Navigating through the prolonged COVID-19 pandemic
KUALA LUMPUR, 28 May 2021 - It’s been over a year since the pandemic took the world by storm. At times, we seem to almost claim victory only to brace ourselves with yet another wave of COVID-19 ravage. We are probably in for a long battle. As we grapple with new norms, the unfortunate reality is that not every business will survive! Resilient businesses invariably exhibit a common attribute – agility in adapting to a changing environment. To thrive, I suggest business leaders take a serious look at the following areas:-
1. Scenario planning
In view of the prolonged pandemic, global economic outlook remains very unpredictable. For businesses that are highly sensitive to volatile market condition, prudent management calls for business to re-forecast its financials based on three scenarios ie best case, worst case and most likely case. In each scenario, revenue trajectory, cost base, working capital, human capital, credit headroom, etc, requires diligent calibration. Adopting such good practice helps businesses better prepare and respond to outlying circumstances.
2. Strengthen cash flow
Often, businesses fail due to acute cash flow problem. It’s imperative to evaluate the adequacy of our liquidity by conducting health checks on our cash position. These levers can help enhance our cashflow:
- Account receivable levers – seek early and proactive engagement with customers, negotiate shorter payment terms by offering discount. We should anticipate that our creditors may hold exactly the same conversation with us. Debt factoring to monetise our receivables may be considered.
- Inventory levers – reduce order quantities and buffer stock, explore consignment arrangement with vendors, just-in-time stock management model, and elimination of production bottlenecks.
- Accounts payable levers – negotiate for longer credit terms, prioritise critical supplies, seek greater credit headroom especially on supply chain financing.
3. Realign supply chain
Complex global supply chain that is comprehensively intertwined has been massively impacted by the pandemic. We are now experiencing global inflation fear due to shortages in supply ranging from commodity to building material, and to workers. Indeed the global automotive industry may lose USD60 billion due to a microchip shortage, a minute component but key to car making. Supply chain management that spans across sourcing, manufacturing, delivery and sales support is a key priority, failing which would expose businesses to substantial financial loss, regulatory non-compliance, and reputational damage.
We need to gain full visibility over our existing suppliers and map out the supply chains, extending the coverage from tier 1 (direct) to tier 2 (secondary) suppliers. Evaluate our suppliers’ ability to fulfil orders, looking into various areas including source of material, adequacy of workers and their welfare, agility of logistic route, compliance to regulatory and safety requirements. Plan B or alternative suppliers ought to be in place to deal with circumstances where existing vendors were disrupted.
4. Rethink work, workforce and workplace
Measures introduced to contain the global pandemic such as lockdown, work from home, travel restriction may have affected over 75% or 2.7 billion of global workforce based on some studies. The pandemic has created an opportunity for businesses to re-imagine what the future of work, workforce and workplace would be, helping businesses to re-configurate to stay ahead. Certain roles may become redundant while new jobs will be created as businesses evolve. How to communicate this effectively to our people especially to those that cannot be redeployed is vital.
As hybrid work arrangement of virtual and physical gains prevalence, a key concern is the challenge for employers to inculcate ‘As One’ culture and shared value among their workforce. Anxiety may arise due to the prolonged pandemic. Hence employers should find novel ways to re-engage their people and introduce programs addressing mental health issues.
I have no doubt that the future of workplace would be a combination of office and home, tilting towards the latter. Employees should be given adequate financial aids to create a conducive home office. This could be made possible by channeling some financial surplus arising from office space cut-back. Office layout should be redesigned to provide more hotdesking and common facilities for team solutioning and fellowship activities. Satellite offices with basic facilities such as tele-conferencing, printing may be set up at places near where employees live to cut travel time. Massive investment from the government to enhance internet connectivity and stability on a national scale as well as granting tax relief to employers and employees on related expenditure would certainly spur workplace transformation.
5. Accelerate automation
Many businesses had their operations disrupted when COVID-19 first hit in March 2020 due to low adoption of automation and digitalisation. Among others sales and purchase orders, payment, human resource management including staff claims and leaves application were manually processed. There were instances where vendors were not paid during full lockdown because cheque books were kept in the office safe box.
Many businesses finally accelerated on automation and digitalisation transformation, investing heavily in virtual workplace, robotic process automation and machine learning capabilities among others. Increased digitalisation must be met with an expanded security perimeter. It is critical to maintain cyber vigilance to safeguard cyberattacks, the seriousness of it can be seen in a recent cyber attack incident faced by a top fuel pipeline operator in the USA.
6. Re-study market landscape
Knowing your ecosystem is imperative! Think of how the pandemic is impacting your customers, suppliers, competitors, industries, government etc and how each of these stakeholders respond as they can define the success of your business. We need to know the changing preference, buying behaviour and spending capability of our customers. Competitors on the other hand serve as our check and balance, giving us insights into how to improve our offerings.
Keep your eye on what’s going on in your industry, identify gaps within the marketplace and seize the opportunities to fill in. Stay connected and keep abreast of the industry trends to stay relevant and bring a new value proposition.
7. Re-engineer business
Having re-examined our market landscape and its future trends, if there are struggling non-core, underperforming or loss-making business unit(s), we have to critically relook at whether it still fits into our overall business portfolio. Fund infusion exercises including debt restructuring, deleveraging via fresh capital, sell and lease back of fixed assets may be needed. This reality check could also lead to designing an exit program with defined roadmaps to achieve desired outcomes. Swift action to stop the bleeding though bitter, may be the best prescription if the asset is fast deteriorating in value.
As the pandemic persists, I observe more mergers and acquisitions taking place as strategic investors pursue an expansionary agenda to strengthen their core businesses to drive future growth. Initial Public Offering (IPO) activities are on the high too as businesses seek fresh capital to expand market presence by tapping capital market that currently have enormous liquidity.
Embrace new norms
As business leaders sail through the pandemic dark cloud en-route recovery, every strategic move we embark on now would impact our ability to thrive in the future. Immense agility, exceptionally positive attitudes and forward-looking mindsets ought to be embedded into our business DNA. Charles Darwin, one of the world-renowned naturalists, quoted that it is not the strongest of the species that survives, nor the most intelligent, it is the one that is most adaptable to change!
The views and opinions expressed in this article are those of Yee wing Peng, CEO of Deloitte Malaysia.
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