Storm ahead! Should you seek shelter or plough through?

Undoubtedly, the COVID-19 pandemic and the ramifications of the Russo-Ukrainian War have hit many, if not most, companies globally. Most countries are now in recession. The International Monetary Fund (IMF) estimated a substantial global economic shrink, which appears to be the worst decline since the Great Depression of the 1930s.

Global economic activity is experiencing a broad-based and sharper-than-expected slowdown, with inflation higher than experienced in several decades. The cost-of-living crisis, tightening financial conditions in most regions, the Russo-Ukrainian war, and the lingering COVID-19 pandemic all weigh heavily on the outlook. Global growth is forecast to slow from 6.0% in 2021 to 3.2% in 2022 and 2.7% in 2023. This is the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic (International Monetary Fund, World Economic Outlook, October 2022: Countering the cost-of-living crisis)

We are now close to the third anniversary of the COVID-19 outbreak in March 2020, but experts are still saying that the recovery could be far from close, especially for specific industries, and nobody seems to be able to put an end date or say when this situation will start to improve considerably.

These factors have created great fear and uncertainty, and many companies had to restructure their business and were unfortunately forced to get "leaner" or, in other words, reduce headcounts.

This series of events has left us with weaker companies craving business but without the capacity they used to have before the pandemic. Although the previous statement might sound sensible as much as disheartening, the real issue might be supported by the lack of long-term vision and effective planning.

For example, some companies are now in a rush to attract as much business as possible, more than they used to deal with pre-pandemic, and this is happening because they are simply trying to get on the path to recovery. However, some of these companies may take on way too much than they can chew and consequently let down a considerable part of their customers because they cannot cope with their workload. As a result, some of these companies are forced to cherry-pick those customers/projects which contribute best to achieving quick wins.

Even if not done on purpose, this approach could generate long-term damage to these companies, even more than the damage created to their customers.

Many professionals are aware and can sympathise with the challenges that an enormous number of companies have to deal with, and by all means, this does not want to be a na?ve approach to supply chain disruption, overall rising costs, and staff shortages, to name a few.

However, managers can still choose how to run their businesses and deal with their customers. The attitude towards "taking it all" and then dumping what we cannot/do not want to deal with can seriously compromise a company's future by burning bridges with one of the most precious elements for business survival and growth. In other words, you are turning down prospective customers in one of the worst possible ways.

In Simon Sinek 's book "Start with why" customers occupy second place out of three in terms of importance. So let me give you some background, and then we'll see that this second place might be worse than it looks. The scale is formed by three-element: staff, customers and shareholders. Simon Sinek says that to build a successful company, you must start by having a happy and fulfilled staff that will provide excellent customer service and produce happy customers. The happy customers finally keep buying our products or become even ambassadors for our brand, generating income and growth that makes shareholders very happy.

Now, let's go back to our conversation about making prospective customers unhappy and burning invaluable bridges. We could assume that your staff might not be entirely happy in such a mismanaged place. Research shows that lack of direction and confusion, perhaps alongside squeezed and overused resources, could contribute to staff burnout and unhappiness.

There is a say that a chain can only be as strong as its weakest link, we have here a three-link chain, and so far, we know that two out of the three links are potentially wearing down very quickly; how do we think our last link, the shareholders, will end up? Well, I am sure you have already figured out that we are staring straight into the eyes of a recipe for disaster.

However, and unfortunately, this is now happening very often, or at least it seems to be happening more than it used to pre-pandemic.

Let's be clear, I am not trying to grill companies by highlighting some potentially dangerous behaviours, and if we want to play devil's advocate for a second, we could describe this behaviour as the survival instinct of a business in distress. Although this approach might help achieve some short-term gains, it might not be so helpful for building a loyal and happy customer base.?

It is absolutely fine to admit we are a bit lost or unsure about the next move we should get our organisation to take, in which case the best thing to do is seek advice. Many people out there could help us clarify and identify the next best move for our company, and recognising we need help will not highlight any weaknesses, but contrary, it shows self-awareness and certainly prepare the company to plan its future more effectively.

I appreciate that it all could sound easier said than done; however, many businesses are now in a call-to-action state, and they better regroup and do what is right for the business long-term. Unfortunately, companies are still retrenching because they are scared of the uncertainty we still have to face. Consequently, they procrastinate to build their strength and create some competitive advantage.

However, these challenging situations, also known as Black Swans*, could be improved by mastering the use of Dynamic Capabilities. Cool name, isn't it? But what is it?

* Black Swan is a theory developed by Nassim Nicholas Taleb and describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of?hindsight. The term is based on an ancient saying that presumed?black swans?did not exist?– a saying that became reinterpreted to teach a different lesson after they were discovered in Australia (Nassim Nicholas Taleb, Black swan theory https://en.wikipedia.org/wiki/Black_swan_theory).

We may want to start by saying that the available data shows that there has been a rising number of Black Swans in the past two decades. Moreover, these events are accompanied by a more dynamic economy characterised by new entrants in every industry, which are recombining technology rules and creating new ones in what could be considered disruptive innovation.

When facing such unpredictable and turbulent environments, managers are challenged to provide organisational agility to continuously adjust the company's strategic direction to achieve a competitive advantage.

However, the modern economy has entered the era of hyper-competition, a term coined by Richard D'Aveni , which tells us that today's fast economy prevents from creating and relying on the "unassailable" long-term sustainable advantage that the likes of IBM and 诺基亚 used to have until aggressive competitors entered the industry and unexpectedly changed the market dynamics. Therefore, organisations must master the ability to be flexible and efficient at the same time while navigating highly unpredictable times such as the 2007 financial crisis and the more recent COVID-19 pandemic.

The Dynamic Capability Framework could support the challenges companies face today. The framework helps companies focus on new resources and adaptive capabilities to adapt to the market's requirements in the most effective way possible.

In times of uncertainty and during Black Swans, it is essential to understand the different requirements to manage risk (known unknowns) and the ones required to handle uncertainty (unknown unknowns). The former requires organisations to use available resources to manage the risk; for example, airline companies could mitigate the effect of the fuel price increase by hedging against its price without impacting their usual operational activities. However, unknown unknowns pose a considerably more significant challenge since the same companies cannot edge against something unknown as COVID-19. That is when the dynamic capabilities framework comes into action to help the organisation become more effective during extreme uncertainty.

The framework develops around three main stages: Sensing, Seizing and Transforming. Organisations should employ these three elements to identify and develop those opportunities while always looking for new technologies, activities, and partnerships to exceed customers' demands.

Ultimately, the framework ends with the critical task of capturing and learning from the value created and having the flexibility to adjust the organisation to develop a sustainable competitive advantage.

The available data shows how some of the world's most successful brands (i.e. 新加坡航空 and Ferrari ) were able to master dynamic capabilities and create competitive advantage through continuous innovation. Researchers discovered that some of the key dynamic capabilities observed in successful companies were embracing ambidexterity to seek the paradoxical outcome of achieving cost reduction while constantly delivering customer excellence. For example, in 2018, Ferrari achieved an average of 23% profit on each car compared to the 3% achieved by a comparable less "lucky" direct competitor. According to Ferrari , the brand has become the most profitable carmaker in the world by focusing on the following points that helped the brand improve and reinvent customer value:

Adoption of new technologies (i.e., the Ferrari's sound simulator used to develop the Ferrari's engine's unique sound)

Adapting to market changes (i.e., smaller turbocharged engines)

Developing customer-centric marketing activities (i.e., high product customisation and limited series as a reward for loyal customers only)

I am sure the three points above do not sound like rocket science; however, many companies still do not focus nearly enough on any of these.

The tables below provide an overview of the three main stages on which the framework was developed, and in this case, using two examples related to Ferrari and 新加坡航空 .

Tab.1 – Dynamic Capabilities at Ferrari and 新加坡航空

What has been noticed by researchers is that organisations with strong dynamic capabilities are the ones that can simultaneously achieve cost reduction whilst delivering customer excellence. These types of organisations are the ones that master better than anyone else the ability to sacrifice efficiency for agility and vice versa to achieve the most effective trade-offs.

It is also vital for companies to distinguish the difference between ordinary and dynamic capabilities; despite the former being essential for the successful daily basis management of a business (i.e. admin, manufacturing, sales), the latter is what is required to challenge the status quo dictated by the likes of the former industry-leading mobile phone brand 诺基亚 ; once considered as a highly successful business model and then overtaken by disruptive innovators such as 苹果 during the mobile telephone revolution.

An example of an organisation that has been successfully striking a balance between cost efficiency and customer excellence is 新加坡航空 . This brand has been awarded 25 years in a row as the world's best airline while being able to show a cost per available seat kilometre (ASK) of 4.58 cents of a US dollar when the average for European competitors ranged between 8 and 16 cents and for American competitors between 7 and 8 cents.

新加坡航空 was able to successfully execute a dual strategy that allowed the organisation to master four paradoxes such as: providing cost-effective customer service excellence, innovating in a centralised and decentralised manner, being a technology leader as well as a follower, and achieving both personalised and standardised processes.

Managing what has been achieved by 新加坡航空 cannot be done by just trying to replicate their best practices; the company has been producing a competitive advantage through the mastering of the four paradoxes mentioned earlier by developing dynamic capabilities which have so far allowed the organisation to make targeted investment decisions and focus on strategic alignment rather than financial return. For example, they invested 700,000 USD in building a facility that enables chefs to taste food as if they were tasting it whilst flying in a pressurised cabin at high altitude, and this was done to compensate for the fact that in such an environment, food tastes differently. Therefore, chefs could achieve customer excellence whilst reducing costs because they can produce the right recipe more efficiently.

With that said, it is worth considering that available data shows that the interrelation with agility/flexibility is a key element for achieving strong dynamic capabilities; however, the available literature does not provide extensive considerations about the associated costs of agility as well as not taking a clear position about when efficiency should be traded for agility and how these changes would relate to strategy. It should be considered that agility is not required for businesses not exposed to risks; however, it has already been observed that in the past two decades, the rising number of Black Swans would be suited for stronger dynamic capabilities.

Nevertheless, the available literature's prevailing belief is that companies with strong dynamic capabilities should be able to achieve agility with less sacrifice of efficiency because they will be more effective at managing the three stages of the dynamic capabilities framework.

It is vital to learn how companies can adapt to Black Swan events, develop strategies to get through a crisis, and generate strategies and opportunities to help strengthen their brands to create a competitive advantage over their rivals.

Researchers reckon that in times of crisis, businesses are not only asked to deal with tough challenges but are often exposed to opportunities that would generate a considerable competitive advantage over their competitors. However, it was also noticed that many companies react to these events with a very unorganised and scattered approach because they are often exposed to pressures, anxiety, and rush to get things sorted as quickly as possible.

A study about how to seize an advantage during a crisis found that the most successful companies tackle the problem with a defensive and offensive mixed approach. This was supported by 波士顿谘询公司 , which discovered that companies facing a crisis with an initial retrenching approach usually carry on by cutting costs even more than needed, resulting in considerably higher recovery costs once the crises have subdued. Research about seizing a competitive advantage in a downturn has found that companies should strike a balance between defending and attacking by achieving a financially stable company first and consequently focusing on identifying those mistakes and "open doors" left by some less organised rivals to capitalise on opportunities as much as possible.

It is worth mentioning that experts emphasised how flexibility in these situations is paramount; moreover, a business should not switch to offensive mode just for the sake of it since this could cause more harm than good. For example, it is essential that companies first focus on achieving the financial stability required to protect their businesses rather than trying to exploit opportunities that may fall short of the required support. Therefore, it is vital to carefully scan the competitive environment to identify potential opportunities and realise that nothing short of business as usual might be the right thing to do at that time.

Despite the important need to assess a company's exposure during a crisis, it was found that investing for the future plays a vital role in business success during a crisis. Investments such as product development, technology research, and customer excellence activities will often start producing returns once the economy rebounds. Therefore some companies decide to wait until things look better. However, underinvesting in long-term value-generating activities can seriously compromise the ability to exploit opportunities once waters are calmer because of factors such as time constraints, higher costs, and highly competitive rivals that capitalised during the crisis.

First, analysis of dynamic capabilities revealed that successful companies, even during Black Swan events, often adjust to the constantly changing competitive environment by mastering the ability to integrate, build, and reconfigure internal and external competencies.

Second, this practice also characterises the company's ability to innovate and adapt to changes that consistently deliver value to its customers while creating a disadvantageous environment for competitors.

Lastly, companies must rely on solid foundations to consistently capitalise on opportunities, such as a strong, profitable brand built to develop a consistent competitive advantage.

Researchers found that firms relying on a consistently strong brand are the same that did not dilute their brand and instead stayed focused on delivering customer excellence through unparalleled emotional experience.

This last point is where Ferrari and 新加坡航空 show a business trend focused on delivering exceptional brand equity through a strong product aimed to provide top customer excellence while generating industry-leading profitability. One of the main strategies that allowed 新加坡航空 to be more successful than its competitors relied on a very structured approach, allowing the company to produce a sustainable competitive advantage by being simultaneously an innovator and a follower.

新加坡航空 aims to deliver constant improvements not by considerably outperforming its customers but by constantly performing slightly better than the competition in all areas. For example, during the SARS outbreak in the early 2000s, SIA introduced a biometric check-in, which sped up the whole process while competitors added time to their standard check-in procedures to account for the additional checks required in that period.

This strategy allowed 新加坡航空 to control costs while charging slightly more than the competition because of its overall better offer, resulting in higher profits still delivered at a relatively competitive price when compared against direct rivals.

新加坡航空 ' structured approach can be appreciated through its innovative approach system, which involves a 40-30-30 rule focusing on utilising 40% of resources on training, 30% to review processes and procedures and 30% to generate ideas for new products and services every year.

Alongside its continuous and incremental innovative approach, 新加坡航空 decided not to "over" use resources on what does not add value to its customers. Instead, it opted for more standardised and reliable "off the shelf" products such as a box standard CRM system and other IT functions that rely on more reliable and proven technology.

Similarly to Ferrari , 新加坡航空 consistently delivered industry-leading profit margins clearly by having a structured and well-functioning approach focused on creating an overall competitive advantage and creating it in all those areas with high customer visibility. This approach proved that mastering the paradox of customer excellence through innovation and cost-effectiveness through standardising products and services allowed Singapore Airlines to move away from commoditisation whilst making profits through its unique offer.??

As already mentioned, research has shown so far that Black Swans have become more frequent in the past two decades but did not lose any of the disruptive effects that companies have to face. We have also seen and perhaps experienced first-hand that these types of events could hit most industries and companies. Therefore, we must equip ourselves with a set of tools and behaviours to help our companies be in a stronger position regardless of whether a crisis is on the horizon so that we can navigate through crises more successfully and resurface stronger than ever.

Delivering innovation and industry-leading product excellence while reducing costs and achieving high profitability is what emerged throughout this research as one of the key elements of success, indeed for 新加坡航空 and Ferrari , which seemed to share a similar approach in this regard. Many industries are now dealing with a hypercompetitive environment that forces companies to constantly disrupt the status quo and create new industry-leading know-how and first-mover advantage.

As much as most of the companies out there cannot compare with the likes of Ferrari and 新加坡航空 , the key factor is to notice that researchers have discovered that the most successful companies, regardless of their size and turnover, do not rely on a reactive approach but use these events to capitalise on a robust solid set of strategies that allow them to look for opportunities rather than retrenching as some other companies may do.

What emerges is that to stay strong during times of crisis and be a key player in the competitive environment, companies should rely on a set of primary points:

• Great use of dynamic capabilities (being able to sense, seize and transform)
• Mastering dual strategy (customer and product excellence paired with a highly profitable business)
• Substantial brand equity and identity (it is how customers perceive your brand that matters)
• Strong corporate culture (treating employees like the most valuable asset – remember the three-link chain)

Like in almost every situation, a one size fits all approach should not be the solution we seek to adopt. However, it is essential to refrain from going into panic mode and adopting dangerous behaviours that could produce long-term damage to our businesses.

We must never try to protect our company at the expense of our staff and customers; they are invaluable and vital key players in our company's success, and to be realistic, far too many case studies showed us that it is unlikely to find a successful company without a happy staff and a happy customer base. Therefore, if we need to navigate challenging times, let's consider how to master the use of dynamic capabilities and always strive to deliver customer excellence through an engaged, motivated and happy staff.

While researching for this article, it became evident that those companies always focused on developing and improving the key elements of success mentioned above can be considered the ones that, when facing a Black Swan, are likely to plough through the land of opportunity while their rivals seek shelter and potentially start losing ground.

I hope this article can plant the seed for some reflection and constructive thoughts, and by all means, it doesn't want to be a lecture on how to run businesses but more of a prompt towards considering how to tackle challenges from a different perspective.