Part 3 of 3: The longer term impact of Covid-19

Today, in the last of our 3-part series on finding ways to create value during the COVID-19 crisis, I want to focus on the long-term implications. So much of what is talked about in the current crisis is short-term and largely outside of our control (when will the stay at home orders be lifted, when will my business be allowed to reopen). I think it is important to take time to step back and reflect on how the COVID-19 crisis will impact our businesses over the long-term. I think doing so might help us realize that the current crisis has in many ways simply amplified and accelerated issues that have been lurking beneath the surface for a while. By taking the time now to dig into areas where business is likely to be permanently impacted, we can all start the work of pivoting our organizations so they can emerge stronger and better equipped to address future volatility.  

New Ways of Thinking as a Result of the COVID-19 Crisis

The Need for More Flexible Planning

The speed of the crisis is what has left everyone reeling. One day things were relatively normal and two days later the bottom dropped out. We are concerned that too many companies are focused on making it through the crisis with the assumption that at some point things will “return to normal”. It is not clear that is going to happen any time soon, so we believe companies need to start thinking in terms of increasing their organizational flexibility so you can deal with changes more effectively and rapidly than you have in the past. Daily huddles. Producing in smaller lot sizes. Shorter-term planning horizons (weekly/monthly). More consistent communication with customers and not just when you are trying to sell them something or deal with a performance issue. This situation reminds me of one of my favorite sayings: “It is important to distinguish between a problem and a dilemma because a problem you try and solve and a dilemma you learn to live with”. The ongoing impact of COVID-19 (and out of the blue business interruption) is clearly a dilemma.

Increased Worker Absenteeism

Workers could be absent because they are sick, are caregivers for sick family members, are caregivers for children if schools or daycare centers are closed, have at-risk people at home (such as immunocompromised family members), or are afraid to come to work because of fear of possible exposure. This is likely to continue for some time, so companies need to be better prepared to backfill for absent workers and come up with strategies to make sure key functions/competencies are not dependent on just one person. This may require an entirely different way of thinking about your workforce.

Change in Patterns of Commerce

This has been one of the most difficult issues for companies to handle. Consumer demand for items related to infection prevention and basic necessities spiked overnight, while consumer interest in other goods declined dramatically. This, in turn, resulted in huge swings in demand between businesses depending upon the segment and distribution channel. These demand patterns are just as likely to change dramatically in a different direction over the next 30, 60, 90 days as “Safer at Home” initiatives eventually wind down. So rather than planning on dealing with volatility for the next few months, we believe the best thing is to assume it is going to remain highly volatile for the foreseeable future and develop better coping mechanisms. A few examples:

• Look for longer-term, likely permanent changes in demand (e.g. hand sanitizer). While the demand may go down a bit as the crisis lessens, the level of sales has probably been permanently altered upward.
• Don’t jump in on a short-term opportunity that may leave you just starting to produce things as demand goes down. (e.g. the demand for PPE will eventually be filled. Don’t put yourself in a position that your line is just starting to run these kind of products as demand plateaus). Do a thorough investigation of anything that is outside of your core area (whether market, customer or product/process type) and make as intelligent a decision as you can.
• Have backup plans for every single source/critical supplier you have. There are going to be ongoing disruptions for the foreseeable future.
• And, as indicated above, shorten your feedback loops with your customers. You need to be in almost daily contact to get a good and real-time indication on orders, future opportunities, and the strength of their position. The lower you are in the food chain (e.g. you supply someone who supplies someone), the more vulnerable you are.

I believe that going forward, companies will need a fundamentally different way of forecasting future demand.