Beyond COVID-19: Order Of The New World

While the long-term impact of the COVID-19 pandemic remains uncertain, it seems to hugely accelerate this change. Companies need to rethink the way they do business based on a question: what will become the “new normal” across industries.

In dedication to help you nurture your business, we undertook an investigation on potential trends and actions needed to navigate this new landscape. As such, this article will provide a summary of its findings so that you could step into the new world with more confidence.

SCENARIOS OF THE NEW WORLD’S SETTING

1. Distance is back

In the mid-1990s, the idea of the “death of distance” gained currency. The thinking was that new web-based and telecom technologies had made it possible to communicate and work in new ways that dramatically reduced the value of physical proximity.  As the flow of information became cheap and seamless, global supply chains of bewildering complexity were able to deliver just-in-time products as a matter of routine. Cross-border trade reached new peaks. And the world’s burgeoning middle class starts seeing travel and tourism a little differently.

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.

Such attitudes were far from universal, of course. But to deal with the pandemic, governments around the world have imposed restrictions on people and goods of a severity not seen for decades. According to one study, more than 3 billion people live in countries whose borders are now totally closed to nonresidents; 93% live in countries that have imposed new limits on entry, because of the Coronavirus. If a modern-day Hannibal wanted to cross the Alps peacefully, his elephants would be turned away. Eventually, the tourists will come back and the borders will reopen, but it is certainly possible that the previous status quo will not return.

Indeed, for businesses, the prospect of more border restrictions; a greater preference for local over global products and services; the need for resilience across supply chains – driving a move to bring sourcing closer to end markets; and perhaps renewed resistance to globalization, are all possible second-order consequences of the actions being taken now to cope with the Coronavirus. Technology continues to shrink physical distance, but in other ways, it could be set for a return.

2. 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. McKinsey’s research on the 2008 financial crisis found 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%, while that of the non-resilients had gone down almost 15%. What characterized the resilient companies was the preparation before the crisis – they typically had stronger balance sheets—and effective action during it—specifically, their ability to cut operating costs.

This advice is still sound – but insufficient. COVID-19 could end up dwarfing the financial crisis in economic damage. In that case, it will not be enough for many companies to tweak their business model; instead, they will need to rethink it.

One implication of this has to do with how supply chains operate; companies are finding themselves vulnerable because they cannot get the parts they need. Supply chains built on just-in-time inventory and distributed component sourcing may well have to be reconsidered, given the way many have been disrupted. Instead, companies will want to build back-up and safety plans.

Other key elements of the business structure will also be revisited. For example, the Wall Street Journal observed that the crisis has revealed weaknesses in succession plans as leaders get sick and deputies quickly need to be found across all aspects of operations. Companies are learning their hard way that succession planning has to go much deeper than the C-suite, and much broader, as well as responding to possible short-term disruptions.

Investors are likely to take note and to devise ways to incorporate resiliency more systematically into their valuations. Indeed, in the wake of recent natural disasters, such as the Australia bushfire, the impact of climate change was increasingly being recognized by business leaders and investors, with consequent effects on decision making and valuations. This pressure to include environmental, social, and governance factors in valuing a business is likely to expand to incorporate resilience to outside shocks, such as pandemics. In sum, many companies will rebalance their priorities, so that resiliency – in all its manifestations – becomes just as important to their strategic thinking as cost and efficiency.

3. The rise of the contact-free economy

In three areas in particular – digital commerce, telemedicine, and automation – 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, which was already well established. Early indications from China, for example, are that new customers and markets—specifically individuals aged 36 and over and residents of smaller, less prosperous cities – have begun to shop online in greater numbers. In Europe, 13 percent of consumers said in early April that they were planning to browse online e-tailers for the first time. In Italy alone, E-commerce transactions have risen 81% since the end of February.

The figures for telemedicine and virtual health are just as striking. Teladoc Health, the largest US stand-alone telemedicine service, reported a 50% increase in service in the week ending March 20, and is adding thousands of doctors to its network. The Federal Communications Commission is spending $200 million to improve connectivity between patients and virtual-healthcare providers, and the US Department of Health and Human Services has increased reimbursements for telemedicine and enabled the cross-state provision of virtual care. Sweden’s KRY International, one of Europe’s biggest telehealth providers, reported that registrations were up more than 200%. France and Korea have both changed regulations to ease access to telemedicine. With a vaccine or treatment at least months away, patients and healthcare providers both have reason to expand virtual interactions.

Greater automation was already occurring before COVID-19. In late 2017, the McKinsey Global Institute estimated that 60% of all jobs could see more than 30% of their key tasks automated, affecting 400 million to 800 million jobs around the world by 2030. According to the Brookings Institution, over the three recessions that have occurred over the past 30 years, the pace of automation increased during each.

In effect, it is becoming possible to imagine a world of business – from the factory floor to the individual consumer – in which human contact is minimized. But not eliminated: for many people, getting back to normal will include popping into stores again, and the roadside kiosks typical of much of the developing world are not about to be replaced by cashless hyper-stores. Patients with complex needs will still want to see their doctors in person, and many kinds of jobs are not automatable. But the trends are unmistakable—and probably irreversible.

4. More government intervention in the economy

During times of great crisis, citizens in many countries seemed to be willing to accept – even embrace – greater government control of the economy. Already, there has been economic intervention on a scale that hasn’t been seen for decades, if at all. As of April 10, governments across the globe had announced stimulus plans amounting to $10.6 trillion – the equivalent of eight Marshall Plans. Most spending is directed to three areas – supporting citizens’ basic needs, preserving jobs, and helping businesses to survive another day.

India is making direct cash transfers to citizens in need, and Indonesia is expanding social-welfare benefits to ten million more households. Britain and France are covering wages (up to 80%) of workers affected by COVID-19; Italy is suspending loan and mortgage payments; Brazil is easing labor regulations on companies. And central banks from Australia to Europe to South Africa to Canada are cutting rates.

As governments step up to serve, or save, the private sector, the means they choose will differ. Some countries will outright nationalize, some will take equity stakes, some will provide loans, and others will choose to regulate. If nonperforming loans require a second bailout, the banking sector could become something like a regulated utility in some markets.

A push to redefine the global public health ecosystem to better navigate possible future pandemics and related threats could provide additional impetus for cross-country public-sector intervention. In the same way that reform of financial institutions gained momentum in 2009, the same could be true for public health in the near future.

As McKinsey wrote in the context of climate change, “the tremendous costs of being the payor, lender, and insurer of last resort may prompt governments to take a much more active role in ensuring resiliency.” The implications for the role of the state will materially affect the way business is conducted; business leaders in many more sectors will have to adjust to the next normal of greater government intervention.

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.

5. More scrutiny for business

Rightly or wrongly, there is a perception in many countries that during the financial crisis, financial institutions were culpable for the trauma, accepted billions of dollars from taxpayers, and gave little back. Now citizens all over the world could face higher taxes and/or fewer services in order to pay for the $10.6 trillion committed so far. The public will expect – indeed, demand – that their money is 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? If a financial institution accepts a bailout, how should it think about calling in loans? When, if ever, is it appropriate to resume buybacks and pay higher dividends?

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 and workforce safety. And as the Coronavirus reveals or heightens awareness of social fractures, businesses will be expected to be part of finding long-term solutions.

6. 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 elements highlighted in this article. For example, those that have shown themselves to be less resilient may find it difficult to regain their pre-COVID-19 standing. In the auto sector, for example, companies have relied on global just-in-time-based supply chains; they will be under pressure to change so that continuity of supply is just as valued as cost and speed to market.

In addition, there could 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 millennials and members of Generation Z – those born between 1980 and 2012 – this crisis represents the biggest disruption they have 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 “black swan” events could change how consumers approach financial security – saving more and spending less. The list of questions about how consumers will behave after COVID-19 is long, and uncertainty is high.

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 in 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.

Based on such scenarios, there are some key-takeaways and predictions business leaders shall oversee:

• The ambiguity the future holds requires consistent, fast, and concrete crisis management and response.
• Government intervention might have something to do with not only your authority upon your own business but perhaps also the tax and trade.
• Operations and Supply Chain will see a great transition, as the distance is becoming a global norm, and supply chain shifts from just-in-time to a more diversified approach.
• Workforce suffers from the scrutiny of businesses.
• Customers become unpredictable because of the changing environment accelerated by COVID-19.

WHAT IS THE ROLE OF TECHNOLOGY IN THE NEW NORMAL?

In the new normal, technology will play at the forefront of settling new business orders, as seen in its addressing 5 major dimensions posed by the scenarios assessed above:

• Crisis and management response
• Tax and trade
• Operations and Supply Chain
• Customers

1. Crisis Management and Response

1.1 Possible issues:

• Business continuity planning does not account for the uncertainty of an evolving pandemic.
• Raft of industry event cancellations means fewer business development opportunities.
• Vastly diminished business travel results in fewer client interactions.

1.2. Steps to consider:

• Appoint a central, accountable leader, supported by a cross-functional team, to manage this continually evolving crisis.
• Create a framework for data analysis and decision-making.
• Run simulation exercises based on realistic scenarios in the short, medium, and long term.
• Seek outside help as needed.

1.3. Technology/IT that helps:

• Forecasting software

Using forecasting software (demand forecasting, budget forecasting, etc) might not entirely eliminate the uncertainty factor of the pandemic, or guarantee the success of your business in these VUCA days – but it gives you a sense of what you may do as well as several possibilities and scenarios to contemplate. Using forecasting software alongside with reading industrial reports (McKinsey is a good source) and following pandemic updates would assist you a lot in pulling out the right response to the current crisis.

• AR/VR

When it comes to simulation, AR/VR is probably the top of mind. Using AR/VR will make it easier and faster to run simulative exercises based on your predictions upon the pandemic; therefore, make the process of forecasting – examining – executing (or crisis management in general) much more efficient.

2. Workforce

2.1. Possible issues:

• Staffing concerns ramp up for full-time employees, as well as gig workers, such as drivers, delivery workers, and retail staff, who often work as contractors.
• A slowdown in recruiting resulting from the crisis could affect a future pipeline of skilled workers.
• Cybersecurity risks are likely to rise as a result of more people working remotely.

2.2. Steps to consider:

• Determine which critical functions must remain onsite and which can be remote.
• Communicate clearly, accurately, and often about health and safety considerations.
• Showcase cyber-safe platforms that support remote employees. Having fewer workers in the office makes it safer for those whose jobs require them to be there.
• Shore up workforce modeling.
• Rethink benefits for gig workers.

2.3. Technology/IT:

• Colocation data center

Relying on a colocation data center allows better connectivity as it has fully redundant network connections to ensure that customers’ business-critical applications always run uninterrupted and complete control of your physical servers. It also provides you with the flexibility to burst to higher bandwidth levels to accommodate your traffic demand without having to make repeat capital investments. Hereof, you can increase or decrease bandwidth as you wish so when shifting from working in the office to working from home you will be able to guarantee the bandwidth and the internet connectivity of your company network.

• Cloud computing

Supporting remote employees not only require leaders to stabilize the network but also set a challenge for them to manage the tasks, facilitate meetings, and maintain culture from afar. Cloud computing helps store and organize every document on one platform, allow greater accessibility and flexibility, therefore helping managers to streamline the work of their members easier in real-time. With cloud computing, any problems arising will be identified in no time, allowing team players to support each other and come up with immediate solutions – despite their physical dispersion.

3. Operations and Supply Chain

3.1. Possible issues:

• Production slows as a result of global supply chain disruption.
• Cash-flow challenges will test undercapitalized companies and may require alternative sourcing and/or the need to subsidize during the crisis to confirm readiness in its aftermath.
• As companies seek business solutions to address remote work, social distancing and the need for in-store alternatives, the demand for developer and engineering talent is likely to increase. Retaining top talent will be essential.
• Disinformation proliferates on digital platforms.
• Sharing economy inventory takes a hit.
• Some component manufacturers rely on one or perhaps two main suppliers.
• Additional containment zones around the world trigger more shipping and delivery bottlenecks.

3.2. Steps to consider:

• Activate contingency planning for vendor management.
• Anticipate and plan for supply chain modifications, should the crisis last longer than a quarter.
• Reset operating model(s) with emphasis on supply chain and manufacturing footprint.
• Move quickly to counter disinformation as it occurs, and communicate with employees, customers, and business partners.

3.3. Technology/IT that helps:

• Robotics and drones

Robotics and drones will help lessen the pressure on human personnel, allowing automation that will keep the operational activities and supply chain going. Robotics (or RPA) can significantly replace the presence of humans in manufacturing processes, while drones can be used in place of shippers or delivery trucks. In “the great empty” era like this, automation is the key to almost every business riddle.

• Machine learning

Machine learning can be used as a way to make the machines smarter, to the point that it can be used to solve more complex problems – such as supply chain planning and capacity planning in times of lockdown. A smart machine learning-based tool will assist you in defining the extent and duration of your supply-chain exposure to areas that are experiencing community transmission and inventory levels. Therefore, it will be easier to ration critical parts, pre-book rail/air-freight capacity, gain higher priority from suppliers, and support supplier restarts.

4. Tax and Trade

4.1. Possible issues:

• New state and local tax implications arise for workers who are now remote as a result of the crisis.
• Tax compliance operations could lag, as newly remote employees lack timely access to information.
• In the short term, changes to income statements — such as short-term losses — will affect forecasts.
• Supply chain reconfiguration triggers tax implications.

4.2. Steps to consider:

• Craft a contingency plan to meet tax compliance obligations on time.
• Improve tech-enabled functionality to confirm timely access to required information.
• Conduct additional modeling to assess how changes to income statements will affect forecasts.

4.3. Technology/IT that helps:

• Blockchain

Blockchain helps leaders to capture all necessary information in a timely fashion – especially those belonging to the supply chain, from origin to destination. However, the interesting thing is this technology is not only about the quantity of information – it is about the quality as well. Blockchain provides a degree of assurance that the information is correct as it originates at source and was not ‘manipulated’ along the way, hence allowing businesses to plan tax and abide to tax much effectively.

5. Customers

5.1. Possible issues:

• Some tech sector companies rely on overseas consumption, which has slowed since the outbreak.
• Customers are delaying purchases because the pandemic has exacerbated an already uncertain global economy.
• Technology support may struggle to keep up with increased customer needs on applications.

5.2. Steps to consider:

• Reprioritize limited supply to the most profitable regions, segments and customers.
• Team with technology channel partners to understand where future demand can be generated in the short term, such as in countries not as hard hit by the virus.
• Evaluate pricing actions and other countermeasures to bolster current and future quarterly demands.

5.3. Technology/IT that helps:

• E-commerce

Building a new or accelerating an e-commerce site will help you keep up with the increased customer needs for applications, assisting in boosting the number of orders and improving revenue. This also helps you to automate various processes, cut some kind of cost on labors and give customers an excellent shopping experience online.

• Loyalty apps

When purchasings are delayed and you find it too hard to boost the demand, the solution then is not to find a new customer or getting a return customer, but to persuade them to stay with you through the pandemic and to continue using your services/products after the storm drifts away. Then an application aiming at improving loyalty from customers would be the right choice. You can integrate many interesting functionalities into this apps: news on the CSR activities of your company during the pandemic, gamification/experiential sections to help them entertain while being immobile behind closed doors,…, which is strategic for raising engagement and brand love.

At the heart of this connecting world, Savvycom is racing against time and innovation to deliver world-beating technological solutions to our valued clients. With our 10+ years of tech expertise, the endorsements from 100+ clients of 4 continents around the world, and multiple successful partnerships with reputable global firms such as Apple, Amazon Web Services, Google Cloud, and IBM, we make serving our clients with the best services a promise.

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