Is your company capable of enduring another pandemic?

What about a disruptive technology that threatens the usefulness of your product or service??Whether we face a fierce competitor or lasting supply chain disruptions, things will come our way that will challenge even our best intentions.?While we cannot prevent unwanted events, we have discovered a way to keep them from bottoming out a business.?We are not talking about hording cash or being really good at applying for loans.

Is Cash Always King?

Most business leaders will tell you that to survive a huge, long lasting downturn in the economy, you will need cash.?While it is important, there is more to keeping a business afloat than having enough funds to wait it out.?Most businesses do not keep 6 to 12 months of cash around just in case something happens.?So, for most companies, money to stay open must come from borrowing or sales.?Borrowing may be a viable solution for the near term, but sources of cash will dry up when the ability to repay diminishes.

During the pandemic, the Federal government helped by providing access to money, but it wasn’t enough.??Given there was not enough dollars to pay everyone, the rent, and other business expenses, borrowed money only went so far.?Customer demand was artificially and drastically inhibited by the lockdown, so earning the cash to stay open became impossible for too many.

An Alternative

While it is not feasible for a business to just jump into another industry to make money, they can get creative with their capabilities to provide other related services or products.?Consumer goods companies switched soap and lotion production lines to make hand sanitizers.?Beer brewers provided bottled or canned water, while car manufacturers made respirators, and textile capabilities were used to make face masks.?

Hospitality and food service was one of the hardest hit industries by the pandemic.?It lost over 5 million employees within a month with the majority coming from full-service restaurants (see Figure 1 below).?Some have estimated that over 100,000 restaurants have permanently closed.?More than a year after the start of the lockdown in March of 2020, employment in the restaurant industry was still 36% below pre-pandemic levels.?

Full-service restaurants took the brunt of the layoffs because of the initial no inside dining and the still lingering mandates to limit seating capacity.?Even given this roadblock, some restaurants survived.???The chain restaurants do have deeper pockets, but it was not just about having the cash.?Let us look at what happened to the restaurant industry through a capabilities lens, this view offers a better understanding of why some survived despite the odds.

The table below lists three categories of restaurants citing some of their core capabilities.?Given the restrictions of the pandemic, full-service restaurants were the most vulnerable to closing because they did not at first have the capabilities to sell through delivery or take-out.

What we discovered through our research was those restaurants that already had the ability to package food for delivery and especially those who ran delivery services had the greatest chances of staying open.??They relied on their operative capabilities.?This does not mean that full-service restaurants were necessarily doomed.?

Where Was Technology in All of This?

Did technology help??Well yes and no.?If restaurants were already using outside services like Grubhub and DoorDash or delivery was already part of their business model, then they could more easily use those capabilities to sell.?But one of the reasons outsourced delivery services were not more popular was because they were an added expense to an already low-margin industry.?An industry that was struggling to get cash and couldn’t afford to add more costs.

Dynamic Capabilities

So, what could full-service restaurants do??Adapting to change is hard and takes time.?The answer lies in developing the wherewithal to marshal needed capabilities as customer demand changes.?David Teece named these combinations of competency and capacity, dynamic capabilities (See figure 2 below for the different types of capabilities).

"the firm’s ability to integrate, build, and reconfigure internal and external competencies to address rapidly changing environments." - Teece, Pisano & Shuen (1997)

At the core of a company’s unique way of delivering value are people developing competencies together with technology, over time.?They are the knowledge, skills, and abilities to perform simple activities to the most complex.?The ‘book smart’ people of the world have shown us that competencies are not enough to get things done.?People need the right capacities in order to make competencies useful.?These include time, space, intellect, capital, and wherewithal.?We like to think of it as ‘book smarts’ meets ‘street smarts.’

Capacity is not often in abundance, so sacrifices need to be made.?Companies frequently need to give something up to be able to do something new or different.?It is also important to note that having too much of a resource can be misleading and wasteful because humans tend to fill up whatever time and space is available.?Still, there is one other factor needed to create value, resources.

Resources are information, materials, outside help, or institutions that are inputs to a company’s processes.?To improve competitiveness, VRIN [1] (valuable, rare, imperfectly imitable, or non-substitutable) resources ensure rivals will have difficulty in taking business away.?If a firm is using the same resources that others can easily obtain then there is one less competitive advantage.?

What do dynamic capabilities look like in action??

Joe Ray of Wired.com provides us a fitting example with a story about a full-service restaurant that was doing well even though 5 million people were being laid off.[2] ?How did Chef Rivera of Addo manage to keep his full-service restaurant open??In his words: "Focus less on what you're used to doing and more on what people need.?Think of the things that would be nice if you are sitting on the couch or need a little pick-me-up.?Don't get too wordy or descriptive."?The following are highlights from Ray’s article:

• Used staff to deliver instead of outside delivery services
• Two-person delivery system so a runner can deliver while providing customer service and gather feedback.
• Provided ‘Take and Bake’ options to give customers the ability to have a hot meal at their convenience
• Multiple price points but eliminating higher end offerings (still had $45 pasta w/ wine for two and $105 Hawaiian feast for two)
• Wine pairings to maintain full-service conveniences.
• He also offered a $9 pay-it-forward bowls to be delivered weekly to the homeless shelter – was up to 1000 donated bowls by 3/17/2020.
• Used social media to highlight upcoming dishes and descriptive videos of what the take-out/delivery meals look like.
• A payment system where customers order everything ahead of time.

What makes these capabilities dynamic is Chef Rivera was already sensing what his customer wanted before 2020.?He was already using dynamic capabilities.?When the pandemic hit, he sensed the difference in customer needs and changed his core capabilities to match, as the lockdown and layoffs were occurring, not weeks or months later.

This is one of numerous examples we have, across many industries, of the potential of dynamic capabilities.?

Is your organization ready for the next major challenge?

Driscoll Organizational Solutions has been working with leaders to position their unique way of delivering value in exceeding customer expectations since 2013.??We specialize in improving operating effectiveness and efficiency through innovation by helping our clients ensure that policies to processes are operational and sustainable.??