The Cost of Sitting on the Sidelines

The battlefield is a scene of constant chaos. The winner will be the one who controls that chaos, both his own and the enemies.

Napoleon Bonaparte

History teaches that the future belongs to the bold, the few people and organizations who rise above setbacks and confusion to create new beginnings and opportunities. Five hundred years B.C., Sun Tzu, a Chinese military general and the author of The Art of War, wrote, “In the midst of chaos, there is also opportunity.” Who are the bold leaders and companies that will learn and prosper from the latest disaster to inflict the world?

The past is replete with instances of turmoil and uncertainty from wars, natural disasters, and pandemics. A technological advance – the telephone, automobile, airplane – might obsolete whole industries overnight. Change often wreaks havoc on tradition, relationships, and expectations. For those accustomed to stability and permanence, the natural order of things seems to spin out of control. Their confidence shaken and unsure about the future, they ignore the omens and proceed as if the change has not happened. Others withdraw to wait, hoping to catch the leaders when times are safer.

Covid-19 Impact on Business Operations

Few people living today have experienced an event as cataclysmic as the coronavirus pandemic. The impact is worldwide, affecting developed and emerging nations alike. The changes wrought by the disease have fundamentally changed the way people work, shop, and socialize. In some cases, change is accelerated. In others, risks have increased and been exposed. Most observers agree that the environment after the appearance of Covid-19 will include:

Slowed Economic Growth

Most economic experts project slower economic growth in the next two-five years as countries struggle to deal with the costs of the pandemic:

• Brookings Institute called the economic crisis unprecedented in its scale, affecting demand, supply, and finances “all at once.”
• The World Bank projects the “deepest global recession in decades” and lasting scars on economies worldwide.
• McKinsey & Company surveyed company executives worldwide and found the majority believed that the virus would recur, slowing long-term growth and leading to a muted recovery.
• International Monetary Fund notes the “extreme uncertainty around the global growth forecast” with governments struggling with public debt at a 60-year high.

The slower growth is likely to ignite intense competition among competitors as companies struggle to maintain sales and market share. Some are taking advantage of the confusion to expand into competitor strongholds. McDonald’s new store openings were more than 50% greater than its rival Burger King during the 1970s recession, gaining a considerable market advantage that the latter has not yet overcome.

Expansion of Remote Work

A 2020 Gallup Poll found that nearly half of all workers are concerned about catching Covid-19 at work. Another study by the consulting firm PWC found that more than half of employers expect that remote work will continue well after the health crisis. According to economist Susan Athey at Stanford Graduate School of Business, “There’s a lot of things where people are just slowly shifting, and this [the pandemic] will accelerate that.”

Unfortunately, the transition to remote work is neither simple nor easy. I.T. systems need reconfiguring to support a network of distanced employees. Communication and coordination of employees require significant investment in hardware, software, and training. Security of proprietary and personal data typically needs enhancement. Physical processes require redesign to minimize and improve the customer experience. Short term quick fixes and technical band-aids, while necessary during the transition, are generally limited, vulnerable to breakdown, and expensive.

Online Shopping Preference

In October 2020, the Secretary-General of the United Nations Conference on Trade and Development (UNCTAD) reported, “The COVID-19 pandemic has accelerated the shift towards a more digital world. The changes we make now will have lasting effects as the world economy begins to recover.” The pandemic changed the way consumers use e-commerce and digital solutions worldwide. Old habits are unlikely to return.

Higher Customer Expectations

The rise in customer expectations began to rise before the appearance of the coronavirus. Unlike physical locations that compete for walk-in customers, a digital customer can find and acquire products and services anywhere in the world. Failure to recognize customer expectations quickly leads to lost sales and adverse publicity on social media networks. A company that opens to compete in the new digital world must understand and manage the customer relationship’s physical and intangible touchpoints.

Reconfigured Supply Lines

The pandemic exposed the vulnerability of intricate global supply lines when shortages of raw materials, semi-manufactured components, and finished products appeared in industries as diverse as healthcare to food. Already stressed due to the political estrangement and abandonment of trade agreements, many organizations were caught unprepared, dependent on unreliable supply sources. Manufacturing companies, dependent on a constant, reliable supply of materials to control inventories, suddenly found production lines slowed or shuttered with escalating costs and disgruntled customers.

Companies in the new environment must have visibility over every link of their supply chain with pre-determined strategies when problems appear. Rather than fixing a broken system, companies must redesign and reconfigure product diversity and capacity flexibility through automation and new processing technologies.

Technological Advances

Nolan Bushnell, the founder of Atari, claimed, “Today, companies have to radically revolutionize themselves every few years just to stay relevant. That’s because technology and the Internet have transformed the business landscape forever. The fast-paced digital age has accelerated the need for companies to become agile.”

In recent years, technology breakthroughs, including artificial intelligence (A.I.), RPA, machine learning, Cloud computing, and blockchain, have entered everyday life and profoundly affected the nature of work. Replacing or supplementing human abilities with computers and robotics has reduced costs, reduced errors, improved safety, and shortened time-to-market cycles. Few companies or industries are unaffected.

The spread of the virus speeded the adoption of new technology in companies. Customers, accustomed to its presence, expect its benefits. The companies most hospitable to modern technology are most likely to target the right customer at the right time and avoid losing them to a competitor.

Gaining a Competitive Advantage

Over time, most companies fall into habits learned during past success, comfortable with the status quo. They become confident that ideas, practices, and systems that previously served them well will have the same success in the future. Their operating strategy is the consequence of the old “if it ain’t broke, why fix it?” school of thought.

Because of their hubris, they discount the possibilities of change, especially sudden, unpredictable events like Covid-19. Many ignore the omens of a new future, just as superstores like Barnes & Noble, Toys R’ Us, and Blockbuster failed to respond to Amazon in its early years. Change creates an opportunity for those companies seeking to gain on their competitors. Conversely, change also requires leaders in an industry, a region, or a community to defend their position aggressively:

• Entertainment Theme Parks. The company that created mind-blowing theme parks with Disneyland (1955) and Disney World (1971) now competes with the Universal Resorts theme parks. The first Universal Park opened in 1984 and featured rides based on popular movies (Back to the Future, Terminator 2: #-D Battle Across Time, The World of Harry Potter). Disney’s popular rides (It’s a Small World, Big Thunder Mountain Railroad, Pirates of the Caribbean) seem old-fashioned and out of date compared to the newer park, and attendance figures reflect their respective popularity.
• Electric car manufacturers. General Motors produced the first modern electric car, the EV1, in 1996. Toyota followed with the first hybrid in 2000, the Prius. Other carmakers have followed suit. In 2003, Tesla produced its first car for sale in 2008 – the Roadster – selling over 220,000 vehicles by 2019. Despite the others’ considerable advantage in automobile manufacturing, dealer networks, and financial size, analysts expect Tesla to dominate electric car sales in the free world.

The common thread among these companies and others like them is that they saw a future with extraordinary opportunity and took action while competitors waited. This same scenario repeats in every industry, in businesses large and small, and accounts for a 40% turnover in the Fortune 500 companies in the decade between 1999 and 2009.

5 Steps to Transform a Company

Transformation should not be a one-time project but a constant series of adjustments to the new conditions and skills. Companies must “evolve” to succeed long-term or suffer the fate of the dinosaur in eons past. Renewal is not limited to large, even medium-sized companies; a local restaurant or auto repair shop can also benefit. Successful businesses strive to be closer to their customers, eliminate extraneous expenses, and invest in the future.

Step 1. Review Company Foundation

What is the purpose of the business? Why does it exist? Whom does it serve? Due to Covid-19 difficulties, many companies have necessarily made temporary adjustments to their business model, some of which worked and some creating new problems. For example, with employees working remotely, I.T. departments focused on connectivity and communication, overlooking the importance of digital security.

Before acting, companies should confirm the validity of their basic assumptions about their targeted customer base and the efficacy of their strategies to achieve their goals. Management models such as SWOT analysis and McKinsey’s 7-S framework

Step 2. Audit Operational Processes

Companies carry out operational strategies through business processes – a set of activities intended to produce the desired result. Over time, processes become bloated, misaligned, and redundant, extending cycle times and increasing costs. Before acting, management must review major processes for alignment, effectiveness, and efficiency. Many companies employ independent, knowledgeable professionals to assist in the audit to ensure objectivity and realistic measures.

Step 3. Identify and Prioritize Change Projects

During periods of significant change, companies can be overwhelmed by the number and scope of potential projects. Few organizations have excess resources, capital, and expertise to undertake multiple projects simultaneously. Focusing on projects that deliver the most significant benefit/cost ratio best prepares a company for the future. Enterprise Project Management Offices (PMO) have a crucial role to play here.

Step 4. Initiate Critical Projects

Delaying projects with known tangible benefits risk losing a competitive edge. Markets are fluid, voids quickly filled, and inefficiencies are eliminated in vibrant, growing markets, whether delivering a product or services. Excess caution leads to also-ran status.

Excess caution leads to also-ran status.

Managing projects well, whether staffed internally or externally, requires thorough planning, proper staffing, and widespread executive support. Tangible goals and measures must be identified with pre-determined milestones, emphasizing that projects must be completed on schedule and within budget.

Step 5. Monitor and Adjust

Electronic Data Systems (EDS), now DXC Technology, used to run a television commercial about building an airplane in midflight. The ad accurately captures the reality of implementing change in a continually shifting environment. Ensuring a successful project conclusion requires constant monitoring of progress and adjustment of goals, practices, or timelines when necessary. Kotter’s eight-step change model emphasizes the importance of this in the final step: Institute change, which focuses on ensuring change is embedded in the organization and becomes simply ‘the way we do things around here’.

Final Thoughts

The appearance and subsequent impact of the coronavirus is a reminder of the dynamic climate of business operations. While destructive in the short term, companies that see their opportunity and take action are most likely to be the business leaders of tomorrow. Companies frozen in the pandemic’s headlights may not have a future.