With the increasing negative impacts of COVID 19, chief executive officers, senior management and boards of most profit and non-profit organizations are in a state of panic and flux. From the many webinars that Lagos Business School organized and some COVID 19 induced strategy reviews and retreats that I am involved in, the worries are the same. Are we going to survive and how do we survive and grow amidst the crisis? In some instances, the management of some firms are already planning for the closure of their businesses. “With the way things are going, is it true that what some of us need is a plan with the least exit cost as it is becoming clear that our business will not survive COVID 19”. This I was asked in a recent interactive session with some business executives.
While there is no doubt as to the increasing negative consequences of COVID 19 on the economy and some businesses, the doubt is in the reactive way businesses are attending to the crisis particularly from strategy, operations and financials. In strategy, what you observe generally include efforts to quickly rethink the strategy and vision, align products and process with the strategy, rethink and adjust investment allocation, improve required capacity and skills, rethink strategic alliances and partners, imbibe flexibility and agility.
For operations, you see firms trying to tighten business controls and limits, increasing their public affairs and public relations activities exemplified with increased CSR activities of firms in terms COVID 19 support, reactive shift in the supply chain, fast paced adoption of new technologies to upscale their business digitization and processes. In finance, firms are trying to better understand their risk exposure to improve their mitigation strategies through approaches like risk transfers, cost reduction, hedging and improve their financial strength if possible.
While the above reactive approaches can be helpful, it cannot be applied as one size fits all tactic. It is also very important to state that the assertion that some business sectors will completely collapse is erroneous. Some sectors will no doubt thrive more than others, but what is important is for every business to critically review their business situation, growth and sustainability amidst what we know and don’t know about COVID 19. As the current situation is called a new normal or low touch economy, a good way to start is to first understand and deeply imbibe the three planning principles of safety, flexibility and resilient.
For safety, the focus is how will you continue to look after your employees and customers. In flexibility, businesses should work to develop the ability to modify decisions and operations to meet with changing customer needs and demands. In being resilient, firms should innovate and develop viable and sustainable operations and processes making best use of their resources to maintain availability (see ISO 2020).
With good embeddedness of the planning principles of safety, flexibility and resilience as the long-term focus of a firm, a more proactive approach to COVID 19 is for every concerned business to carry out a test developed recently by Board of Innovation. With nine questions that require deep examination, the test helps a firm to get a better insight as to the firm’s preparedness for the new normal or the low touch economy. Based on the score achieved, the firm can therefore rethink and adopt appropriate strategic response to COVID 19.
Interestingly, the test is easy to answer but requires the CEO, Senior Management and the Board to have good understanding of both their business and the operating environment. Using scores from 1 to 5, the management and board of a firm are required to score their firm in terms of how significant or important factors like employee interaction, physical location, client interaction, employee gatherings, level of travel required and client gathering are to the survival, value creation and profitability of the business.
Other factors include, the extent to which your employees or clients can be classified as exposed groups, the level of dependence of the firm on local and international supply chains, and the extent to which demand fluctuations of the products or services of the firm are related to the health and socio-economic crisis. For instance, if high employee interactions and gatherings are required for the firm to conduct their business, the score will be either four or five.
This same is for client interactions and gatherings. If clients need to share the same equipment or gather in groups to use the products or services, the score will also be four or five. However, if the required interaction or gathering is low, the firm will score from one to three. Based on the marks achieved, the firm will understand their state vis-à-vis survival and growth amidst Covid 19.
If at the end of the test, the senior management and the board score the firm a total of 25 marks and above, it suggests that a deep rethink of their strategy is required. This does not mean that the firm will collapse or that their strategy should be discarded, rather it suggests a re-examination and adjustment of significant parts of their strategy. It will require a deeper assessment of each the factors with scores of three and above to see how it can be reduced.
For instance, if employee interaction or physical location are highly required for business operations, the question is if the need for such can be reduced. Using the above approach helps the firm to develop firm specific effective strategies for business growth and profitability. As a score of 3 and above in any of the factors means that a change is needed, the next step is to rethink the strategy by asking key questions such as who will take the lead, what plans should be made and what will be needed, how and when to start, criteria for measuring performance and then how to sustain the improvement, value creation and profitability of the firm..
Dr. Ngwu, is an Economist/Associate Professor of Strategy, Risk Management & Corporate Governance, Lagos Business School and a Member, Expert Network, World Economic Forum. E-mail- [email protected],
