Covid-19 pandemic Change

 

It will be quite some time before we understand the full impact of the Covid-19 pandemic. But the history of such shocks tells us two things. First, even in severe economic downturns and recessions, some companies are able to gain advantage. Among large firms doing business during the past four downturns, 14% increased both sales growth rate and EBIT margin.

Second, crises produce not just a plethora of temporary changes (mainly short-term shifts in demand) but also some lasting ones. For example, the 9/11 terrorist attacks caused only a temporary decline in air travel, but they brought about a lasting shift in societal attitudes about the trade-off between privacy and security, resulting in permanently higher levels of screening and surveillance. Similarly, the 2003 SARS outbreak in China is often credited with accelerating a structural shift to e-commerce, paving the way for the rise of Alibaba and other digital giants.

In the following we’ll discuss how companies can reassess their growth opportunities in the new normal, reconfigure their business models to better realize those opportunities, and reallocate their capital more effectively.

Strategic Positioning :Reassess Growth Opportunities

The Covid-19 pandemic has severely disrupted global consumption, forcing (and permitting) people to unlearn old habits and adopt new ones. A study on habit formation suggests that the average time for a new habit to form is 66 days, with a minimum of 21 days. As of this writing, the lockdown has already lasted long enough in many countries to significantly change habits that had been the foundation of demand and supply.

Companies seeking to emerge from the crisis in a stronger position must develop a systematic understanding of changing habits. For many firms, that will require a new process for detecting and assessing shifts before they become obvious to all. The first step is to map the potential ramifications of behavioral trends to identify specific products or business opportunities that will most likely grow or contract as a result. Consider how the pandemic has caused people to stay at home more. Implications include an increase in home office refurbishment, driving greater demand for products ranging from paint to printers. Unless we sensitize ourselves to new habits and their cascading indirect effects, we will fail to spot weak signals and miss opportunities to shape markets.

Reconfigure Your Business Model

new business model will be shaped by the demand and supply shifts relevant to your industry. Many manufacturing companies, for example, will be profoundly affected by the structural and likely permanent shocks to globalization brought on by the pandemic. With big markets such as the United States raising trade barriers, for example, many companies will need to reshore critical components in their supply chains—from R&D down to assembly.

To figure out what business model the new normal requires, you need to ask basic questions about how you create and deliver value, who you’ll partner with, and who your customers will be.  

Change Management: Reallocate Your Capital

It may be psychologically hard to do during a crisis, when cash flows are stressed, but now is precisely the time to take a few well-considered risks. Research shows that the most successful companies not only invest more than their peers in new opportunities but also put their eggs in fewer baskets, devoting more than 90% of net spending to segments with higher growth and returns. These companies recognize that a crisis offers an opportunity to carve out a new competitive position.

Unfortunately, many companies are still defaulting to traditional habits of “peanut-buttering” new funding across the business and, when necessary, making horizontal cuts rather than targeted ones. According to BCG’s survey of leading firms, as of May 2020 only 39% of companies had modified their investment and capital allocation plans to target new growth drivers, and of that minority, only half had made investments in new business models.

CONCLUSION

In times of crisis, it’s easy for organizations to default to old habits—but those are often the times in which new approaches are most valuable. As companies position themselves for the new normal, they cannot afford to be constrained by traditional information sources, business models, and capital allocation behaviors. Instead they must highlight anomalies and challenge mental models, revamp their business models, and invest their capital dynamically to not only survive the crisis but also thrive in the post-crisis world.