[FAQ] How Businesses Should Tackle The COVID19 Scenario

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As Coronavirus Pandemic wreaks havoc all over the world, companies are reeling under pressure on how to tackle this. Not just the company outlook and profit but the workforce as well is of potential concern. Keeping this in mind, McKinsey has put forward a detailed analysis regarding the course of action for businesses.

Here’s a look into that.

What companies are missing?

Our conversations with hundreds of companies around the world on COVID-19 challenges have allowed us to compile a view of the major work streams that companies are pursuing, says a press release published on their website

While this list is fairly comprehensive, some companies are taking other steps. However, we have seen evidence that many companies are finding it hard to get the major actions right. We have consistently heard about five challenges.

Problem Areas

  1. Inability to Internatize the Reality

Exponential case-count growth is hard to internalize unless you have experienced it before. Managers who haven’t experienced this or been through a “tabletop” simulation are finding it difficult to respond correctly. In particular, escalation mechanisms may be understood in theory, but companies are finding them hard to execute in reality, as the facts on the ground don’t always conform to what it says in the manual. Crisis case studies are replete with examples of managers who chose not to escalate, creating worse issues for their institutions.

2. Ineffective Mechanisms of Employee Safety

  • Policy making at many companies is scattershot, especially at those that haven’t yet seen the coronavirus directly.
  • Many, such as professional-services and tech companies, lean very conservative: their protection mechanisms often add to a perception of safety without actually keeping people safer.
  • For instance, temperature checks may not be the most effective form of screening, given that the virus may transmit asymptomatically.
  • Asking employees to stay at home if they are unwell may do more to reduce transmissibility.
  • Such policies are more effective if employees receive compensation protection—and insulation from other consequences too.
  • Some companies aren’t thinking through the second-order effects of their policies. For example, a ban on travel without a concomitant work-from-home policy can make the office very crowded, leading to higher risk of transmission.
  • Others are adopting company-wide policies without thinking through the needs of each location and each employee segment.

3. Dangerous Demand Optimism 

Being optimistic about demand recovery is a real problem, especially for companies with working-capital or liquidity shortages and those veering toward bankruptcy. Troubled organizations are more likely to believe in a faster recovery—or a shallower downturn. Facing up to the possibility of a deeper, more protracted downturn is essential, since the options available now, before a recession sets in, may be more palatable than those available later. For example, divestments to provide needed cash can be completed at a higher price today than in a few weeks or months.

4. Misaligned Assumptions 

Some companies are pursuing their coronavirus responses strictly within organizational silos (for example, the procurement team is driving supply-chain efforts, sales and marketing teams are working on customer communications, and so on). But these teams have different assumptions and tend to get highly tactical, going deep in their own particular patch of weeds rather than thinking about what other parts of the company are doing—or about what might come next.

5. Lack of Longterm Focus

The near term is essential, but don’t lose focus on the longer-term (which might be worse)
Immediate and effective response is, of course, vital. We think that companies are by and large pursuing the right set of responses, as shown in Exhibit 4. But on many of these work streams, the longer-term dimensions are even more critical. Recession may set in. The disruption of the current outbreak is shifting industry structures. Credit markets may seize up, in spite of stimulus. Supply-chain resilience will be at a premium. It may sound impossible for management teams that are already working 18-hour days, but too few are dedicating the needed time and effort to responses focused on the longer term.

The coronavirus crisis is a story with an unclear ending. What is clear is that the human impact is already tragic, and that companies have an imperative to act immediately to protect their employees, address business challenges and risks, and help to mitigate the outbreak in whatever ways they can.

Actions That Can Help

In our experience, seven actions can help businesses of all kinds. We outline them here as an aid to leaders as they think through crisis management for their companies. These are only guidelines; they are by no means exhaustive or detailed enough to substitute for a thorough analysis of a company’s particular situation.

1.Protect your employees.

The COVID-19 crisis has been emotionally challenging for many people, changing day-to-day life in unprecedented ways. For companies, business as usual is not an option. They can start by drawing up and executing a plan to support employees that is consistent with the most conservative guidelines that might apply and has trigger points for policy changes. Some companies are actively benchmarking their efforts against others to determine the right policies and levels of support for their people. Some of the more interesting models we have seen involve providing clear, simple language to local managers on how to deal with COVID-19 (consistent with WHO, CDC, and other health-agency guidelines) while providing autonomy to them so they feel empowered to deal with any quickly evolving situation. This autonomy is combined with establishing two-way communications that provide a safe space for employees to express if they are feeling unsafe for any reason, as well as monitoring adherence to updated policies.

2. Set up a cross-functional COVID-19 response team.

Companies should nominate a direct report of the CEO to lead the effort and should appoint members from every function and discipline to assist. Further, in most cases, team members will need to step out of their day-to-day roles and dedicate most of their time to virus response.

A few workstreams will be common for most companies:

a) employees’ health, welfare, and ability to perform their roles;

b) financial stress-testing and development of a contingency plan;

c) supply-chain monitoring, rapid response, and long-term resiliency (see below for more);

d) marketing and sales responses to demand shocks; and

e) coordination and communication with relevant constituencies.

These subteams should define specific goals for the next 48 hours, adjusted continually, as well as weekly goals, all based on the company’s agreed-on planning scenario. The response team should install a simple operating cadence and discipline that focuses on output and decisions, and does not tolerate meetings that achieve neither.

3.Ensure that liquidity is sufficient to weather the storm.

Businesses need to define scenarios tailored to the company’s context. For the critical variables that will affect revenue and cost, they can define input numbers through analytics and expert input. Companies should model their financials (cash flow, P&L, balance sheet) in each scenario and identify triggers that might significantly impair liquidity. For each such trigger, companies should define moves to stabilize the organization in each scenario (optimizing accounts payable and receivable; cost reduction; divestments and M&A).

4.Stabilize the supply chain.

Companies need to define the extent and likely duration of their supply-chain exposure to areas that are experiencing community transmission, including tier-1, -2, and -3 suppliers, and inventory levels. Most companies are primarily focused on immediate stabilization, given that most Chinese plants are currently in restart mode.

  • They also need to consider rationing critical parts, prebooking rail/air-freight capacity, using after-sales stock as a bridge until production restarts, gaining higher priority from their suppliers, and, of course, supporting supplier restarts.
  • Companies should start planning how to manage supply for products that may, as supply comes back on line, see unusual spikes in demand due to hoarding.
  • In some cases, medium or longer-term stabilization may be warranted, which calls for updates to demand planning, further network optimization, and searching for and accelerating qualification of new suppliers.
  • Some of this may be advisable anyway, absent the current crisis, to ensure resilience in their supply chain—an ongoing challenge that the COVID-19 situation has clearly highlighted.

5. Stay close to your customers.

Companies that navigate disruptions better often succeed because they invest in their core customer segments and anticipate their behaviors. In China, for example, while consumer demand is down, it has not disappeared—people have dramatically shifted toward online shopping for all types of goods, including food and produce delivery. Companies should invest in online as part of their push for omnichannel distribution; this includes ensuring the quality of goods sold online. Customers’ changing preferences are not likely to go back to pre-outbreak norms.

6. Practice the plan.

Many top teams do not invest time in understanding what it takes to plan for disruptions until they are in one. This is where roundtables or simulations are invaluable. Companies can use tabletop simulations to define and verify their activation protocols for different phases of response (contingency planning only, full-scale response, other). Simulations should clarify decision owners, ensure that roles for each top-team member are clear, call out the “elephants in the room” that may slow down the response, and ensure that, in the event, the actions needed to carry out the plan are fully understood and the required investment readily available.

7. Demonstrate purpose.

Businesses are only as strong as the communities of which they are a part. Companies need to figure out how to support response efforts—such as by providing money, equipment, or expertise. For example, a few companies have shifted production to create medical masks and clothing.

The checklist given below can help companies make sure they are doing everything necessary.

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Source: McKinsey

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