As a consequence of the recent worldwide lockdowns, following the presumed life-threatening effects of the coronavirus (COVID-19), revenue streams discontinued almost overnight. Leaders need to ask themselves ─ if they did not come prepared ─ the question: How can we prepare ourselves for the next shock effect?
Who would have thought that the vast majority of staff around the world would be refrained from commuting to work and to have to substitute in-office meetings by out-of-kitchen video conference calls while self-teaching their children math? We live in extraordinary times and no one has a clue when this situation will end or what will be its aftermath.
Extraordinary as it may be, companies will still need to get themselves out of harm’s way. But the reality is that most people when confronted with a standstill ─ due to a broken supply chain, a steep decrease in customer demand, or government-imposed restrictions ─ look toward each other for a solution, only to find out that they are all in a state of shock. As it turns out, having the ability to adapt and bounce back from difficulties ─ what we usually referred to as resilience ─ wasn’t a trait to look for when hiring people to run a business operation that prioritized short-term growth and, therefore, needed to keep its employees pretty much on arms-length and informed on a need-to-know basis. What they needed were do-ers and don’t ask why people.
If fact, most organizations created the opposite of resilience; they are fragile, rigid, and inflexible. Which made them extremely vulnerable, long before COVID-19 hit the market. Although it may seem convenient to blame the leadership for pushing the envelope on short-term, exploitative growth while they had every opportunity to mitigate the risks of any kind of disruption, sudden or slow, we do need to consider the ruling method of running a business: the rational/analytical scientific method. This method aims to raise operating profit by exploiting a market and driving down costs by searching for efficiencies and increased productivity while ─ and this is most crucial ─ remain risk-averse.
However, despite the ruling method, if management had practiced any kind of scenario planning, they would have realized that relying on a single revenue stream, core competence, competitive advantage, supply chain, target market, or distribution channel ─ amidst the age of disruption ─ was far too risky and therefore should have been mitigated; at least by exploring other opportunities for growth and start new, diversified ventures. However, new ventures, or any other means of mitigation, undeniably introduce a higher potential of failure and increased inefficiencies, which will have a negative impact on the short-term bottom line ─ and that is not the kind of gameplan an MBA alumnus typically signs up for. They prefer to run the numbers, not the creative, explorative processes.
10 Strategies to cope with a crisis
No one likes to get stuck in the middle of a crisis and no one should be blamed for it during a crisis: shit has already happened, no need to point the finger at anyone in particular. Just find your way out and draw your conclusions afterward. However, there are a few ideas and strategies that might come in handy:
1) Shock effects are far more common than we think. Corona may be a ‘Black Swan’ event, however, Porter’s Five Forces analysis, following the then-popular SWOT analysis, decades ago painted a picture of the forces that could potentially damage or even destroy a firm’s return-on-venture (ROV).
When Boeing discovered its 737 MAX problem, that was a Black Swan event. When Wells Fargo discovered its sales cheating problem, that was a Black Swan Event. Every time a company suffers a cybersecurity attack, a sexual harassment claim at the C-level, or a massive fire or explosion (PG&E for example), it’s a Black Swan event.
The big question here is: If short-term growth is your main goal, is it ever worth jeopardizing your long-term mission -to survive and thrive- for? What I mean to say is: if you’ve focused on exploiting a market, increasing your share, and optimizing your operation, was it worth the effort; knowing that you haven’t spent much on exploring new markets, new products, new business models, or new competencies? Because if you haven’t and your revenue streams have all dried up, you’re probably leaking more capital per month than you’ve grabbed in years. Imagine what you could have done with your operating profit and what this would have meant for your current state of mind!
During my career, I’ve often had to deal with slow and sudden losses of revenue, and like most, I had lessons to learn. These painful but memorable moments helped me later in life to quickly identify single points of failure and mitigate their potentially detrimental effects before they could materialize. As a matter of fact, we came prepared ─ not for Corona, but for a major crisis. I’ve shared my concerns for such an event with family, friends, and followers for over two years and made sure we were not exposed.
2) By carefully considering the other side of the business, the customer side, we get to obtain the bigger picture: the operating performance as well as the commercial performance. After all, it makes no sense to strive for efficiencies on the business side if we produce for a discontinued future on the customer side. Customer feedback is critical and the only way to get a heads-up is by forging strong customer bonds.
3) By actively fragmenting office jobs, following the much-cheered division-of-labor in factory production, office workers became siloed, preoccupied with internal processes and procedures. And as a result, many lack the compassion for, engagement with, and commitment to the customer’s cause. If you want to find a way out of this crisis, you’ll need to be able to address actual customer needs. So, step out of your ivory towers and ask your customers, over the phone or via a video chat, what their most urgent jobs-to-be-done are. And then sit together at a Customer Roundtable and discuss what solutions your company is able to create and deliver in the next 2-4 weeks. And don’t limit yourself to your comfort zone: dare to think outside your box of core competencies.
4) Resilience is about recovering quickly from difficulties, however, there may not be much to recover to. Some offline retailers, for instance, may find that customers changed their buying habits once and for all and not in your favor. Demand for office space may spiral down given the recent experiences with remote collaboration. Other ventures may surge, like online shopping and home delivery. So you’ll need to ask yourself the question: Will there be anything to recover to and if so, has the crisis impacted our value chain?
5) We believe the customer-employee interaction is the Ultimate Level of Truth™, however, we don’t intend to say: turn your leadership model upsidedown. One of the main outcomes of the research by McKinsey into the effectiveness of organizations during a recession, leading to the bestseller ‘In Search of Excellence’ by Peters and Waterman, was that small teams (5-7 people) were most effective in discovering opportunities for new business ventures. To make sure that these distributed efforts remain aligned with the overall mission, you’ll still need to coordinate them from a central point. So, as a means to get out of this crisis: appoint small, diverse groups with the task to discover new opportunities for growth and prioritize those that can return a profit the fastest.
6) Next to real-time business intelligence data, you’ll need to have great customer intelligence and market intelligence data. If you don’t have a customer data platform or some form of unified customer profile, you’ll have to do your research manually: focus on the ~20% customers that are responsible for ~80% of your profit and remain in extremely close contact with them. Next, look for the group of customers just beneath those top performers and carefully try to develop them, by using upselling, cross-selling or deep selling methods. In short, build a vibrant customer retention strategy: your survival depends on your ability to keep your customers onboard.
7) As a leader, this is no time to hide behind obscuring layers of management and run the numbers: you’ll need to take the point position, without fear or reservation! This is why your entire staff allowed you to earn several times more than they do: you’re expected to have their back whenever shit hits the fan. And that time has come! Use online dashboards to share the real-time data with your entire staff so that everyone is aware of the situation and to provide insights into the progress you’re making as a team.
8) Leadership without empathy and compassion is the hallmark of scientific management. That’s not what’s needed in a crisis unless your only way out is to fire everyone. What firms need in times of trouble are leaders that care to listen, involve stakeholders in the process of identifying actual and new lifesaving revenue streams, and instill trust and confidence: the leader of the flock is empathic, compassionate, EQuitable, and trustworthy.
9) Get passed the organizational politics, turf wars, and the backstabbing: you have to start acting as a collective! Sure, Proctor & Gamble made internal competition a corporate sport, by allowing duplicate product teams to compete against each other. However, this was deeply ingrained in their culture: it won’t work in your company. In general, it is up to leadership to press for urgency and unity and prevent internal competition from wasting valuable time and money.
10) Although deglobalization was already underway, the coronacrisis may very well expedite the process. Governments and businesses alike have all witnessed the adverse effects of global supply chain interdependencies, caused by closed factories abroad and because of partisan government policies. For instance, 85% of all medicine worldwide comes to require commodities from China while 90% of pills are manufactured in India ─ if India’s lockdown extends throughout the summer, there might be a worldwide shortage of all kind of medication, leading to far more collateral damage than the COVID-19 virus alone could account for. The tendencies to decouple the (digital) value chains will further increase those interdependencies and companies really need to ask themselves the question: Shouldn’t we take back control of production and vital commodities instead of purchasing from the cheapest (subsidized) suppliers?
Business Model Compass™
We’ve addressed the need for resilience in the Business Model Matrix™ as well as the Business Model Compass™, long before the Coronacrisis. Resilience is part of your business culture, however, if it is currently not ─ because you’ve kept employees on arm’s length and informed on a need to know basis ─ don’t expect it to emerge anytime soon. Focus on your liquidity instead, and hope for the best. And if you make it out alive, you now know how to brace yourself for the next one. And I promise you, the next one won’t be far off.