I have written various articles on my Blog giving input on the need of reviewing your operations model and your business plan in the wake of the present uncertainty and economic crisis facing us all.
I strongly advise that sitting down and waiting for all this to pass is absolutely not an option you should even contemplate. You badly need to revise your business plan and to do so you need to confront uncertainty head on. I can’t stress the idea enough that speed is of the essence. The next few weeks and months will likely shape the future of your company. I would suggest that any Business Plan is based on the following 5 aspects:
- Gain a realistic view of your present position.
- Develop scenarios for multiple versions of your future.
- Establish your path towards the next normal
- Determine actions and strategic moves that are robust across scenarios.
- Set trigger points that drive your organization to act at the right time.
1. Gain a realistic view of your present position
In times of extreme uncertainty, you should start by developing a clear baseline of your company’s present position. You take stock in three main areas: your financial assumptions, your ongoing initiatives, and your big strategic choices you decided upon in the past.
With regards your financial assumptions or budgets you had so far, these should be sorted into three buckets: those that still seem about right, those that are wrong, and those about which you are unsure. If possible, do a quick sensitivity analysis to assess which assumptions matter most.
The next task is to list the big ongoing initiatives, starting with major projects on the capital-expenditure list, and organise them into the same bucket categories.
The final step is to list the big strategic choices that underpin your company’s business model—for example, sustain a price premium, keep investing in a physical network, and invest faster than the competition. Sort those into the mentioned three buckets too. You have now clarified the starting picture and brought the critical issues to the foreground.
2. Develop scenarios for multiple versions of your future
The traditional approach to strategic planning too often either adopts a head-in-the-sand position (assuming away uncertainty) or suffers from “deer in the headlights” syndrome (being paralysed by unpredictability). Now more than ever, you can’t get rid of uncertainty; you have to confront it. A good way of doing this is to build scenarios.
The aim isn’t to debate which scenarios are more likely but rather to explore what is possible—and to ready yourself for anything that looks plausible. Chopping off “the tails” to eliminate the most extreme eventualities is where scenario analyses often fail, resulting in mere variants of a base case. While some scenarios may seem too awful to contemplate, that doesn’t mean they should be disregarded. As a rule of thumb you should develop at least four scenarios. If you only have three, it is all too tempting to default to a middle option as the base case.
Next, you should stress-test your company’s performance and strategy against each scenario by translating them into modeled business outcomes. Identify where your business is most at risk and where it is most resilient; estimate your capital “headroom” (or shortfall) in the worst-case scenario. Then assess your current slate of strategic initiatives against each scenario, determining whether each initiative should continue as planned, accelerate, or stop.
Developing scenarios brings immediate benefits. It allows you to bound uncertainty into manageable and measurable boxes, reducing confusion, and to sort out what is truly unknown and what really matters. It also enables you to identify the signals that will be early markers that a scenario is coming to pass.
It is extremely important that when considering multiple scenarios these are then converted into tangible ideas for action, whilst making very clear to all the assumptions taken on each of the identified scenarios.
3. Establish your path towards the next normal
One of the key responsibilities is to determine the best response to an evolving situation based on the company’s circumstances after the immediate crisis passes. While some companies may need to enter a long and difficult period of slow rebuilding, others will find near-term opportunities in big, strategic moves and innovations. The point isn’t to develop detailed plans but rather to figure out your strategic response to hit the next normal. In a world full of uncertainty, you have to stand for a goal that will matter above all else. This big idea will bring coherence and determination to your evolving tactical response.
With the COVID-19 crisis, hardly anyone will be in the bottom corner of the image shown above. Keep in mind that a feature of the COVID-19 crisis is a radical shift to distance business models. In a matter of days, people massively stepped up their use of technologies that enable remote learning, working, services and consumption. Will that adoption remain in a postcrisis market, or will we move to a new status quo? As a result, should you now accelerate your investments in a digital business model and scale back your capital-investment plans focused on increasing your physical footprint? Given the level of uncertainty, you can’t put all your eggs in one basket or bet on hope. The critical output of this frame is to establish conviction on future themes before defining any initiatives.
4. Determine actions and strategic moves that are robust across scenarios
In the present world of extreme uncertainty, a rigid, deterministic plan won’t be right for very long. But making everything flexible can be an expensive path to nowhere. Rather, you need to think about building a portfolio of strategic moves that will perform relatively well as a collective across all likely scenarios, even if every move isn’t a winner on its own.
A tried-and-tested approach is to work through one scenario at a time, defining the optimal set of moves you would make if you knew for sure that the scenario would pan out. Start with your list of existing initiatives—those that were on the slate before the crisis—then scan widely for opportunities and threats before deciding which initiatives to cull and which new ones to add. Then check for the big commonalities and differences among the scenario-specific strategies.
Some initiatives will make sense in all scenarios; those are no-regret moves with which you can proceed with confidence. Others will pay off big in some scenarios but may hurt in others; those are big bets, and the key here is to gather as much information as possible before making a go/no-go decision. If possible, you should try to break them down into smaller parts, investing in phases to reduce the risk associated with a large, one-off investment under high uncertainty.
Other moves are about buying the right to act at a later stage. Options are worth a lot more money when volatility is high, so now is a good time to create optionality where you can. Finally, there are moves you could consider that mostly protect you from the downside. You can’t avoid risk, but these safety nets help you make sure your risk exposure is smart and offers a good upside, with a protected downside.
The outcome of this frame needs to be a portfolio of several dozen strategic moves, ranging from no-regret moves to point-of-no-return moves that can irreversibly alter the future of a company. Ensure that the moves on each topic are thoroughly discussed with major decision makers and stakeholders, inside and possibly even outside the organisation.
5. Set trigger points that drive your organisation to act at the right time
As already mentioned, in an environment as uncertain as the one with COVID-19, the passing of time will make a rigid plan rapidly outdated. The world is going to evolve fast. You don’t yet know which scenario we are approaching. But you need to try to be the best learner (the first to know where the world is going) and the best adapter (the one making the best decisions and iterating the plan). It isn’t about starting with the perfect plan: it’s about being on the fastest improvement trajectory. In a fast-moving world, that will matter most, as even a great plan will become obsolete.
As discussed, the majority of the moves will only make sense to make under a certain set of circumstances. However, many companies that face disruption only start to debate those moves once the circumstances clearly present themselves. This, together with high emotive and potentially consensus-driven decision making, is the root of the delayed or lack of action that befalls many management teams.
To avoid such an issue, it is extremely important to ensure that every move comes with a clearly articulated set of trigger points for when the organisation should begin detailed planning and execution for that move. That point, or the trip wire, is the time at which the probability of that move being necessary has increased and it makes sense to invest in ensuring that the organisation can act quickly. Making a decision on when trigger points have been reached—and when detailed planning and execution should commence—is a key role of the CEO pr Managing Director.
Yes it’s a race against time
Under high levels of uncertainty, you need to operate at high speeds with a bias toward speed rather than perfection; and the sooner you start your business planning, the better. Accept that the first pass won’t be 100 percent right but that you are going to get better answers after each iteration. Scenarios will be refined and refreshed, and more information will surface as time unfolds. Some things will drop out; others will be accelerated. Evolve your way to a more sophisticated answer.
At EMCS (www.emcs.com.mt) we have a strong team of people who specialise in Business Planning for companies in various sectors. As I advised yesterday, Government will also be financing the costs of such needed review of Business Plans and Business Models (https://covid19.maltaenterprise.com/business-re-engineering-consultancy/). Feel free to contact me on email@example.com, to learn more about how we can help you.