Introduction: Leading In-Crisis and Beyond
The COVID-19 public health event, and similar 21st century threats impacting business continuity, require plans for immediate action while management and boards may face an extended period of financial and operational uncertainty. The current crisis is one of those times when core operational impacts demand immediate leadership attention and rapid decision-making. Even organizations with robust emergency response and business continuity plans are under operational and financial stress to continuously prioritize, analyze, and adapt. Ankura has identified ten focus areas that should be top of mind with business leaders for accelerated consideration and execution during the current crisis. Our experts will consider the key short-term actions, identified risks, and future considerations in a series of articles.
In part three, we examine:
- Geopolitical Implications
- Operations & Business Continuity
- Business Recovery & Reconstitution
A Note on Terminology:
Throughout these articles, we use the term “crisis” as an umbrella term for COVID-19 and correlated volatility. We use the phrase “next normal” to highlight the as-yet unforeseen future state beyond the initial crisis. This “next normal” does not refer to life pre-COVID-19. Rather, it is to be envisioned as the unfolding future state geopolitically and economically, in which organizations will reposition to operate.
1. Geopolitical Implications:
ACTIONS FOR THE NEXT 30 DAYS:
Monitor Geopolitical Events: Organizations must carefully monitor geopolitical events and activities that impact on their operations, supply chains, and labor forces. These important geopolitical considerations include the global responses to COVID-19, the status of U.S. trade negotiations, and the potential for conflict over scarce resources. In the U.S., this will include a careful consideration of the timing and pace of state re-openings, the ramifications therein, and the impact that the 2020 general election will have on the distribution of government aid and other resources to both states and businesses.
Model and Develop Scenarios: Leaders will want to develop plans using internal and external scenario planning models that take geopolitical considerations into account. If the U.S. adequately navigates the COVID-19 crisis, but the rest of the world does not, businesses that do not plan for that may put their recovery at risk. Moreover, in an election year, the political allocation of scarce resources could have negative impacts on regional, state, and local economic recovery. Organizations and businesses should develop scenario-based courses of action to appropriately respond to a potential second wave of infections. Organizations will likewise need to develop and model scenarios for their workforces and supply chains that are subject to ongoing trade negotiations, COVID-19 related labor shortages, and COVID-19 inspired supply chain disruptions in order to mitigate ongoing risks.
KEY RISK FACTORS:
Reopening Too Early: Currently, the highest risk factor for economies is the reopening of markets too quickly, with limited access to testing and contact tracing. The second biggest risk is that of a second wave of infections in the fall that strain weakened public health infrastructures.
Uneven Global Recovery: A U.S. economic recovery that manifests while the rest of the world still seeks to combat the infection will struggle to materialize fully as international supply and demand shocks continue to dampen consumer demand and the availability of labor and supplies.
Slowed Recovery for the Services Sector: In the U.S. and beyond, there is a real risk that the services sector will face a difficult and slow recovery over other sectors.
KEY CONSIDERATIONS FOR THE FUTURE:
Political Allocation of Scarce Resources: State and local governments will need to prioritize resources towards the regions, states, industries, and companies that contribute the most to the economy and its recovery. Consideration and priority will be given to those that can potentially accelerate or maximize the economic recovery and to those whose loss would create national security, public health, or economic risks.
Geopolitical Considerations: An array of differing and uncoordinated recovery approaches, decisions, responses, and policies threaten to derail or delay the global economic recovery required for a robust U.S. economic recovery. In this environment, it becomes increasingly difficult to forecast the pace and shape of recovery. Further, tensions between nations can threaten trade, cross-border operations, and supply chains, while simultaneously diminishing the availability and unencumbered flow of labor and supplies.
2. Operations and Business Continuity:
ACTIONS FOR THE NEXT 30 DAYS:
Transition to Intermediate Planning: With typical business continuity plans having a lifespan of thirty days, many organizations are now coming to the end of their initial short-term plans. With that in mind, it is time to pursue intermediate planning efforts necessary to continue operations as the current crisis unfolds. For example, there will be certain operational efforts at risk for some organizations pursuing work from home strategies. Such risks need to be considered, planned for, and mitigated.
Perform After-Action Review: For the initial short-term continuity efforts underway, leaders should perform an after-action review or look-back (what worked versus what did not work, in-flight adjustments, and updates to relevant plans) and consider the lessons learned. These lessons should then be applied to intermediate planning and ongoing continuity efforts.
Consider the Impact of Labor Laws: Throughout operational and business continuity planning and execution, organizations must consider the impact of labor laws in-crisis. Regulatory changes (both increased and decreased requirements) will impact work patterns and shift rotations.
Balance Supply/Demand Factors: Very few companies are remaining static from a supply and demand perspective. Either there is a contraction in demand or a increase in demand. Organizations should look at fatigue factors and health and safety issues tied to demand increases, as traditional strategies, such as overtime, will only be sustainable for six weeks before performance and safety deteriorate. This will be especially of concern for the healthcare industry in the context of COVID-19.
Monitor Supply Chains Closely: In the short term, leaders need to closely monitor supply chain operations in the context of in-crisis constraints. Consider supplier relationships, supply/demand dynamics, customer requirements, etc. This analysis needs to occur in the context of geography as well (local, national, global).
KEY RISK FACTORS:
Reactionary Approaches to Planning: Organizations are at risk of reacting in the current crisis without considering ongoing continuity planning for the next 60 days. Lack of planning can lead to a cycle of reactionary activity and sub-optimal operational efforts. Additionally, organizations need to consider the potential seasonality of COVID-19 and the corresponding impact on their operations.
Ongoing Supply Chain Constraints: Ongoing supply chain constraints, and cascading ramifications across industries and geographies, should be of primary concern for leadership teams seeking to plan for the “next normal” and relative stability.
Ongoing Human Resources Constraints: Ongoing human resource constraints should likewise be of concern to leadership teams. There are risks associated with outsourced resources, employee attrition, and the loss of critical skillsets associated with the evolving crisis.
KEY CONSIDERATIONS FOR THE FUTURE:
Reposition Business Continuity Planning and the “Next Normal”: In traditional business continuity planning, there is conceptually a “return to normal” post-crisis. With COVID-19, there will not be a return to a pre-pandemic state. Instead, leaders will need to pursue “next normal” operations, planning for the pitfalls that arise as the future evolves.
Consider Cost Ramifications of Reopening Businesses: As discussed in the Liquidity and Business Planning section, there are cost ramifications to reopening businesses in the “new normal.” This burden could lead to liquidity issues for some organizations, and leaders should plan and prepare accordingly.
Pursue Uncovered Efficiencies: There is the possibility that new efficiencies have been uncovered for operations forced to innovate and redefine what “essential” looked like in-crisis. Depending on the workforce and operating environment, these efficiencies can be capitalized upon for long-term impact. Additionally, there are opportunities to further assess operations for long-term optimization across functional areas and product or service offerings. There could be accelerated, and scaled changes made to increase top and bottom line growth considering the “next normal”.
Customer Demand Risks and Opportunities: Ongoing demand will fluctuate beyond the initial COVID-19 crisis. As customer demand shifts, organizations must be cognizant of the impact on its business model and supply chain.
3. Business Recovery & Reconstitution:
ACTIONS FOR THE NEXT 30 DAYS:
Transition from Recovery to Reconstitution: Business recovery planning and execution occurs in the first 30 days of a disruption event. As this crisis evolves, many organizations are exiting their initial recovery phase and must pursue business reconstitution: the act of transitioning to operating within the parameters of the “next normal.” The highly unique nature of the COVID-19 crisis will make this reconstitution effort volatile, complex, and potentially ambiguous.
Determine & Prioritize Reconstitution Strategies: Leadership teams need to identify the decision-making criteria necessary to define and prioritize their portfolio of reconstitution strategies. This process includes evaluating recovery efforts and considering what needs to evolve.
Plan Scenarios for Essential Business Functions & Performance: Based on knowledge of current market shifts, as well as forecasted potential shifts, organizations will need to scenario plan to identify and refine essential business functions and performance requirements in the context of overall volatility.
Re-Evaluate KPIs: Out of scenario planning, leaders must reevaluate the key performance indicators (KPIs) used to drive performance forecasting and compensation models. Set up an adaptive process for reviewing these KPIs and adjust in the context of the ongoing crisis. Additionally, market guidance will need to be reconsidered for public companies.
Focus on Vendor Assurance: Organizations must focus on vendor assurance, considering which vendors continue to operate, what constraints exist, and the relational dynamic driving pricing. When weaknesses in the supply chain are revealed, leaders must develop contingency plans to ensure organizational and customer needs are met.
KEY RISK FACTORS:
Workforce Continuity: Workforce health, safety, and continuity will continue to be a risk for business reconstitution planning and execution.
Disruption of Essential Operations: Operational risks associated with minimum required “essential” functions and performance must be taken into consideration as leaders define scenarios for the future.
Ongoing Supply Chain Risks: Continued supply chain risks, such as weakened vendor resilience and missing material links need to be taken into consideration, as leaders scan the external environment. Additionally, leaders should assess strategic supply chain reconsolidation in connection with national and international supply chain stressors.
Lack of Clarity for Re-openings: As previously considered in the section dedicated to Liquidity and Business Planning, as well as in Operations and Business Continuity, it is critical for organizations to closely monitor their liquidity in the context of changing customer behavior and the expenditures required to maintain essential operations.
KEY CONSIDERATIONS FOR THE FUTURE:
Assess the Shape of Recovery: Leadership teams should closely monitor the ongoing evolution of recovery. Recognizing a responding to the overall shape of the recovery will be critical for timing reconstitution efforts.
Maintain Agile Strategic Planning: Leaders must be prepared to leverage an agile mindset around strategic planning, as strategic efforts may need to pivot to mitigate relevant risks and issues arise.
Consider Innovation Opportunities: As organizations pursue operating in the “next normal,” shifts in market share and consumer behavior provides opportunities for innovation. Leaders should consider the level of investment necessary to capture lessons learned from the crisis and shift business models in the context of ongoing risk, when relevant.
Look back on part one and part two of this series, where our experts’ discuss the other key focus areas leaders must consider to sustain operations.
© Copyright 2020. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.
