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Viewing a Crisis as an Impetus for Change

April 2020
Arto Sormunen
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How companies can reinvent themselves and create value in the aftermath of the coronavirus

As the world reels from the effects of the coronavirus pandemic, a deep post-crisis recession is almost inevitable. The world afterward will certainly not be the same, but history has taught us that the evolution of human civilization has hinged on such crises as they fundamentally reshape our beliefs and behaviors. Like society as a whole, the business world needs to discover new ways to perform, and this is the time for innovation, investment, and a shift in management competence.

It may seem counterintuitive, but 14% of companies grew both their top and bottom lines during recent economic downturns. Our analysis shows they created value mainly through differential growth. According to Boston Consulting Group (BCG), this is true across all industries. The evidence is clear: The best time to grow differentially is when aggregate growth is low. “Flourishers” in a downturn do reduce costs to maintain viability, but they also innovate regarding new opportunities, and they reinvest in growth pillars to capture opportunity in adversity and shape the post-crisis future.

Just as the shutdown of production worldwide has led us to reconsider what are ultimately needs versus wants, so is this an opportunity for leaders to reconsider which costs are truly fixed and which are variable. This crisis will reveal not just a company’s vulnerabilities but also its opportunities for improving performance. While focusing on resilience, trust, and implementation, management can seek to reinvent their company by adjusting business models to the new reality in which digital technology and a long approach are at the core of their organizations.

Building Resilience

Companies — and countries — around the globe have been made painfully aware of the fragility of the critical systems upon which they depend. As both scramble to reconsider their operating models, resilience will be a key design criterion.

Companies have spent decades building efficient, extended global supply chains that locate production activities in low-cost destinations and connecting them with digitally enabled logistics. Their effectiveness has been measured in terms of speed, cost efficiency, and profitability. According to BCG, COVID-19 has shown that systems built mainly to maximise efficiency tend to be brittle under stress.

While business leaders frequently talk about resilience, few companies design, measure, and manage their critical systems with this in mind. The key characteristics of resilient systems are redundancy (buffers), diversity, modularity, prudence, adaptivity, and social embeddedness. To design such systems, companies will need to think in a different way about business, with a biological rather than mechanical mindset. Classical business strategy focuses on the question, “How (relatively) good is my game?” In an uncertain, dynamic world, we must also ask, “How robust is my game, can it adapt, and how long will it last?” (BCG)

Facilitating Trust

Trust is a stronger management component in the case of forerunners who trust their personnel and tune their operations to make the most out of it. According to Professor Kirsimarja Blomqvist at Lappeenranta University of Technology, the barriers preventing remote work stem more from humans than from the technology itself. Obstacles include the fear of ceding control and an unwillingness to change our habits.

A facilitator is a value creator. Successful remote work requires a new structure and organisation in which a facilitator pushes a project forward, underlines the pros of contributing, and addresses the individual comfort zones of the new team. It is important that joining a remote team should be easy during all stages of a project. Naturally a facilitator offers encouragement, stimulation, and praise throughout the project. According to Blomqvist, approximately 20% of a facilitator’s messages should be praise. The result is a safe environment in which team members feel positive, encouraged, and committed to the team.

Implementing and Planning Simultaneously

The tools for more agile working methods already exist, and they can be utilized by prioritizing implementation before planning. Gone are the days when a development process began with a call to strategy consultants, who after a few weeks produced a set of 50 slides. Today, management has to be capable of starting a development project quickly and adjusting the course while the train is in motion. Naturally, planning still has an important role; it simply has to be integrated into the process.

As businesses need faster reactions to new opportunities and challenges, remote work teams provide the answers. A remote work team can be built quickly, and it starts contributing results faster than a traditional project team in which results are presented at milestones or at the end. The remote work team is more flexible, its targets can be easily revisited, and its composition can easily be reinforced.

As the clock runs faster, managers have to make decisions within a shorter time. There is more data, but it has to be analysed sooner. The solution lies in analytics. While a dashboard generates the whole picture in seconds, the manager must have the capability to see whether it is based on correct assumptions. If managers rely too much on their tools, the risk of wrong decisions is obvious.

New Technologies – and a New Generation

In addition to adapting their management approach, the winners will be those companies that reinvent themselves by putting software, data, and AI at the core of their organisations. For this, digitally native companies can serve as an inspiration.

Eric Schmidt, former Chairman of Alphabet, has stated that the most successful organizations are those that build software platforms and interact with customers online. There is a proliferation of innovation and new design techniques, of which some industries have been slow to take advantage, which either a traditional company or a new entrant can utilise to seize the moment and reimagine products or entire industries.

Just as companies should be open to new technology and new practices in the world that will emerge from the coronavirus pandemic, so should they be willing to learn from newcomers and listen to their ideas. Schmidt maintains that the new generation is smarter than previous ones because its members are growing up in a more sophisticated, digitally native, and intense world. Part of a leader’s job is to be a magnet for such people and get them to be the best that they can be. The next generation is a valuable resource, and those who make the most of it will be the ones who come out on top.

About the Author:

Arto Sormunen is a Partner at the Stanton Chase Helsinki office.

 

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