Getting out of the crisis: Learning now for the future - COVID-19 blog | Deloitte Australia has been saved
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The middle of a crisis might not seem to be the best time to think about the longer term. It can be important though, once immediate problems are dealt with, for management teams to consider how their firm will trade its way out of the crisis, rather than just reacting to events as they unfold.
The current global pandemic is a case point. The sudden onset of this crises has management teams scrambling to respond, reacting to events rather than planning. Their focus is on cutting costs, furloughing employees, and deferring liabilities, to align expenses with dropping revenue (or plummeting revenue, as is the case in some sectors), while using the facilities provided by the government to plug holes. There’s even talk of putting firms into hibernation for the duration of the crisis, suspending operations until demand springs back. A bunker mentality has developed—batten down the hatches and wait for the bad to pass.
Behind this response is the unstated (and unchallenged) assumption that we’re in for a V-shaped disruption, a rapid drop in revenue that will quickly spring back once government restrictions on movement are lifted and demand returns. While the idea of a V-shaped disruption has a pleasing symmetry to it, the assumption might not be true.
As data on the pandemic improves, providing more granular insight on what’s happening on the ground, there’s invariably talk of a more nuanced and regional recovery strategy. This would imply that restrictions are lifted incrementally, by state, region or sector, rather than nationally. Instead of the ‘snap back’ implied by our hopes for a V-shaped disruption, restrictions would be lifted unevenly and incrementally. This will limit the rate of the spring back. Restaurants, for example, might find that they can reopen on-premises dining, though with a reduced dining room capacity. Initially this might one table in three, and then every other table a couple of months later, with all restrictions finally lifted late in the year. Or a firm could find that regional operations can resume while head office and metropolitan operations are still restricted.
This rapid shutdown but gradual return to normal presents management teams with the difficult challenge of picking when demand has ‘sprung back’ enough for them to restart operation. This is, of course, complicate due to the lead times—few firms will be able to resume operation the same day that the decision is made.
Should a firm restart operation when the first restrictions are lifted? While the firm may not be profitable (or even sustainable) at this time restarting the business might be the smart move if it’s not long until further restrictions are removed, as it enables the firm to get up to speed so that its ready when demand has sprung back.
At a community or society level this isn’t a particularly important question. Rising demand will be satisfied, workers will change jobs to be where the work is, resources will be redeployed, and, as a community, we’ll move on. It’s likely be a fairly smooth transition (though not without its challenges and lingering affects).
When we consider an individual firm it’s a different story though. Go too early, over estimating how quickly further restrictions will be removed, and the firm might drown under costs before demand returns. Go too late, underestimating how quickly further restrictions will be removed, and the firm might find demand (and returning revenue) snapped up by competitors. Both scenarios put the firm on the back foot. The worst case would see the firm go under, unable to cover costs. A less-worse case would see the firm forced back into hibernation, though with valuable cash reserves wasted.
This is why it’s important to consider not just immediate problems—dealing the recent drop in revenue—but also the longer-term problem of how the firm will resume normal operation. (And by longer term here, we’re obviously referring to months and not years.)
Central to this is finding the things that the firm can do (rather than focusing on what it can’t do) to keep operating, even in a limited fashion. Restaurants pivoting to on-line delivery is an obvious example. Less obvious is for restaurants to reinvent Mr Whippy or create (and monetise) online events.
Keeping core operations ticking over (be it at lower revenue) makes it easier to transition back to full operation as restrictions are progressively lifted. It’s not such a problem to for a restaurant, for example, to open up the dining room to a limited number of customers if the kitchen is busy with delivery and pick-up orders.
We need to get out of the bunker mentality that an uncertain and rapidly unfolding crisis has pushed us into. Management teams should consider how they’re going to trade out of this crisis, and not just how they’re trading into it. Focusing on what we do know, and not just on what we don’t. Or, put another way, they need to consider what they can do for their customers and clients, and not just what they can’t do.
An optimist would consider this a great time for experiment, to look for new opportunities, to find new ways to do old things, and to find new things to do.
Peter is a recognised thought leader and practitioner in Innovation. Peter started working with internet technologies in 1993 and in 1996 founded an eBusiness Consulting group, Deloitte Australia. Since that time Peter is the CEO of the Eclipse Group, a Deloitte subsidiary, and then founded Deloitte Digital. He is also the Chairman of Deloitte’s Innovation Council and the Chief Edge Officer. He is recently named as one of Australia’s top Digital Influences and is an Adjunct Professor at RMIT.
Peter is currently a fellow at The Centre for the edge - helping organisations embrace the digital revolution through understanding and applying what is happening on the edge of business and society.Peter has spent 20 years working at the intersection between business and technology. These days he works as a consultant and strategic advisor on both business and technology sides of the fence.