As governments in Europe announce plans to end the lockdown, a new phase in the COVID-19 pandemic is upon us. It is a time for hope but also for caution. The end of the lockdown will not spell a return to the old “normal”, nor will it be universal. The opening will take different shapes, with different countries, different regions, and different business sectors opening up in different ways and at differing speeds. The virus still lurks and the ability to contain its spread will dictate what happens next; any resurgence will likely bring about renewed restrictions. Large-scale testing and tracing, the broad availability of masks, and sufficient intensive-care capacity in hospitals will determine the pace of recovery.
How can companies navigate this difficult environment, especially in the next few weeks, as the restrictions are loosened? Their eagerness to restart and rebuild is understandably large, but so are the questions that a return to business raises. What is the financial health—and state of mind—of suppliers and consumers? How can employees be motivated to return to work and reassured about their safety? How quickly will demand return? What will health and safety stipulations mean for the organization of operations and supply chain?
Companies will need to take a holistic approach to restarting. This article focuses on eight key actions. It is based on our research and conversations with leaders of large French, European, and Asian companies from all sectors, who provided a broad view of their issues and concerns about the end of lockdown.
The crisis has shattered many of the assumptions and tools that business leaders rely on for decision-making, but for the restart, they will need to define a solid framework for action in a highly volatile environment.
The best approach is to develop a detailed relaunch map—country by country, site by site, segment by segment, customer by customer, and product by product—in order to prioritize recovery opportunities. This map will guide production, supply chain, and marketing and sales efforts, and help determine a recovery timeline for each site. It will also enable business leaders to get a head start on reassessing investments and prospects for changing the geography of their value chains, for example through relocation of assets. It may be appropriate to freeze some planned or ongoing projects until the company has the capacity to reassess them.
The map should have a baseline reopening scenario as well as alternative scenarios that incorporate variables of high-impact market conditions—in particular, the risk of renewed contagion. The restart plan will need to be tested against such scenarios and include options for a fluid reallocation of resources if necessary. The map should cover two dimensions:
44 percent of consumers in France plan to reduce their discretionary spending over the next two weeks, compared to 34 percent in Italy, and 28 percent in Germany.
Segmenting the client base. In their planning, companies will need to clarify the parameters and assumptions about their customers. The issues will vary, depending on whether the activity is B2C or B2B.
For B2C, it will be essential to understand the impact of the crisis on household purchasing power and the confidence of households in the economic future of both their country and their own household. These determine their propensity to consume or save (Exhibit 1). In light of these factors, companies will need to review their traffic projections and the average customer basket. They will also need to anticipate changes in consumption habits and expectations. According to our analysis, they could be substantial. In France, for example, 44 percent of consumers plan to reduce their discretionary spending over the next two weeks, compared to 34 percent in Italy, 45 percent in the United Kingdom, and 28 percent in Germany. In China, we calculate that 50 percent of scheduled purchases have been canceled (not delayed). Impulse purchases have fallen by more than 30 percent and online purchases have seen increases in penetration of 15 to 20 percent. Beyond these effects, the crisis seems to have accelerated other underlying trends, including consumer demand for health, sustainability, or local suppliers.
Emerging from lockdown, clients will be more vigilant about health and increase their demands on safety. Companies will need to provide products and services that adhere to the most rigorous health and safety conditions, and be able to show or explain them to clients. Two avenues for action could be considered:
Many employees are eager to return to work, but many are also worried about being able to do so safely. Companies will need to both reassure employees about safety and find ways to motivate them in a post-lockdown world. Three simultaneous actions will be needed:
Perhaps counterintuitively, our analysis shows that demand constraints were responsible for 85 percent of the weekly GDP loss recorded at the beginning of April in Germany and more than 70 percent in France. In a large majority of the 25 sectors we studied (17 in Germany and 20 in France), the effects of the demand shock on value added outweighed the impact of the supply shock. This was linked to the availability and productivity of labor or raw materials and components (Exhibit 3).
One imperative for businesses will therefore be to revive their customer base. They will then have to stimulate demand, guarding against any risk of distorting price models or, worse, fueling a deflationary spiral. More than ever, it will be important to win on several fronts:
The optimal restart of operations requires returning to the market at the desired speed to serve the demand accumulated during lockdown—but without going faster than the pace of recovery. At the same time, CEOs will seek to consolidate their company’s competitive position. Several prerequisites must be met:
33 percent of Chinese consumers changed food brands during the crisis, and and 20 percent of them plan to stick with the alternatives that they tried out.
From the start of lockdown, chief information officers (CIOs) and chief technology officers (CTOs) have made heroic efforts to cope with spiraling new demands against tight deadlines. They have had to orchestrate the massive and sudden switch to remote work for employees, using new collaborative tools in a way that is both efficient and cybersecure. They have had to ramp up digital channels to serve customers, even as they solidify their company’s IT infrastructure at a time of very large load increases. For all these achievements, there’s still an opportunity to do more. The importance of digital to customers, suppliers, and to the entire economy has rapidly accelerated—and executives must speed up their digitization plans.
On the technology front, three priority actions must be launched to ensure a successful restart:
The dual priority in this area will be as follows:
Many companies with the ability to continue at least partially during confinement periods had to design and adopt a radically new “under strain” operating model within a few days. Some have succeeded in pivoting a large part of their activities.
Companies, particularly in professional services, have managed to increase their work-from-home rate from 5 percent to 90 percent in a matter of days. All companies have been forced to eliminate travel, while preserving their capacity to operate by videoconference. Others have had to resize their teams, make their business models more flexible, shorten decision chains, streamline their processes, and even convert their production lines. Finally, the skills of the staff have sometimes been developed in a hurry across multiple dimensions (in the business aspects, as well as in terms of piloting and execution capabilities, a stronger sense of initiative, greater versatility, and so on).
In many situations, the crisis has been an opportunity to strengthen relationships with large customers and solidify the supplier ecosystem. Having navigated through this collective ordeal, many companies can strengthen partnership relations with all the stakeholders in their environment. In some business segments, dramatic productivity gains and agility have been achieved. For leaders, it is now important to determine which of the developments imposed by circumstance may have generated value, financially, operationally, and for their people. Some of these could then be incorporated into future thinking about the reorganization of work and reinventing the business model.
Finally, innovation of both process and product has made huge leaps during the lockdown. With the restart, these new performance achievements could be reinvested and contribute to enriching the company’s material and intangible assets in the longer term. It is worth making a rigorous inventory and integrating the new achievements into new post-crisis operating standards, in a process of continuous improvement.
In just a few short weeks, companies will have to plunge into a new phase of the restart with many unknowns that will remain nebulous for a long time. They may be far from having all their operational capabilities. They will lack links in their supply chain and have only restricted access to their various markets. Moreover, they will have to live under the shadow of a resurgence of the epidemic with new confinement measures. In our experience, embracing these eight actions can help them value-assure the restart. Further, the transition to a ”next normal” will require them to reinvent their business models, even as they continue to respond effectively to the aftershocks of the crisis.
This content was originally published here.