This is a follow up to our recent article posted last week about the implications of the current worldwide pandemic: Coronavirus: How to Become Remote First, Fast and the accompanying infographic. In this post we focus on the business implications of the current COVID-19 outbreak, which is now affecting global business models, disrupting supply chains, working models, and global economic stability.
What started as a new strain of coronavirus (we have identified coronavirus since the 1960s, with strains like SARS and MERS causing similar outbreaks in the past), has now turned into a worldwide crisis of trust and market confidence. Beyond the important health implications for the global population, COVID-19 is impacting how companies with global business models operate.
In our previous post and infographic we focused on how remote work can be implemented quickly as a crisis response measure to help protect employees, while contributing to minimizing the spread of an already very contagious disease. The top priority is still protecting the health and safety of employees. But, beyond that, business leaders have to think of the consequences that the global response to the outbreak is having on the global economy, and the way we maintain productivity in times of a pandemic.
This article will focus on recommendations for business. We also recommend everyone comply with all the recommendations from the World Health Organization and the United States Centers for Disease Control. Our own internal infectious disease response plan is based on the CDC’s Interim Guidance for Businesses and Employers to Plan and Respond to Coronavirus Disease 2019 (COVID-19), February 2020.
The implications of the global pandemic are now far larger than most predicted, with direct impact to many industries beyond just health sciences:
- Global events like conferences, movie premieres, and sporting events are now cancelled.
- The retail sector is having unexpected demand for some products, and reduced demand for others.
- Manufacturers and consumer goods companies are experiencing large supply chain concerns.
- The travel industry as a whole (hotels, tourism, and airlines) is experiencing significant cancellations from consumers.
And that’s just a few of the impacted industries.
We’ve received questions from a few of our clients on how Modus Create is managing the effects of COVID-19 and what we recommend companies and clients do to mitigate the risks. We have learned a thing or two about managing uncertainty within our clients’ businesses over the years, and a lot of these learnings can be reapplied to how a company can address uncertain business conditions arising from the current COVID-19 pandemic.
The one learning that remains the most relevant is that while planning is important, being agile and adapting to change is fundamental. Change will come. How companies react to it will define success.
A lot of what will happen next will depend on how the latest measures to limit the spread of the virus play out in the next weeks. Keeping an eye on the progress of the pandemic is important, so that companies can quickly pivot as the markets and consumers require. There’s a possibility that the geopolitical and economic effects of the outbreak are limited to only a temporary slowdown of the global economy. However, the virus may also trigger a longer-term recession or, in the opposite direction, a speedy resolution could lead to a dramatic rebound market effect that accelerates as the summer in the northern hemisphere rolls around. This could mean a strong bounce back for industries like travel, tourism, manufacturing, and agriculture.
The ability to anticipate change and have a proper business plan that can pivot is something we have found fundamental to projects’ success all the time. We structure our organization and client service around Agile methodologies: building business plans and processes that can rapidly respond to changes. We applied this mindset to our own internal working group for monitoring the virus. Based on our experience, here are some areas of the business that may be affected by COVID-19.
Mitigation of COVID-19 Business Impact
Without a clear idea on what will happen next, it’s important to take an introspective look at your company and understand the implications of COVID-19 for businesses, so that you can design strategies to mitigate those risks.
The following list is not exhaustive, but it’s a helpful guide for leaders worried about the global business impact of the virus. Each industry and company will need to design plans to address these risks individually and collectively, while monitoring the situation to adapt and make quick decisions to address potential threats (like adopting a work-from-home policy quickly as a mitigation strategy). Here are some key risk areas to consider:
- Employee Wellbeing: The main concern should be on protecting employees with guidelines, new policies, and constant communication. It’s clear that many companies are reacting by trying to be more flexible by allowing new ways of hosting meetings, reducing travel, preparing for increased absenteeism, and extending new remote work conditions.
- Risk Management: As a remote-first company, our systems, processes, and policies enable working from home at a global scale, with high productivity. Beyond remote work, we have put an infectious disease response plan in action, provided open communication to all employees, and empowered our global offices to address local concerns. Our staff are made aware of all human resources policies, workplace and leave flexibilities, and the available pay and benefits. Additionally, we are providing a communication plan for employees, including a dedicated slack channel, centralized information repository on company-wide portal, and daily leadership briefings.
- Supply Chain: With China as the factory of the world, the slowdown of their production will have a domino effect on retail, electronics, energy, auto parts, construction, and many more. While organizations like the Institute for Supply Management recently unveiled a study that estimates that Chinese manufacturers are operating at 50% capacity, inventory shortage due to the effects across worldwide supply chains is starting to become noticeable and will continue to impact resource availability.
- Risk Management: Evaluate inventory levels and establish possible mitigations like prebooking shipping, prioritizing critical parts or finding new suppliers that can at least fill the gaps in production.
- Liquidity: The economic downturn of capital markets combined with a reduction in production due to limited inventories and production slow down impact businesses’ access to credit. This creates a perfect storm for companies with limited liquidity. While economic recovery may help, usually markets tend to recover a lot slower than how they fall. A Bloomberg Economics model that tries to predict a recession is now at the highest level since 2009, and the latest policy announcements will not help.
- Risk Management: Performing financial stress tests on company liquidity is crucial. These tests can help leadership understand how to react if the markets keep turning down even after recent announcements from central banks and the Federal Reserve to push liquidity into the markets. Having an accounting of how much runway is available and ensuring that cash flow from existing clients is sustained is critical to making the right decisions.
- Talent Scarcity: Finding talent, especially for sectors like IT, has never been harder, and the global outbreak will only give new reasons for employees to ditch the commute. Companies that provide a good employee experience will be much better positioned to manage impacts to strategic functions, even if increased absenteeism may be a side effect.
- Risk Management: Partner with companies that can help identify talent beyond the typical markets for outsourcing, who may be better prepared and more aligned to your business needs. Ensure existing staff receives the care necessary and flexible work conditions required to handle health risks and improve communications. Cross-training of personnel creates redundancies of essential functions so that the workplace is able to operate even if key staff members are absent; ensuring access to critical systems and a working understanding of the processes.
- Customer Demand: Revenue within many industries will be impacted by reduced consumer confidence and the supply side problem referenced above. While certain goods may be acutely impacted (like retail stores and electronics) other industries may see higher demand for consumer goods or shifts in consumer behaviour: increased online shopping. For reference, online shopping and online time both increased in China during the Wuhan crisis, just as it did during the 2003 SARS crisis.
- Risk Management: Companies must consider how technology can optimize supply and demand problems. While ERP and inventory systems can help organize the supply side of the business, investing in digital-first initiatives will help serve increasingly online customers and omnichannel customer support can help address customer pain points.
- Shifting Priorities: With C-suite leaders, and teams in general, increasingly focused on the creation of rapid response teams, strategies to weather the storm caused by COVID-19, adapt to markets, and day-to-day priorities may be affected.
- Risk Mitigation: We are already seeing some of our clients asking for help to add features, change direction, or solidify products that require investment to adapt to new business opportunities. Having solid Product Management teams working under Agile principles helps adapt quickly to change, allowing organizations to perform hypothesis testing and optimization faster. At Modus, trusting our Product Owners and Project Managers, as well as top technical staff, to succeed within this framework has allowed us to adapt to changing conditions.
- Cybersecurity: In Costa Rica, where I am from, we have a saying that could translate like this: “fishing is better in muddy waters”. Well, phishing is too. Cybersecurity experts and even the US Secret Service have recently issued alerts about new scams aiming to exploit people when they are feeling anxious, vulnerable, and more likely to be searching for support and data online.
- Risk Management: Reminding employees of their need to stay alert to phishing events and, if necessary, reporting them appropriately is crucial to avoid major system disruption or data privacy violation – crises that can compound the COVID-19 situation for affected companies. Especially when empowering employees to work from home, changing conditions require a review of security policies, backup policy and systems, code security, and access policies.
- Partners Working Together: In times like this, where we are all adapting rapidly to changing conditions and managing many internal and external threats, finding valuable partners to augment business becomes critical. We are aware that our clients are as concerned and as busy as we are handling the many implications of this pandemic. We engage with our clients as partners, meaning we manage together to ensure teams respond with the level of quality, commitment, and performance expected of them.
- Risk Mitigation: More than a risk, this may be the moment to demonstrate to your clients (and our clients) your real partnership and the extent to which your strengths can supplement their needs. This is the time to lend an extra helping hand to a client’s business, accelerate delivery, or to simply provide more free advice to someone in need.
The adaptability of Agile management allows companies to address changes as they come, and that mindset, paired with the recommendations above, hopefully can set up your company to make the quick decisions necessary to adapt to the possibilities ahead. We are all going to come out of this health crisis to find ourselves in a new business reality. While that may cause concern, spur on further planning and action, let’s reflect on the most important point: the priority is the wellbeing of employees and everyone in the global community. People and their health come first. If we prioritize their needs they will certainly be there for our clients.
Want to learn more? Download Modus’ infographic to business continuity in the face of COVID-19.