The sails of the organization with the wind in favor: Taking advantage of the crisis to come out stronger
By: Ignacio Barros
Between the months of July and August of this year, we brought together some business leaders from Chile, Colombia and Peru in some talks via zoom, which we called “CEOs: Setting the Sails of the Organization with the Wind in Favor”. The starting point of these conversations was that, in every crisis, winners and losers are created, and that applies to all industries. The conclusions that emerged from there revolved around the fact that the only way to emerge favored and strengthened from this crisis was through the people, the organization’s work teams, channeling everyone’s efforts, capturing their best ideas and implement them. In short, to use the enormous latent potential in human resources, an element that is too often underutilized, to help organizations set sail with the wind in their favor.
There is no doubt that the current crisis is a great challenge. But there is good news for companies that are willing to take the right steps during the recovery phase; the rewards can be transformative, propelling these organizations into positions of leadership. Our analysis of past recessions reveals that recoveries are “moments of truth,” critical turning points that either position companies for a strong recovery and continued years of market share gains, or relegate them to a growth path. slow.
The majority of companies follow the latter course (about 80%): often late to recognize a recession or crisis, and playing from a defensive posture, seek the least risky and most direct route back to normality prior to the crisis. crisis, hoping to land in a familiar area where you can resume business as usual. The remaining 20% of companies take the opposite path: having anticipated the crisis, they are prepared to play offense during the upturn. Use recovery as an opportunity to test, learn and innovate; to reassess how best to serve your customers; to reduce costs; and to make critical changes to the way it is organized and operates. It is certainly a demanding task that requires focus and commitment. The results, however, speak for themselves: these companies outperform their peers by almost four times, and the separation is exponential from the recovery stage (1).
The planning of scenarios.-
Charting a course into an unpredictable future is no easy task, but scenario planning can provide a business with a certain level of confidence. This requires evaluating potential developments and trends at the macro, industry and company levels.
At a macro level, the scenarios should take into account, among other things, variations in the progression of virus infections, government stimulus programs and lockdown measures, as well as potential effects on unemployment and consumer confidence. . On the other hand, sector-level scenarios should consider both the direction and magnitude of initial demand shocks, as well as the shape of the recovery, resulting in potentially very different demand profiles across products and regions. This level of planning should model potential competitor moves and their implications, especially as customer needs change and companies compete to capture some of that wallet through new value propositions. And at the company level, scenario planning should map likely developments to a variety of internal measures, including earnings projections and the impact on cash flow and balance sheet. In the end, management teams will need to anticipate a variety of potential financial impacts:
- What will your revenue and market share be like?
- How will the associated cost structures perform, including the full extent of costs related to Covid-19?
- What can be expected regarding its cash position, particularly given the asynchronous relationship of income and expenses?
Given the scope of those considerations, it’s easy to feel paralyzed by the complexity coupled with a lack of predictability. But it is an exercise worth doing.
Rethinking customer needs and how to satisfy them.-
Undoubtedly, consumer expectations and demands are changing, which is forcing companies to adapt their operating models. For example, in response to Covid-19, many B2C companies quickly added delivery options and increased emphasis on safety, health, and cleanliness.
Similar trends are emerging in the B2B world. Once again, the recovery presents an opportunity to gain or lose significant market share depending on how effectively companies respond to demand that is very difficult to predict. There is also a clear move towards virtual selling in B2B, which has proven surprisingly successful, challenging the traditional notion of the inevitability of face-to-face meetings.
But despite the difficulty of predicting how customer behaviors and preferences will evolve over time, deeper down the crisis has made one thing undeniably clear: the future is digital.
Underpinning the value chain.-
Accurately sensing customer demand and transforming the business model to meet and stimulate it are just two of many actions that need to be incorporated into recovery actions. As companies restart and rescale their operations, they will also encounter a variety of risks and potential failure points.
Operations planning will be complex as pent-up (or over-served) demand and changing customer needs generate highly unreliable demand signals, a challenge made more complex by uneven customer restart times. Companies must proactively prioritize certain customers and certain SKUs, track finished goods inventory in real time and map it to forecasted and actual orders, and be flexible in response to uncertainties in demand. Vendor relationships can also be hampered by uneven restart schedules, component or service availability issues, and financial pressures from vendors. These obstacles can be mitigated through systems that provide greater visibility and traceability from the origin to the production line.
And on the other hand, certain value chain risks will be internal, including a number of employee concerns related to the pandemic that may limit the availability of staff in workplaces. Efforts to increase flexibility in working groups, combined with staff training on key topics (this is a core point), can instill a new level of resilience, which is sure to be a lasting legacy of Covid-19.
Cost structures.-
For many businesses, the recovery will exacerbate liquidity challenges as the costs of restarting or ramping up operations come before revenue. Successful companies will overcome these challenges as they prepare for a new world with increased pressure on margins. To achieve economic resilience on par with the new emphasis on operational resilience, companies will need to work more efficiently and vary more costs. That means leaders will have to look across many different functions, from purchasing and supply chain to sales and marketing, service and support, and more, to find savings and shift fixed costs.
The clean sheet approach provided by zero-based budgeting can help companies define and achieve the optimal cost structure, guiding their decisions.
Finally, the processes and how the work is done.-
Looking ahead, it cannot be denied that all elements of this recovery will depend to a greater or lesser extent on technology, from applications for testing and health tracking to the expansion of online sales, including automated processes and real-time visibility into supplier shipments. The challenge CIOs will face will be how to set their technology priorities while operating on tight budgets. And they should not lose sight of the fact that technology is not the only element of this new agenda. The simplification of processes, that is, of the modus operandi, is also fundamental, and this has important organizational elements involved (who does things? How do they do them? What steps can we skip? progress?, who and how supervises?, How are decisions made? Who approves them?, among others).
In short, we are in challenging times and that will not change any time soon. This makes it even more important to act now to take advantage of the opportunities that Covid-19 offers us, if we want to take them: the creation of more flexible operations, deeper digital relationships with customers and suppliers, and a more cohesive human team and more professional. This is the time to break the archaic (and harmful) habit in which only members of the C-Suite understand the strategy and the rest of the staff just listen and execute. By modeling possible epidemic impact scenarios, leaders can be better prepared to meet the challenges and to prepare and engage their organizations. They can try to see through the veil of uncertainty using the approaches outlined above to guide as focused and committed a recovery as possible. In this way they will transform their organization and turn this crisis into an opportunity. And for all this to be lasting and sustainable, it must happen through the people, with their full support, knowledge and involvement, which is precisely the title of this article.
(1) When the 10,000 largest private companies in Latin America are analyzed during the period 2003-2017, it can be seen that the 20% “winner” of the 2008 crisis had an average year-on-year growth of 18%, throughout that 15-year period, while the remaining 20% grew by approximately 5%.
Sources:
- Why return to “normal” when you can recover to a winning position?, Bain & Co, Jun 2020
- What new normal should we create?, Sloan Review (MIT), Jul 2020