Navigating the Covid-19 Crisis and Beyond
SARS
is credited with being one of the
accelerators for the adoption of e-commerce in China and the
rise of Alibaba. We should not expect that the resolution of the Covid-19
epidemic will be a return to a 2019 reality. Many organizations are
understandably focused on reacting to and coping with the short term challenges
presented by the unfolding epidemic. (See Exhibit
1.) But in addition to Reaction, they need to focus attention on 3 more
important R’s: Rebound, Recession and Reimagination. Beyond individual
companies, there is also an opportunity for society as a whole to reimagine
norms, behaviors and platforms for coordination and collaboration.
Exhibit 1
A rebound of
demand is inevitable, and using high-frequency data proxies for the movement of
goods and people, production and confidence, we can see that it is already
beginning to happen in China. (See Exhibit
2.) Given the complexity of rebooting companies and supply chains at different
speeds in different places, the time to begin preparing a rebound strategy is
now.
Exhibit 2
Over
the past 100 years, epidemics have only temporarily
deflected the economic cycle with short, sharp shocks. Of
course, this time could be different. A bear market (technically a 20% decline)
does not guarantee a recession but indicates a high
probability of one. The most recent expansionary cycle has been one of the
longest in recent economic history and signs of vulnerability were already
showing in trade relations, political instability, corporate debt and other
areas. The shock to demand and confidence could easily tip the global economy
into a recession.
Prudent
companies will prepare for this possibility. Our analysis shows that 14% of companies across all sectors
actually grow top and bottom lines during recessions and downturns.
Those who flourish share the common traits of preparation, preemption, growth
orientation and long term transformation. They take a long term view and place
growth bets when competitors are retrenching.
And
even after the epidemic recedes, and even in the case of recession, there will
be opportunities and needs to reimagine business and operating
models and also the portfolio of offerings. For the average company, the first
causality of a crisis is imagination. But those shape and benefit from the
future will be those who can imagine it.
We
can already see hints of the post-crisis future in shifts in consumer
behaviors, which are driving diverging patterns of consumption and stock price
recovery across different sectors. (See Exhibit 3.)
Exhibit 3
In
China, the stock indices of all sectors dipped sharply in parallel, but after
this initial shock, different sectors recovered at different speeds. Some, such
as transportation and consumer durables, continue to be depressed; most are
already recovering to pre-crisis levels; and others, like software and
healthcare equipment and services, have already exceeded their pre-crisis
levels. (See Exhibit 4.)
Exhibit 4
In
anticipating this new post-crisis world and seizing opportunity in adversity,
we need to think consider several shaping forces: new learnings, new attitudes,
new habits and new needs.
A
crisis is like a receding tide — it reveals the rocks beneath the surface that
were there all along. While some organizations will likely resume operations
after the crisis without looking back, others will be carefully examining lessons
learned and regarding them as opportunities to improve their
organizational effectiveness. They will find opportunities to improve
foresight, agility and resilience through improvements in market intelligence,
risk assessment, scenario planning, crisis management, communications, remote
working, workforce redeployment, supply chain resilience, cross company
collaboration, IT infrastructure and many other areas. And each of these will
in turn generate opportunities for the suppliers of software, hardware and services
to enable these enhanced capabilities.
The
crisis will also shift consumer attitudes, creating elevated
awareness of altered beliefs about personal and environmental hygiene, health,
social relations, travel and crisis preparedness. This is already driving up
demand for sanitizers, antibacterial cleaning products, healthcare advice,
healthcare insurance, disaster preparation products, O2O (online to offline)
delivery and other many other categories.
Some
new behaviors forced by the crisis will likely stick as new
habits after the epidemic has receded. These may include remote working and
home shopping, which will drive opportunities for connectivity, distance
learning, video conferencing, home office equipment, e-commerce, delivery
services and the like. Corporations and employees too may see opportunities to
reduce travel and physical colocation on an ongoing basis, having been forced
to master the art of effective remote collaboration.
And
some unmet needs will be revealed, which can become targets
for innovation. Already we see Chinese companies, who have had more time to
adapt to the crisis, creating new types of health insurance, and new types of
online to offline business models. We will likely see innovations sprouting in
home shopping, collaboration, health information, health and hygiene products
and cleaning products, and hygiene benefits being created for all manner of
services and products.
How
can companies grow into and shape these emerging opportunities? We suggest 6
key success factors:
1.
An “opportunity in adversity” mindset. Macroeconomics
is not fate. Economics deals with aggregates and averages, whereas strategy is
about creating deviations from these averages. Companies which will flourish
during and beyond the crisis believe in and seek out advantage in adversity.
And the evidence is that such opportunities exist in every sector.
2.
Looking ahead. While the average company will likely be focused
on the crisis itself, some are looking ahead at the inevitable rebound in
demand, at the possibility of recession and at the opportunities to innovate
and rethink their business models. They are prepared for different scenarios,
but are actively shaping their own fate.
3.
Picking up weak signals. Many companies, experiencing a
shock to demand and chaos in their supply chains will be mainly preoccupied
with managing immediate challenges. Those who look at at a more granular level,
will see that the demand for some categories is increasing, that customers are
asking for things that are not currently available or that companies in their
own or other sectors are innovating how they do business. In fact, within your
own organization, there are likely multiple groups which are departing from
standard procedures in order to manage new circumstances. Learning
organizations are asking, what those innovations are and how they can be
codified and amplified. Picking up weak signals means first and foremost,
having access to signals, through access to high frequency (daily), granular
data on shifting patterns of beliefs, behaviors and demand and by listening
very closely to customers.
4.
De-averaging the portfolio. Many companies
see crises as things to be coped with. More enlightened companies also focus on
the longer term and create a strategy — namely an advantaged end state and a
path and plan to reach it. The most enlightened companies do this in a
de-averaged fashion, by creating different priorities and strategies for
different parts of the business. In particular they identify and supporting new
emerging growth pillars.
5.
Moving fast. One of the main characteristics of this epidemic
is that it is developing and changing faster than most organizations can easily
track, let alone think ahead of. A daily clock speed is necessary to keep up
with events. But this applies not only to crisis management, but also to
innovation and new business build activities. The weak signals of demand shifts
and new needs are already present and waiting to be read, interpreted and
actioned by agile companies
6.
Transform. The long term transformation agenda for a company does
not go away during a crisis, but attention can easily be drawn away from it. In
fact, the long term agenda likely requires renewal, since the end state may have
shifted. Our research suggests that companies which flourish during a crisis
are those using it as an opportunity to double down on their long term
transformation plans.
At
the level of society too we have an opportunity to reimagine travel, healthcare
systems, the role of technology and the supra -national coordinating
institutions like the WHO, who play a critical role in crisis management.
There
is opportunity in adversity in every business. It may seem callous to stress
opportunity in the midst of a humanitarian crisis, but leaders have an
obligation to look ahead, to anticipate and meet new customer needs, to evolve
their strategies and organizations, and in so doing sustain the prosperity of
their enterprises.
About
the authors
Martin Reeves is
a managing director and senior partner in the San Francisco office of Boston
Consulting Group and the Chairman of the BCG Henderson Institute. You may
follow him on Twitter @MartinKReeves and contact him by email at Reeves.Martin@bcg.com
Lars Faeste is
a managing director and senior partner in BCG’s Hong Kong office and leader of
BCG’s Greater China system. He can be reached at faeste.lars@bcg.com
Kevin Whitaker is
the head of strategic analytics at BCG Henderson Institute. He can be reached
at whitaker.kevin@bcg.com
Mark Abraham is
a managing director and senior partner in BCG’s Seattle office and leader of
BCG’s work in the restaurant sector. You may contact him by email at Abraham.Mark@bcg.com
About
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