As I speak to various businesses and help them survive the immediate effects of the crisis, I insist with them that this is also time to look at the medium term and plan for the “new normal”. So it is expected that many ask me “but what will the new normal be like?”
It is impossible to forecast the future with precision but it is possible to think constructively about the future. I try to give you insights on what I believe to be important elements of the “new normal” and that business leaders will need to come to terms with them.
Less Globalisation: Even before COVID-19 hit, there were signs of unease, expressed in calls for protectionism and more restrictive immigration and visa policies. In these ways, people sought, in effect, to create more distance from those unlike themselves. To deal with the pandemic, governments around the world have imposed restrictions on people and goods of a severity not seen for decades. Business must be ready for more border restrictions and a greater preference for local over global products and services and the need to rely less on an international supply chain with a move to source materials closer to home.
Resilience and Efficiency: Even when lockdown restrictions begin to ease, businesses will need to figure out how to operate in new ways. In short, resiliency—the ability to absorb a shock, and to come out of it better than the competition—will be the key to survival and long-term prosperity.
Again, the past can be a prelude. In the the 2008 financial crisis thought us anything is the fact that a small group of companies in each sector outperformed their peers. They did get hurt, with revenues falling about the industry average, but they recovered much faster. By 2009, the earnings of the resilient companies had risen 10 percent, while that of the non-resilients had gone down almost 15 percent. What characterised the resilient companies was preparation before the crisis—they typically had stronger balance sheets—and effective action during it—specifically, their ability to cut operating costs. However the whole story does not stop there. COVID-19 could end up dwarfing the 2008 financial crisis in economic damage and thus it will not be enough for many companies to tweak their business model but they will need to rethink it.
The rise of the contact-free economy: When it comes to digital commerce, the COVID-19 pandemic could prove to be a decisive turning point. E-commerce was already meaningfully and visibly eating into the sales of brick-and-mortar stores. What the coronavirus has done is to accelerate a change in shopping habits that was already well established. Early indications from China, for example, are that new customers and markets—specifically individuals aged 36 and over and have begun to shop online in greater numbers. In Europe, market research done in April 2020 is showing that 13% of consumers are saying that they were planning to browse online retailers for the first time. In Italy alone, e-commerce transactions have risen by 81% since the end of February. In effect, it is becoming possible to imagine a world of business in which human contact is minimised, but not eliminated. For many people, getting back to normal will include popping into stores again. But the trends are unmistakable—and probably irreversible.
More government intervention in the economy: During times of great crisis, citizens have proved willing to accept, even demand, a greater government control of the economy. There has been economic intervention by various governments across the globe on a scale that hasn’t been seen for decades, if at all. Most spending is directed towards preserving jobs and helping businesses to survive another day. As governments step up to serve, or save, the private sector, the means they choose will differ. Some countries will outright nationalise, some will take equity stakes, some will provide loans, and others will choose to regulate. If non-performing loans require a second bailout, the banking sector could become something like a regulated utility in some markets. At some point, governments may decide to get out of the business of business; how they do so will be complicated and differentiated. How much, how fast, and in what ways governments reduce their economic role will be one of the most important questions of the next decade.
More scrutiny for business: The public will expect—indeed, demand—that their tax money be used for the benefit of society at large. This raises complicated questions. What does it mean for businesses to do right by their employees and customers? With many businesses likely to be operating to some extent with public money, the scrutiny will be intense. There will be real effects on the relations between government and business, and between business and society. That could show itself in the form of more regulation, particularly in regard to domestic sourcing.
Changing industry structures, consumer behavior, market positions, and sector attractiveness:
One of the key questions facing business leaders is whether their industry will rebound from the economic shock posed by the virus, or sustain lasting damage. The answer to this question likely lies in an assessment of the degree to which industries find themselves susceptible to the negative elements brought about by this crisis. Consider all those manufacturing sectors , for example, that have relied on global just-in-time-based supply chains, they will now be under pressure to change so that continuity of supply is just as valued as cost and speed to market. In addition, there will likely also be lasting changes to consumer attitudes toward physical distance, health, and privacy. For example, increased health awareness and a corresponding desire to live more healthily could bring lasting change to where, how, and what people eat. Some consumers and governments—but by no means all—may change their attitudes toward the sharing and use of personal data if it can be demonstrated that the use of such data during the crisis helped safeguard lives. For the vast majority of people, this crisis represents the biggest disruption they have ever faced. Their attitudes may be changed profoundly and in ways that are hard to predict. The tourism, travel, and hospitality sectors may see their businesses subject to long-term changes in business and individual travel preferences. Concern over the possibility of other drastically negative events that where unthinkable until recently could change how consumers approach financial security—saving more and spending less. Given the intensity of these pressures, it is reasonable to question whether existing market positions will be retained without significant effort to reposition and respond to changes confronting industries and sectors as a whole. To this can be added the economic impact of stretched balance sheets and valuations leading to changes in business ownership. In this context, it is possible that businesses will need to find new and enduring ways to collaborate, prompted by the regulatory and other changes in order to address the current crisis.
Finding the silver linings: If we truly believe that necessity is the mother of invention there could be some positive outcomes of the coronavirus crisis. Let me be clear, these positives will be no way near to compensating for the human and economic damage it is creating. However, given the general shortage of optimism at the moment, it may be heartening to consider a few encouraging possibilities. One has to do with the human imperative to communicate. In this sense, Individuals, communities, businesses, and governments alike are all learning new ways to connect: almost everyone knows a story of the grandparent who finally learned to Zoom, Skype, or Microsoft Teams. For businesses, the consequences have been profound. Many have learned how to operate remotely—at a high level and at far greater speed. These practices could well stick, making for better management and more flexible workforces. Flexible work is often critical to support employees at different life stages such as parents with young kids, women during parts of their career, or affinity groups such as the disabled. Business leaders now have a better sense of what can, and cannot, be done outside their companies’ traditional processes. Many are beginning to appreciate the speed with which their organizations can move once they change how they do things. In short, the coronavirus is forcing both the pace and scale of workplace innovation. Indeed, as businesses are forced to do more with less, many are finding better, simpler, less expensive, and faster ways to operate.
Feel free to drop me an email on: firstname.lastname@example.org, to discuss how you believe you business should adapt for such a “new normal”.