The COVID-19 pandemic, which started late 2019 in Wuhan, China, has affected major parts of the economy worldwide. Its impact on businesses could be described by means of a U-shaped four-phase model. Exiting from the pandemic will lead to a new normal which requires firms to adjust their business model to rebecome successful. Five key strategic areas will need to be adapted: 1) reframing customer relationships, 2) readjusting supply chains and reviewing outsourcing approaches, 3) redesigning office logistics taking into account lessons learned from forced home office, 4) refining decision making processes, and 5) rethinking competitive positioning.
Since early 2020[i], the whole world has been affected by the emergence of the SARS-CoV-2 virus and the related COVID-19 disease. On March 11th, 2020, the world health organization called out COVID-19 a pandemic, spreading at an exponential pace if not contained. This has led to drastic measures resulting in a halt of nearly all parts of the economy around the world and a significant change in customer behaviors. Although, as of this writing, the outbreak has been contained in many countries, the impact of the pandemic on how business will be done in the future remains unclear. What is though clear is that the business environment post-crisis will be different from that pre-crisis. Firms wanting to survive and thrive in the new normal must revisit their strategy, including their business model and competitive positioning.
A FOUR-PHASES MODEL OF THE PANDEMIC AND ITS IMPACT
To better understand and exploit the consequences of the COVID-19 outbreak, I propose a four-phases model of the pandemic and its impact on the economy (top-down) as well as individual firms (bottom-up). Table 1 describes the four phases. My model assumes a U-shape recovery, where the breadth and depth of the U depends on the specific circumstances of each country including the sanitary (e.g., social distancing, wearing masks, washing hands frequently, healthcare system under control) and economic (e.g. state-guaranteed loans, extended unemployment benefits, financial support for industries) measures taken. In addition, I believe that the right-hand side of the U-shape (what I call the new normal) will be different from that of the left-hand side (the pre-pandemic environment). As of the writing of this insight, a significant number of the developed economies, have entered phase 2 – re-opening the economy, whereas non-Asian emerging economies, like Brazil or Venezuela, still struggle with phase 1 – lock-down. China in part, has already entered phase 3, trying to define the new normal by keeping the reproduction coefficient significantly below one, thus avoiding an exponential spread of the virus, resulting in customers being allowed to go out again and consume, resulting in the economy to restart slowly.
Table 1 – Four-phases model of the COVID-19 pandemic and its implications of the economy at large and individual firms in particular
FIVE STRATEGIC AREAS TO REVISIT
Although I do not want to downplay the relevance of crisis management to survive phase 1, and the importance of liquidity management in phase 2, I believe that future success of companies primarily depends on how they prepare for phases 3 and 4. The key will be adjusting the strategy, especially the business model and competitive positioning, to the future new normal environment. To stay ahead of competition this adjustment should be started as soon as the firm has done its homework with respect to managing liquidity and reducing unbearable fixed costs.
I believe that there are five key strategic areas to revisit, through the 5R activities – reframing, readjusting, redesigning, refining, and rethinking – to succeed ant thrive in a post-COVID-19 economy.
REFRAMING CUSTOMER RELATIONSHIPS
Due to social distancing guidelines and the increased reliance on home office, customers have moved their purchasing decisions to on-line shops. It is expected that in many areas, this behavioral change will remain in the new normal. There is a joke circulating on social media platforms asking “Who pushes your digital transformation the most? The CEO, the CFO, or COVID-19?”. I believe that there is more truth to this joke than many firms want to believe. Firms should revisit their customer relationship approach and push their digital transformation forward. The solution is to find an optimal combination of digital and personal interaction reframing the customer experience, rather replacing a personal experience by a digital one, adapted to the specific customer relationship approach of each firm stands for.
READJUSTING SUPPLY CHAINS AND OUTSOURCING APPROACHES
Many firms have learned the hard way during the pandemic that supply chains designed for sunny days, fail under a disrupted market environment. Key resources were unavailable and critical activities could no longer be relied upon, leading to stalled production lines. Firms should review their supplier strategy and reduce reliance on individual partners over which they have limited control (e.g. due to their remote location, their political exposure, or their relationships with competitors). Outsourcing strategies need to be recalibrated, focusing on insourcing core (e.g. customer support, key supplies manufacturing) and non-core (e.g. payroll handling) business-critical activities. Backup plans should be devised, and stress tested with respect to different possible scenarios.
REDESIGNING OFFICE LOGISTICS
Due to social distancing requirements introduced to limit the spread of the virus, many firms have established home office wherever possible. Companies have learned the advantages and drawbacks of having employees work from home. To adapt to the new normal, firms should revisit their value chain an identify those activities that need employee interaction (e.g. requiring collaboration, team creativity) or physical presence (e.g. because of manufacturing equipment requirements) and those tasks that can be performed from home without adverse effects (e.g. desk / brain work). Firms should also review their office premises, rethinking the concepts of open space and cubicles in favor of individual offices and meeting rooms. The focus should be on employee satisfaction, work efficiency, and cost optimization.
REFINING DECISION MAKING PROCESSES
Numerous firms rely on committee-based decision-making processes. Although these processes may be run online using tools like Zoom, WebEx, or Microsoft Teams, they perform best when meeting face-to-face. The pandemic has shown that unclear decision-making processes can become bottlenecks. Firms should rethink their decision-making processes, focusing on allocating clear responsibilities to individual managers with mandatory input from different stakeholders, rather than relying on team / committee decisions, for day-to-day management. Firms should also revisit their pandemic handling plan (or create one if they did not have one), including revised roles and responsibilities, to increase future readiness.
RETHINKING COMPETITIVE POSITIONING
Customer behavior will be different under the new normal. This requires firms to adjust their offerings and associated value propositions, focusing on how customers redefine their jobs-to-be-done. To enter the consideration set and be selected during the moment of purchase (two key stages of the customer journey), firms need to revise their strategic positioning and the associated competitive advantages of their products and services. The focus should be put on both rational and emotional decision criteria that customers deem relevant in their new normal way of getting their jobs done.
Embarking on a strategic venture at this stage of the pandemic is challenging, not least because the situation is still volatile and the timeline of the different phases unknown. However, revisiting any of the mentioned five strategic areas will have positive disruptive potential. I therefore strongly recommend to any business leader that wants to be successful again, to consider the potential impacts of a post-COVID-19 customer on its strategy now – and start rethinking how to adjust their business model and competitive positioning soon.
Successful leaders know, as history has taught us, that every crisis brings with it opportunities for those who are well positioned to seize them. By asking the right questions early on, and identifying potential answers, can leaders position themselves and their firm as future winners in the new normal environment.
[i]) On December 31st, 2019 China first reported a cluster of cases of pneumonia in Wuhan that were later linked to a novel coronavirus. On January 13th, 2020, a day after China publicly shared the genomic sequence of the SARS-CoV-2 virus, the first COVID-19 case was recorded outside of China.
[ii]) R represents the reproduction coefficient of the SARS-CoV-2 virus, that is, the expected number of COVID-19 cases directly generated by one case in a population where all individuals are susceptible to the SARS-CoV-2 infection.