COVID-19: Business and capital planning for the next normal
Four principles to ensure that business and capital planning is focused on the knowledge and strategies needed to recover and thrive in a future characterized by uncertainty.
In one sense, nothing has changed: The basic disciplines that underpin business and capital planning remain unchanged. Smart businesses still need to affirm their strategic intent, develop robust forecasts, communicate clearly with key stakeholders, back up their commitments with decisive actions and remember that, whatever happens, cash is king. In another sense, though, everything is different. The COVID-19 pandemic has radically shifted the context in which business leaders must view the fundamentals and execute on them.
To help leaders better understand the environment in which we all now operate, this report offers four principles for business and capital planning. These principles are designed to be relevant now, as the crisis continues to unfold, and in the near future as the “next normal” emerges. The goal is to focus on the knowledge and strategies that businesses need to recover and thrive as we move into a future characterized by uncertainty.
1. Reality has been reset. The disruption to the global economy has been sweeping but also uneven. With many businesses devastated and a few newly advantaged, the starting points for recovery are polarized. Moreover, the contagion threat will linger, fear of the virus will persist, and customer behavior will change, permanently. Businesses need to recognize that a return to the pre-crisis normal will not happen. The environment they will operate in going forward will be different, for some sectors radically so.
2. The next normal is what matters. There are one-time opportunities emerging from the disruption of the pandemic. Businesses should see the changes around them as an opportunity to radically reshape and restructure. They need to monitor fast-moving trends and, as a consequence, should design operating models and capital structures to be flexible and resilient.
3. Businesses are in it together. Companies moved fast to add liquidity headroom as the crisis emerged, and they must continue to closely monitor and control their cash. Governments, recognizing the crisis facing their economies, are providing unprecedented support to households and businesses. Still, some companies will fail. So all businesses need to monitor key suppliers and customers, work with them, and address weaknesses in their value chains.
4. Financing for the future. Organizations need to develop robust, realistic business and capital plans. There’s an urgent need for scenario-based forecasting. Financing challenges will vary dramatically, depending on whether a business is emerging from hibernation or has come through mostly unscathed. Proactive and clear communication with financial stakeholders will be key.
Running through all four of these principles is the need to rebuild trust. The unprecedented scale and speed of the crisis stretched many established controls to the breaking point, driving relaxations in market disciplines, regulations and governance. This in turn opened the door for the unscrupulous and the unwitting alike, undermining confidence, and so this uncertainty too is part of the reset reality. Insofar as businesses and their stakeholders are in it together—and governments too, providing support for the economy—each needs to be able to trust the other. For a recovery to endure and enable a company to thrive, it must be founded on trust.
In this report, the first two sections are centered on establishing the new context in which business and capital planning will take place. The final two sections then lay out the actions leaders need to take to make their planning resilient and relevant in this changed world.