The number of COVID-19 patients in Belgian hospitals is going down, shops and restaurants have reopened, and employees are gradually returning to the workplace. The coronavirus crisis seems under control, and many businesses are trying to overcome the economic shock of the pandemic. Building resilience over the next months is key. It’s equally important to create a strategy that looks beyond the crisis and positions your company to win in the new normal that is gradually taking shape.
Though the peak of COVID-19 infections in Belgium is probably behind us, the pandemic will continue to impact world economies and supply chains. The economic outlook is uncertain. Most businesses have reopened, but many are still operating below capacity. Companies will struggle to recover from the losses caused by the lockdown. Undoubtedly, we will see more bankruptcies in the months to come. A lot of companies will also announce disappointing quarterly results, causing more turmoil on the stock market.
What makes this crisis so unique is that the impact varies across sectors and even within industries, increasing the level of economic turbulence and unpredictability. For businesses, the first shock may be over, but the actual economic crisis is only beginning.
Most companies are now focusing on the next 12 to 18 months to deal with the uncertain economic environment, but business leaders aren’t always thinking about the strategic direction for what comes after. It’s important to make a distinction between:
- Building a resilient enterprise to navigate through the upcoming crisis; and
- Taking a long-term perspective and getting ready for the fundamental changes that lie ahead by reframing and transforming your organization.
Companies need to focus on both. And although there may be some overlaps between these two focus areas, each requires a different and very specific approach.
OVERCOMING THE CRISIS BY BUILDING A RESILIENT ENTERPRISE
During the first shockwaves of the crisis, a lot of companies came up with creative solutions to generate some revenue and manage costs. But these measures don’t build resilient organizations. Resilience is the capability to withstand additional shocks to your business and thrive at the same time. For the next year, organizations will need to lead through the ongoing business disruptions by ensuring they are financially healthy, are taking good care of their customers and can maintain a strong market presence.
Building resilience is a prerequisite before business leaders can even start thinking about a strategy to expand and grow in the new normal. Companies can become resilient by following these three steps:
- Pressure-test your business functions and assess your vulnerabilities.
- Identify opportunities by looking at five focus areas:
Which classic recipes can you apply?
How can you be genuinely agile?
How can you leverage state aid?
How can you develop innovative collaborations and partnerships?
Are you always acting ethically and are your business projects socially responsible?
- Prioritize, implement and monitor measures.
WINNING IN THE NEW NORMAL BY DEVELOPING A FUTURE-PROOF STRATEGY
A strategy is a plan or method to create a unique and valuable competitive position in the future and requires a set of business activities that is different from the one of your competitors. Looking at previous crises and the megatrends impacting businesses before the outbreak of the pandemic, it’s clear that COVID-19 will accelerate preexisting trends. Opportunities will emerge. It’s therefore key to investigate how these trends impact your industry and organization and develop a strategy that helps you capture emerging opportunities.
Five megatrends to watch
- Shifting economic powers: unilateral and protectionist decisions may increase with a potential resurgence of duty and trade barriers, as well as reshoring of operations due to a vulnerable global supply chain.
- Climate change and resource scarcity: consumers continue to prioritize sustainability, while the rise of homeworking has led to a change in mobility behavior.
- Technological changes: the acceptance of technology accelerated with consumers and businesses having to rely on e-commerce and more home-based employees accepting virtual meetings as the new standard.
- Demographic and social changes: social-economic inequalities between countries and certain demographic groups are taking a turn for the worst and are accelerating.
- Urbanization: the creation of megacities as driving economic forces may slow down as viruses can potentially spread quicker among a dense population. Global lockdowns also led to an increased desire for outside spaces.
Staying close to your customers
Consumer segments are shifting and companies need to adapt accordingly. The latest EY Future Consumer Index revealed that underlying changes in consumer behavior and attitudes are already emerging. Quantifying these behaviors via data analytics and following up on them is crucial. As a company you need to get even closer to your customers and understand how they are evolving.
Reassessing your current strategy
Changing environments often bring great opportunities. What is the best way to seize these opportunities? Start by reviewing the underlying assumptions of your current strategy and focus on how these four domains are evolving:
- Your market: What is the market size and expected growth rate by segment? What are the key drivers of demand and growth? How can your company benefit from expected market changes and realize growth potential?
- Your customers and channels: How satisfied and loyal are your customers? How does buying behavior differ across industries and customer segments? What is the channel growth, size and cost to experiment with new customers and channels?
- Your competitors: Who are your key competitors by industry and product category? Which competitors are gaining or losing share? Are new competitors or substitutes emerging? How defendable is your company’s competitive positioning?
- Your business and revenue model: Does your current business model enable you to capture growth opportunities? What are your key performance drivers and challenges to realize growth?
Translating trends and industry effects in your strategy
How can companies ensure their new strategy reflects changing trends and the impact on both their industry and organization? Traditional approaches are still relevant to shape your strategy plan, but in the current volatile environment the emphasis will lay much more on the first step – building resilience.
Structure your strategy approach by:
- Understanding the new normal: what trends and opportunities do you observe?
- Translating the gathered information from step one into key challenges and emerging opportunities.
- Defining the strategic consequences and implications based on the findings of step two.
- Translating the strategic consequences into an implementation and transformation plan.
It’s clear that the world around us is changing. Business leaders who embrace that change by building a resilient enterprise while preparing a strategy to grasp emerging opportunities will undoubtedly be tomorrow’s winners in the new normal.
About the authors
Marc Herlant, Partner, EY Parthenon and Transaction Advisory Services
Marc has more than 25 years professional experience, out of which 20 in consulting. He serves clients in a variety of industries, including Private Equity, Life Sciences, Consumer Products, Industrial Goods and Telecoms. Learn more about Marc.
Stijn Spitaels, Partner, EY Parthenon
Stijn has 16 years of experience in strategy consulting, both in Europe and in emerging markets. Learn more about Stijn.