We are all facing an uncertain world characterized by shifting markets, supply chain logistics interruptions, political uncertainty and strife, and increased regulations. For the last 30 years we relied on specific anchor points, assuring a high level of predictability, however in the last 3 years a global pandemic, and a major military conflict in Europe. We also expect climate change related challenges, and who knows, maybe an alien invasion 🙂 Briefly, we need to put in place the means to continuously adapt to ever changing conditions.
Let’s take Covid-19, the biggest recent global health crisis, as an example. During the pandemic, the very measures taken to flatten the infection curve were the ones severing capital, goods and services fluidity. Economically, we all were in unchartered territory.
How could these businesses fare?
A company’s financial results geometry may follow one of the following four scenarios:
Hockey stick – shape: Sales and demand are higher than pre-crisis number
Essential services: health care, pharma, basic house-hold goods and food, protective equipment, cargo transport and delivery services, etc.
V – shape: Companies that will suffer a disruption to their business model but will recover to their pre-crisis performance path. These companies suffered a temporary dip but are back with no long-term damage.
U- shape: Companies that will suffer a disruption to their business model, will recover to their pre-crisis general path, but have suffered a long-term drop-gap between the new performance curve and the old one. These companies have suffered a material hit to their ability to do business but have managed to survive and re-set.
L- shape: Companies have suffered a severe disruption to their business and will never recover to the pre-crisis path or financial numbers. The question for these companies is whether they will have enough assets to reorganize and restructure to fight another day or not.
The obvious strategy for any business is to plan for a V-shape curve, and if not possible due to immutable forces (tourism, retail, etc.) ensure they retain the ability to recover to at least a U-shape curve.
Businesses have always faced the challenge of optimizing scarce resource allocation to reach their stated goals. Any given business has a limited amount of capital, people, assets, market opportunities to strategically balance to achieve the maximum synergy needed to reach their targets. Seen from this angle, planning simply means committing to a series of actions that draw a high-certainty line (hopefully) between the desired goals/targets and what we must do to get us there. We trace this line through myriad variables: market demand, government regulations, exchange rates and tariffs, competition and marketing, production efficiency and cost of labor, sales strategy, R&D and tax climate; the list just keeps growing.
The COVID-19 Pandemic brought a whole new set of variables to the table, and a climate of shifting variables that we have never seen before. Right now, the need for planning is a must-have to maximize the likelihood of running your company in an optimum manner and it may mean the difference between remaining viable and suffering a material devastating contraction.
The two-tier plan:
- Invest in your day-to-day business
- Keep your motor running so you can accelerate later. Do not impair your business ability to execute.
- Keep your workforce, especially if your competition does not. Remember how hard it is to find good people. Whatever short term relief you may experience will be repaid when it is time to gear up again.
- Analyze short term variable changes: reduction in exports, liquidity position, additional tax shields, increased domestic access, inventory levels, capacity reduction/expansion, etc.
- Plan your accelerating strategy in the future
- Uncertainty means developing multiple plans and scenarios – contingencies
- Prepare answers for all possible scenarios – robust answers to unpredictable events will make THE difference.
- In a world of uncertainty the answer is always: Analyze. Act. Repeat. Thoughtful speed is of the essence.
It’s time to switch your planning effort from mostly data gathering to mostly data analysis. Right now, you must start investing heavily in strategic planning by increasing the flexibility, frequency, and speed of your analysis methodologies and teams. If in the past you relied on a “good enough“ solution, the current uncertain situation clearly shows that your business cannot afford “good enough” anymore. Time to get to work.
Useful links:
https://www.tagetik.com/en/smart-now-cloud-apps/smart-now-cloud-apps
https://www.weforum.org/agenda/2020/04/how-to-plan-company-future-during-pandemic/
https://www.liqui-moly.com/en/press/press-releases/detail/news/tertial-result-50-profit-collapse-5533.html