With the Coronavirus (COVID-19) outbreak that originated in Wuhan, China, now spreading to other countries in Asia, Europe and the Middle East, many businesses and governments are scrambling to deal with the impact. Multiple industries are affected including technology, retail, food, automotive, tourism, aviation and higher education. Production output from Chinese factories has also slowed or stopped, resulting in reduced demand for inputs and materials. The reduced output entering supply chains delivering to global markets has in turn, adversely impacted demand for shipping and logistics. Additionally, airlines have cancelled flights, and the ban on travel from China implemented by many countries has affected tourism and Chinese students’ ability to sign-up for study overseas.
At Christmas 2019 the world hadn’t heard of Coronavirus and barely two months later, it has the potential to become a pandemic that pushes the global economy into recession.
So, what lessons can businesses learn from this?
There will be more ‘unforecasted’ major disruptive events. Coronavirus is not the first unforecasted event to have had a significant impact on multiple industries. The SARS outbreak in 2003, the terrorist attacks of 9/11, the Japan Tsunami of 2011 and most recently, the Australian Bushfires, are all examples of major events that had far reaching impact that either nobody or very few people, saw coming. And neither will Coronavirus be the last such event, so we should all be prepared for more.
Being prepared provides business advantage. Whilst it is not possible to forecast exactly which events will occur, it is possible to prepare for them, whatever they are. In fact, this is one factor that separates great companies from ordinary companies. In their book, Great By Choice, Jim Collins and Morten Hansen identified a core behaviour of “Productive Paranoia”, employed by what they call “10x companies” (those companies that outperform their industry peers by a factor of 10). The authors describe the leaders in these companies as constantly asking “What If” and developing plans to exploit or defend against possible outcomes. Their research indicated that 10x companies were no more or less lucky than their peers but were able to use their preparedness to react more quickly and take action to mitigate or exploit events.
You don’t have to predict future events accurately to be prepared. Ask questions to uncover the types of event that can seriously disrupt your business, or your industry. Use a focus technique such as:
- What if we lost our number one customer’s business?
- What if there was a pandemic?
- What if crude oil prices fall or rise?
- What if our major material availability dries up?
- What if there is a technological breakthrough that makes our products less useful, e.g. Uber to the taxi industry
- What if the industry becomes commoditized?
Each of these specific events has happened somewhere, so the impact and lessons are well-documented and easy to find. You just need to think through the implications for your organisation so you are prepared.
Creating a framework to focus on the future is valuable. While most organizations would recognize the value of ‘preparedness’, relatively few effectively take this approach. To prepare for, and take advantage of unexpected events, organizations can benefit from a process that:
- Drives an external or outside-in view of the business
- Pushes the planning horizon out past the short term or the here and now
- Makes the integration points between functional plans in the organization clear so that when unplanned events occur, the critical areas of focus for the business are understood. A recent discussion with a pharmaceutical products supplier illustrates the time and effort that can be wasted when integration points are not well understood. While the company’s sales and manufacturing operations worked on plans to increase production of a sanitizing product to meet the extra demand caused by Coronavirus, nobody had spoken to procurement who could have told them that the pump mechanisms for the product, sourced from China, were currently in short supply.
Executives need to constantly be asking ‘what if’ and driving preparedness. The senior executive’s role is to ‘live in the future’. Too often they are dragged into, or choose to spend their time, managing tactical execution, effectively working one or two levels below their paygrade. The issue for many businesses is a ‘compressed organization’ – too much time and energy is put into the ‘here-and-now’; accurately predicting results for end-of-month, end-of-quarter, and end-of-year, rather than looking out over the next five years.
A business management process such as Integrated Business Planning (IBP) provides the framework and operating cadence for organizations to regularly take an outside-in view to identify areas in the business with the greatest uncertainty, and to run ‘what if’ scenarios that enable contingency plans to be put in place. One Oliver Wight client in the industrial products sector recently told us, “IBP hasn’t meant we’ve been unaffected by Coronavirus, but it certainly helped us react more quickly and take action against the gaps in our plans the outbreak is causing….”
From a management perspective, it’s bad enough not identifying and preparing for risks to the business, but it borders on irresponsibility not to see and leverage opportunities. How well are you planning for the unknown?