their employees cannot worked remotely. Many plants had to be closed because of the risks of contagions at the beginning of the coronavirus crisis. Industries in this group have to make a remodeling of the working environment by making sure than employees are getting the necessary distance for keeping safe. Those changes can be significant but they can be made in less than three months for the majority of the businesses. They are in a bad situation which may improve fast.

This is not the case for the industries in the third group which are facing an ugly situation. They include transport and logistics, food and beverage, retail, construction, entertainment, travel and tourism. In all those sectors, social distancing is difficult mostly because the nature of the business implies a close relationship between persons.

Many of those businesses have been forced to close for weeks and some of them have not reopened yet in many countries. To make sure that they will not facilitate the contagion, they need to implement new protocols for doing business while serving a restricted number of customers at the same time. Those new rules are increasing the costs and are making many business unviable to run. This third group concentrate the largest numbers of companies which have gone bankrupted or have laid off thousands of employees. And the way to recovery will be long and difficult. It will take months - or even years in a sector such as the airline industry- to find the path to profitability and growth.

Thus social distancing is an important element to evaluate the capacity of an industry to confront the current economic crisis at short term. On a longer term, it is also an important indicator of the capacity of a sector to adapting to live with the virus as long as there is no vaccine available. It will take probably at least one year or more to have a vaccine, notwithstanding the time to mass produce and mass deliver to patient. So a complete recovery of the global economy will take at least until the end of 2021, and probably later.

References

[1] https://www.mckinsey.com/industries/public-sector/our-insights/how-european-businesses-can-position-themselves-for-recovery

2 Koren Miklós, Pet? Rita. 2020.  Business disruptions from social distancing. Cornell University, https://arxiv.org/abs/2003.13983

If you are interested with this topic, you will find much more material and ideas in the new edition of my book “The Timeless Principles of Successful Business Strategy. Corporate Sustainability as the New Driving Force” published by Springer. For more information go to https://www.springer.com/la/book/9783662544884

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