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10 Mar, 2021

COVID-19: Which critical choices should businesses make next?

COVID-19: Which critical choices should businesses make next?

The COVID-19 pandemic has presented governments, companies and individuals with an extraordinary global health and humanitarian challenge. The pandemic has also caused deep dislocations across the global economy, creating an inverse correlation between government actions to «flatten the curve» of infection rates and the depth of economic disruption.

But the pandemic’s effects extend far beyond economics. Virtually overnight, how we work, shop, save and spend has altered dramatically, as has what many of us prioritize.

The pandemic has presented us with a chance as much as a challenge: a chance to segue from a growth economy to a value-based economy, marked by prioritizing long-term value and the needs of multiple stakeholders over short-term growth.

Even before the COVID-19 pandemic, business leaders were being called to think not only about now, but what comes next and beyond. Companies already faced pressure to act more responsibly, and the crisis will only accelerate that. They will need to demonstrate they deliver benefits to society and the environment, not just the bottom line.

There’s also likely to be a resetting of the relationship between government and business. As the state’s role has expanded to cope with the crisis, the future will demand closer integration between public and private, working together to meet challenges, mend what’s broken and grasp new opportunities.

The initial crisis phase, the «now," has a focus on survival: safeguarding human life, securing financial stability and establishing a risk command center. After this initial crisis phase, organizations are beginning to focus attention on the mid-term, the «next.»

Three horizons, each requiring a different focus for businesses

What comes next will have two business imperatives: the need to adapt operations and increase resilience. Companies will need to think about how to re-engage with their workforce; how to fix broken supply chains; how to achieve a lower and more agile cost base; and how to reduce operational risks and ensure customer access.

As they decide on these priorities, they will also need to think about what comes after. Changes in the global economy, technology adoption, societal norms and consumer behavior will together shape this future. Companies will need to ask: What can we do now to make us ready for what lies beyond?

Saw-toothed economic recovery

V-shaped? U-shaped? L-shaped? There is no shortage of potential trajectories for the world economy. We see something different: a saw-shaped recovery based on the assumption that no widespread effective treatment will be found for COVID-19 in the next 12 to 18 months. While governments and health services will be continually fighting flare-ups, they will have learned more sophisticated ways to suppress future outbreaks.

Most likely macro-economic scenario: a saw-toothed economic recovery

This economic environment will be marked by a slow-paced, uneven recovery.

In the case of more extended lockdowns, permanent losses in production capacity, job losses and pressure on the banking sector would increase. This more pessimistic scenario would result in widespread liquidity shortages and an L-shaped curve.

Mass-testing by governments allied to strong vigilance procedures can mitigate some of these effects and avert the worst of recessionary futures. With a saw-shaped, slow return to growth, we can expect some improvement in both consumer and business confidence.

But a saw-shaped, choppy return to growth demands organizations be far better at dealing with unpredictable shifts in the business environment. It will demand flexibility, resilience and fast reflexes.

What companies need to do

In the ‘now' of the COVID-19 crisis, some companies are still in survival mode, focused on the health and wellbeing of their employees; the financial stability of their operations and establishing a center from which to manage risk.

In this period of unprecedented uncertainty, optionality, agility and decisiveness are vital. Scenario planning that can give you plays that you can run quickly in response to change will help businesses deal with ongoing unpredictability.

A to-do list for «next» won’t be uniform for companies in every sector or geography. The «next» phase looks different for companies in the airline industry, oil and gas and hospitality from companies in life sciences, food and technology, for example. Not all countries have been equally affected by COVID-19: some countries have experienced no lockdowns while others are likely to be severely restricted for several months.

What comes next is unknown, but it is almost certainly volatile. To prepare for this, we see two imperatives: adapt operations and increase resilience.

Flexibility has always been a business advantage but it will now be critical to survival. Flexible employment contracts, owning versus buying-in, diversifying site portfolio risk, making supply chains agile through shared resource models, ensuring sustainable working capital needs — these are all critical to coping with sudden fluctuations in supply and demand.

Businesses will need to adapt their operations to enable re-opening and commercial viability. Companies should repair the value chain, near-shoring where applicable; reduce portfolio complexity and optimize functions. The pandemic has exposed weaknesses in the architecture of many business operations: while lean and efficient, they were inflexible and difficult to adapt to a rapidly changing environment.

Organizations need to design resilience for a period of recovery with recurring disruptions, not just business as usual. They need to look at lowering the cost base, increase workforce flexibility and reduce risk across the operation.

To be in the best position to take advantage of whatever the saw recovery may offer, the business needs to have the right people in place, financial firepower and the ability to move quickly.

1. Create a flexible workforce

Companies need to create a more flexible workforce, looking at adaptable contracts, contingent workers, and exploring the efficiencies of remote working with the potential impact on real estate needs.

They need, too, to look at how and when to onboard furloughed staff; how to engage the workforce in the transition to a new normal; how to attract people with the right skills for what comes next.

Innovative responses to the crisis itself can provide a blueprint for building flexibility into employment. Some big-brand US grocers and pharmacies, responding to a surge in demand for shelf-stackers and delivery personnel, have instituted novel collaborative arrangements with companies in some of the hardest-hit sectors (e.g. hospitality, restaurants and retail) to meet these needs. Some companies are cooperating directly to funnel applications to where there are job openings, while others are creating exchanges to connect labor supply and demand.

Companies need to be open and transparent in their communications with their employees, engaging them in the rebound while also recognizing there are likely to be ongoing restrictions in mobility and physical distance that will have to be factored into any return to workplaces.

Videoconferencing has become the standard for business meetings, and this and other work efficiency technologies may provide longer-term options for remote and flexible working, while strengthening cyber security protocols and controls to reduce risk is paramount.

2. Plan for an agile supply network

Linear, global supply chains need to be stress-tested against geopolitical risks, with vulnerabilities minimized. By looking at shared, less distant resources, some onshoring of business-critical activities and the creation of an agile value network, companies can restart production, while mitigating risk of disruptions.

Demand planning and generation modelling needs to be an iterative process that is integrated across the whole business, not conducted in isolation in different functions, each using a different set of variables. As a choppy return to growth creates rapid fluctuations in demand patterns, so supply planning needs to be flexible and responsive.

Shelter-in-place orders and widescale business closures are significantly changing energy usage patterns — producing steep declines in some places and surges in others. Utilities companies in several countries are using artificial intelligence and machine learning to understand these changes and to forecast new consumption loads. This helps reduce costs and improves reliability of delivery.

3. Expect a new kind of customer

Companies need to increase digital customer access and ensure data analytics are optimized across data sources. Incompatible legacy systems that don’t talk to each other will be costly weaknesses that the resilient organization can ill afford. Analyzing customer behavior will provide opportunities for rethinking product and service portfolios in the medium term while throwing up short-term chances.

An app-based ride-hailing company has responded to changing consumer needs and preferences not only by pivoting to deliver groceries to people sheltering at home in Brazil, France, and Spain, but also by offering phone-based services to customers who may not be comfortable using apps.

In other instances, organizations are opening new channels to interact with customers affected by lockdowns. A major Indian bank, for example, launched a suite of basic services through a secure messaging app, while a Nigerian bank has introduced a new self-service banking feature through its online platform and an interactive voice response system.

These kinds of initiatives, launched in the heat of the crisis, can help companies succeed through the next phase of choppy and sluggish growth.

A significant result from the EY Future Consumer Index found that 62% of respondents are more likely to purchase from companies doing good for society. Building close relationships with customers by open and frequent communication as well as building a positive reputation through the right actions during the pandemic are winning strategies for what comes next.

4. Develop sustainable finance

Financial resilience will flow from lowering the cost base over the longer term, increasing liquidity in the short term and using virtual scenario planning to cope with downturns and upturns in the medium term. Financial and risk teams should continue to work together on developing plans, on communicating forecasts, however difficult, to both internal and external audit teams as well as investors.

As government support measures taper off, companies should monitor capital needs conservatively as the uncertain environment continues. As the state’s role has expanded to provide emergency relief through the worst of the crisis, governments are expected to continue to look at stimuli to help reboot the economy during the next phase and we will see a new collaboration between industry, regulators, lenders and government to revive the economy.

As organizations transition to this new phase, they must also consider what is to come beyond, as crises of this scale are sure to reshape the competitive landscape. The world on the other side of the crisis may look very different, with different norms, rules, competitors and value propositions. For companies to remain relevant in this new world, they will need to engage with multiple stakeholders to re-frame their future, build long term value and a new value-based economy.

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