Authors: Kevin Bolen, U.S. Leader, Strategic Investments; Steve Hill, Global Head of Innovation; Jim Negus, U.S. NMP, Clients & Markets
As COVID-19 continues to spread, more than three-quarters of the world has engaged in some degree of social distancing.1 These circumstances are not what we expected just 60-90 days ago, and significant aftershocks are still to come.
The pandemic has redefined business-as-usual for nearly all companies, regardless of industry, size, or geography. All are dealing with some level of disruption and will continue to grapple with the business implications of managing remote workforces, accelerating digital transformations, building more resilient supply chains and strengthening connections with customers in the weeks and months to come.
Given the level of disruption, most organizations are largely still reacting or moving into ‘Resilience’, the second of what we see as a four-phased journey from Reaction to Resilience, then Recovery and eventually to a New Reality.
The initial panic-driven behavior is starting to subside, communities are contemplating easing certain social controls and consumer demand is constrained by lost wages. Companies should consider cash management through the Resilience phase as it will form the basis of their eventual ability to restart during the Recovery. But we also believe that organizations further along in their digital transformation will have an edge– their data-driven insights into emerging customer preferences and an ability to rapidly pivot their offerings and pricing will yield faster returns. Eventually, in Recovery, consumer demand will bounce back as jobs are restored or created and general anxiety will ease up. And then comes our New Reality, which no one can predict with any certainty, but in which we can expect some current trends and behaviors to be sustained.
Throughout this journey, companies must think and act strategically and continuously assess their strategies and business plans influenced by economic, sector and company predictions.
Alphabet soup of recovery patterns, based on industry
Although companies will experience similar overall trajectories driven largely by the curve of the pandemic, the impact will differ by industry, geography and company. For example, brick-and-mortar retail and hospitality–two sectors dominated by small- and medium-sized firms with razor thin margins and low cash buffers– were the first to see severe impacts.2
We see an ‘alphabet soup’ of recovery patterns emerging, influenced by many factors, including how quickly demand will recover (from slow to fast) and the degree of permanent change to the industry’s underlying economics or value chain (from low to high):
- Hard reset: Industries/companies that struggle to recover due to “permanently” lowered demand for their offerings, insufficient capital to ride out extended recession, and/or poor digital transformation execution. This could take an ‘L shape’ – or when recovery takes a long time and results in long-term economic damage. Airlines and brick-and-mortar retail could fall into this quadrant.
- Transform to re-emerge: Industries/companies that will recover along a protracted path, requiring capital reserves to transform operating models and keep up with new consumer expectations. This could take a ‘U shape’ – or when it lasts more than a few quarters. Healthcare and automotive are two examples.3
- Modified Business As Usual (BAU): Industries/companies seen as daily essentials that will suffer during the consumer slowdown, but recover more quickly as consumer demand rebounds. This could take a ‘V shape’ – or when an equally sharp recovery comes after the initial plunge. Examples could include consumer goods and banking.
- Surge: Industries/companies that scale rapidly because consumer behavior changed permanently during the COVID-19 era. Examples could include online retail and TMT.
With so much uncertainty, it can be difficult for leaders to feel confident in their actions. Understanding the trajectory of the disease, the recovery path in an industry, and the potential vision for the New Reality can help leaders assess their current positioning and adjust their strategies to eventually thrive.
Leaders refreshing business strategies and forecasts should therefore consider the following:
- Recognize, by definition, any forecast will be only partially accurate. Be prepared to pivot and regularly adjust models.
- Be creative and consider the art of the possible. Take into account a host of factors, including the significant impact to global supply chains and new norms for customer interactions.
- Contemplate the inevitable blurring of sector lines. Challenge current sector thinking and consider opportunities for new or modified services across disparate sectors.
- Rethink and prioritize business agility. This pandemic has illustrated the significance of being able to pivot quickly. Evaluate whether you have the right digital capabilities and supply chain strategies to respond effectively to major upheavals in the future.
- Consider new alliances and the power of ecosystems. Start thinking now about how new partners and third-party alliances may shape your future operating model and support digital transformation.
We will be providing more industry and sector-specific perspectives over the coming weeks and months. Please reach out if you would like to discuss