While we are in now in the depths of the COVID-19 pandemic with businesses either shut-down, in “hibernation” and/or struggling to survive, the question we should be asking at this time is what happens after it is over?
The first unknown is how long will it take to start returning to some kind of normality. The purpose of this article is not to attempt to put a timeline on recovery but to consider what the post COVID-19 business environment for each business may look like.
A great deal has already been written about how the world will be different as a result of this pandemic, but I do not believe that anyone really what knows; it is just speculation. I was recently talking with a client in the fashion industry about how long it will take for their stores to reopen and customers to start buying their products again. We also discussed whether online sales would become their main sales channel and what this would mean for their investment in new technology versus the sunk costs in their physical stores. Their current planning and strategy are based on shoring up their working capital until markets get back to normal. However, they need to be considering longer timelines for recovery, considering various contingencies and what the “new normal” may look like for their business.
While I am also speculating, I believe that returning to a “normal” trading environment may take longer than most of us may think. I could be wrong, and I hope I am, but it would now be prudent to start thinking and planning for a range of possible “futures” that may change over time. Another consideration may be that this is not the only and last pandemic, and we do not know when the next one will hit.
An approach to mitigate risk, develop strategies and plan for possible “futures” is through the modelling and analysis of scenarios for a range of business factors, influences and decisions. A very useful tool for doing this is the Value-Driver-Tree. This requires not only an understanding and modelling of what drives business but also what influence these drivers could have over the next 6 to 12 months and beyond.
Many businesses do not have a detailed enough understanding of their internal and external drivers to enable them to model their historical performance, let alone forecast using known historical data. This requires the merging of operational and financial information in a way that informs management on what is impacting their business – factors such as business processes, management controls, behaviours, internal capability, market conditions, competitive landscape and economic health. This understanding is essential in order to get down to the root causes of problems and addresses them effectively through both operational and strategic improvement.
In a “normal” business environment modelling cash flow, fixed versus variable costs and other key financial metrics is generally done using known historical data and forecasts based on an informed knowledge of the business and the market it operates in. However, we are now entering a business environment that is full of uncertainties, unknown risks plus a much higher exposure to external uncontrollable influence.
Businesses need to start making decisions on their post-pandemic direction and performance based on factors that are not fully identified and certainly not quantified. Value-Driver-Trees enable multiple and parallel modelling to be done to develop a range of possible scenarios that can be used to make more informed decisions. This includes decisions on capital investment, operational spending and strategic realignment. This approach does not completely de-risk decisions (nothing does) but provides executives with more analysis and information on which to act.
Now is the time for businesses to start thinking along these lines as Boards and Senior Executives may find out that it wasn’t what they did during the COVID-19 crisis that was critical to the success (and survival) of their business but how they managed their business through the recovery.
Mark Dougall is the Managing Director of SPICAE a consulting firm specialising in business improvement and optimisation. He has worked with clients in a range of sectors to help them extract value and improve performance. Email: firstname.lastname@example.org