'A stitch in time' today saves SOS tomorrow
Dr. Boidurjo Rick Mukhopadhyay
International Award-Winning Development and Management Economist. He can be reached at boidurjo@gmail.com
Prof Bibhas K Mukhopadhyay
Professor of Management, and author of the book 'India's Economy: Under a Tinsel still Tough'. He can be reached at m.bibhas@gmail.com
In a recent survey by Ernst and Young, 79% of the board members stated that their organizations are not well-prepared to deal with a crisis such as today's pandemic. Several analyses also indicate that COVID-19 pandemic will push down the full-year gross domestic product (GDP) globally from the 2.5% that was forecasted in January 2020 to 0%. In this climate, corporations are choked with urgency to satisfy the dual key targets of meeting strategic goals and also customer demands (which tend to be very much bespoke in several sectors today). However, a closer look at these two goals would also reveal that strategic goals also includes employees' well-being (with a greater stress on mental well-being during this period), maintaining brand image and overall reputation, supply chain and procurement essentials while staying clear of legal problems that the current situation might inadvertently trigger for some businesses. So, while there is a PR and responsible business image that needs to be maintained, at the same time longer-term stakeholder management and internal coherency in management decisions are equally important. All while maintaining healthy financial chart, tables and projections in the remote board room meetings today.
OECD analyses show that new business registrations in the US fell by more than 75% relative to the prior year from 15-16 March onwards – the day when lockdowns started. Similarly, in the Netherlands, the number of start-ups dropped by 34% in April 2020 compared to April 2019, in particular in business services and construction. Also, in China the venture capital investment in new companies declined by 60% in the first quarter of 2020 compared to the first quarter of 2019. In Canada, it suggests that 59% of Canadians are considerably less likely to start a business after COVID-19 than before. While these numbers indicate how deeply the aspiring start-ups and entrepreneurial initiatives have been hit in several leading countries, it also demands for an exploratory look into how the existing and fairly new businesses (especially, small) are coping under the circumstances.
Over 50% of SMEs have already experienced strong decline in revenues and more than half of them do not have reserves to survive more than 3 months without help. SMEs account for 60% employment and 50-60% in value added across OECD countries. They remain the competitive engine of many regions and cities while contributing to the very fabric of local communities. Policy makers in several countries, including most in BRICs have responded by deferring payments and helping with temporary layoffs, enhancing access to credit, providing grants and wage subsidies – amongst many other short-term measures. However, these quick fixes won't be championing the long run – therefore, strategic actions are required, e.g., that would strengthen SME resilience by opening new markets and by helping them to adopt new technologies and work practices. SMEs remain at the epicentre of the pandemic.
The vigour, agility and the general well-being of employees should be a priority for both small and large businesses alike. Surely though the lockdown, limited working hours, working from home, virtual leadership and strategy for remote work have not been evidencing solid results for all major sectors so far despite the positive image being portrayed on social media. For progressive organizations, small and large, the challenges are on several fronts and it would start by first identifying some of the current bottlenecks before listing challenges and potential (and implementable) solutions. Firstly, the question of well-being of employees and their families as well the safety of the most productive assets during this crisis is paramount – this should look beyond the 'duty of care' component of management and take a more human and 'affiliative' leadership approach. Secondly, perhaps the most important consideration – communication! Not only how clear and concise but also how well-coordinated and standardised the communication systems should be to ensure clarity with the list of key stakeholders. Thirdly, the challenge is of ensuring sustainable financing and stable cash reserves in the period following lockdown. Fourthly, assessing what kind of models and constructs are in place for companies to assess risk and crisis management. Fifthly, despite talks of 'new' normal etc. some markets and their empirical demand pattern wouldn't undergo a sea change immediately after the crisis leaves the scene. The challenge is about addressing the demand disruption impact that businesses would need to recover from. This would hit the supply chain and entail procurement risks that businesses need to mitigate both in medium and long term. A practical foresight of resilience and prudency will play a colossal role.
The emphasis on driving production efficiency, strong yield, and high first pass quality is even more important as many companies have reduced capacity utilization due to staffing limitations. Data shows that even after the reopening of factories, most sites are still struggling to achieve 50% of their previous capacity. Most companies are likely to experience significant disruption to their operations and will underperform throughout the duration of the COVID-19 crisis. Companies that are operating in or exposed to countries that are significantly affected by COVID-19 will experience disruption to their supply chain and production commitments.
A greater emphasis on employees' well-being should come as a priority since the employees are the one true asset, more significantly so if they are motivated as much as their line managers are on a common larger goal. For SMEs, staffing and recruiting remains a key component should during times such as today, the market does provide a little window to rethink acquiring, managing and retaining talent. This has to do with change management as much as determining the culture of the company as it would be in the future. A tip: being empathetic in reducing employee hours would go a long way. Particularly for businesses that have not been in complete lockdown, or has been partially opened with restricted hours every day, or slowly expanding the opening hours as lockdown is lifted in phases – best to directly converse with your employees about their financial situation. Data suggests that most zero-hours workers in retail outlets, food and beverage, fast-fashion and also hospitality industry are self-electing to reduced hours, thereby, saving time and energy of line manager from cutting down the hours for those who may be more dependent on the income from that one business/ employment.
An equally prudent approach towards customers in regards to providing reassurance during this period. It is rather easier said than done for companies widely visible on social media. The problem however is how personalised, accurate and contextual the message should be. Clearly, the temptation to post often and sudden also carries its own challenges and long-term risks. Lack of clarity, meaningless assurances to customers would far more damage than not posting at all. A recent survey showed that 34% customers, especially in Gen-Z category use social media platforms channels as an information source.
To keep the head above water, it is also a good time to reach out to lenders to negotiate a short-term relief. This could either be in the form of deferred payments or extended credit lines. The median small business holds 27 cash buffer days in reserve. As mentioned earlier, the focus on supply chain and procurement in this period is essential. This is also important because there may be significant changes stakeholder relationships in lieu of decision and changes made today. Equally timely and important it would be to reach out to business vendors to confirm supply continuity. Some of these could be small businesses as well and could be facing their own hardships, it would be a good time to work closely with them and explore the opportunities how the two could mutually benefit each other. Some of these businesses could offer deferred payment terms as well. Going forward, survival, resilience, and renewal strategies need to be independently developed if the pandemic taught businesses a crucial thing or two.