Insights

COVID-19: What Businesses Should Do

One thing is clear: the way businesses react will determine the final economic impact of the outbreak.

Whatever direction the coronavirus (Covid-19) outbreak will take, it is time for business leaders to anticipate impacts and act strategically. Businesses should execute three short-term measures related to managing the chain reactions and adapt to three long-term trends related to a changing world.


CORONAVIRUS site

 

At this stage, 29th February 2020, the world is still in a stage of fear. Once we move into the stages of learning and overcoming, the situation will become clearer and more stable. It is now certain that a global spread will happen, at least until warmer and drier weather makes contamination more difficult. A long gestation period, when people are contagious but not showing symptoms, makes this virus spread much faster than any other before. (1) 

 

So, what sort of impacts can be expected
and how should businesses best react?

 

Short term Measures – Manage Chain Reactions

Businesses should act rationally, avoiding panic-inducing actions and engaging proactively with their value-chain in a coordinated way to contain the spread and mitigate impacts. Furthermore, some business activities need to be conducted in different ways. These efforts of collective leadership will reduce economic risks, proving that businesses are valuable partners of the community.

1. Don't Add Panic - Address the Issue

Whether the coronavirus ends up creating a brief economic shock that is overcome in a few months or having a longer economic impact depends on how companies react and on how they communicate their reaction.
Businesses should apply their wits, act decisively and take the lead in addressing the virus outbreak. They can do this in several ways.

 

1.1 Better Communication.

Transparency is required to avoid mistrust and fear, but speculation during a hype-phase is not advisable. The proliferation of negative announcements of estimated decreases in sales and results can snowball other corresponding negative announcements. This can delay investments and lead to worker retrenchments that could artificially and unnecessarily create economic damage and cause a recession. This implies:

 i)  being informed on a daily basis, as the situation is still unclear and evolving rapidly

 ii)  distinguishing speculation, scare feeds and news-hype from fact-based information.

 iii)  passing on critical information in due time to all employees, suppliers and partners by maintaining a centralized updated source of information.

 iv)  prevent spreading information that will unnecessarily induce negative economic behaviors, informing clients, suppliers and partners how they are doing things differently to mitigate contamination.

 v)  being transparent about the situation in your company so that disengagement only happens when necessary and not because of mistrust, reducing economic impact to all.

 

1.2 Act within your business reach. Business are actors rather than spectators.

This includes protecting your employees and operations by introducing hand disinfectants and more intensive cleaning of surfaces and equipment, increasing social distancing through cutting meetings, promoting work from home, staggered working hours, virtual meetings and reducing travel.

At the same time, businesses should adopt continuity plans and not be shy to implement measures to mitigate economic and financial impacts, such as using safety stocks and finding interim solutions with value chain partners.

During these types of situations, it is important to avoid overreaction and also to cut through bureaucratic responses.

 

2. Build Up Your Resilience

Unexpected events such as the coronavirus outbreak will definitely test the resilience of your plans, operations and your trustworthiness. At this stage, the course of events is still unpredictable.

You can build up your resilience by:

 i)  defining scenarios and possible reactions, by installing or upgrading your business tracking and forecasting mechanism with daily reporting cycles to a nominated crisis cross-functional team on impacts, mitigation and reaction. This should include at least the following perspectives: financial liquidity, sales, production, supply chain and legal.

 ii)  coordinating actions intensively with your supply chain to identify bottlenecks, define alternatives, interim solutions or mitigation measures, and communicate clearly and timely along the entire chain.


 

3. Show Your Worth

Times of crisis also test your worth to the community. If your business acts egotistically at the expense of clients, partners, suppliers and the community it will damage your business in the long term. On the contrary, if your actions are supportive of partners and social needs, respectful of clients and showing committed to common interests, you will build trust and create deserving business goodwill.

Be part of the solution by helping public health systems, supply chains and the community to contain the spread and to mitigate impacts. Businesses can mobilize their capabilities to act as corporate citizens. At local, regional and global level, businesses can join public authorities, supply chains and the community in acting in a coordinated way.

 

Long-term Impacts – Prepare for a Changing World

Each crisis nudges society into news forms of organization and functioning. By the end of the coronavirus crisis, three important trends will have been reinforced, to which every business should adapt to.

 

4. Increase Digital Interaction and Transformation

We are weeks or months away from the peak of contagion, given that there is no immunization process. Therefore, the mitigation efforts of the coronavirus impacts will involve more work from home and more flexibility of working hours.

Businesses will reinforce their converged communication platforms so that their employees can work without physical contact with each other. This investment and newly created routines will have a lasting effect.

The digital interaction in living and consumption will also be reinforced, taking as example online shopping, online learning, remote interactions with banks, governments, health systems, transport systems and the like.

In manufacturing, extended/augmented reality, simple remote viewing and robotics might all get a nudge forward.

The digital transformation of businesses will get a boost and will accelerate, further introducing new business models and new forms of competing.

Looking into the future, given the probability of new outbreaks of high impact in an increasingly interconnected economy, businesses and society might advance quicker to telecommuting.

5G and associated technologies, such as extended/augmented reality solutions (headsets or other, check holoportation from Microsoft) and cloud solutions that integrate all communication, can allow employees/ external sub-contracts to work anyplace with a performance capability that potentially exceeds what is presently available in the office with a hard-wired network connection. 

In the very near future, a head-mounted display can put the worker in a virtual cubicle, an office, your specific office, a tropical beach or a country-side veranda, depending on where each person would like to be working.


5. Adapt to Changing Global Interdependencies

The coronavirus outbreak might accelerate the change in attitude towards global interdependencies and reinforce anti-globalization trends.

China has become the factory of the world, creating very high dependence on its production engine and therefore creating some imbalance in terms of trade. This coronavirus outbreak will make countries and businesses reevaluate this high dependence.

Manufacturing activity in China plunged as the coronavirus spread out. The PMI index fell to 35,7, below the 38,8 value of the global financial crisis of 2008. The conflicting objective of containing the virus and at the same time resuming economic production is hard to overcome. The world economy will suffer severely during this outbreak because of this high dependence on China. During the 2003 SARS epidemic, China’s economy weighted 4% of Global GDP and now it weighs 16%. China exports at the time accounted for 6% of global trade. Now it accounts for 12%.

The initial enthusiasm with the globalization process, which generated higher production of consumer goods at much lower costs, democratizing a better quality of life to a wider part of society, has been giving way to a contrary trend due to the loss of jobs and dwindling industry in developed countries and to increased environmental costs. There has been growth in isolationist attitudes and in policies promoting more production at home markets.

In addition, the economic model based on mega factories and highly concentrated industrial regions will be challenged by the new forms of production under Industry 4.0, related to additive manufacturing (3D printing), internet of things, artificial intelligence, big data and cloud. Modularity, flexibility, decentralization, redundancy through diversity will be easier to achieve without much loss of efficiency.


6. 
Align with Increased Global Responsibility

In a more connected and interdependent world, outbreaks such as the coronavirus serve to heighten the responsibility of each country in the global context. As these global outbreaks are at risk of happening more frequently in the future, countries will be forced to consider the impacts of their actions on other countries as much as on their own territory.

This type of disruptive events creates enmity and international tension. China’s efforts to contain the spread is under everyone’s radar, from foreign governments to individual citizens. The same is happening with other countries where the virus is now spreading faster, such as Italy, South Korea and Iran. The global blame game is a strong factor in making countries feel and be more responsible for their impact on the global community.

The political impacts of these global events, in elections, in government popularity, in social dynamics, will increase the dimension of global responsibility.

 

Is your business prepared to respond adequately and to operate successfully in this competitive landscape?

 

(1) These days, in comparison to previous historical moments, a mortality rate of 2% (compared to 0,1% of the seasonal flu) and a rapid spread of a disease are shocking to a very well-informed society. The early impacts and reactions are worrisome. Investor anxiety led to the largest fall in the value of stocks since 2008. In the past 9 days, the S&P 500 fell 13%, global markets fell 11,2% and European travel and leisure stocks plummeted 19%. The premium on junk bonds increased from 3,7 percentage points to 4,6. Oil prices have fallen from $59 to $49 (Brent crude barrel) in 8 days. Travel is restricted. Large numbers of people are put under quarantine. Many global production supply chains are experiencing some sort of disruption and very soon production of final consumer goods and consumption will also be affected. Large scale events are being cancelled or postponed.

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