Bismarck Rewane
The business world has evolved over the past few decades, a change fast-tracked by the COVID-19 pandemic. Many corporates were unprepared and as such the shock was significant and its reverberating effects linger. The “VUCA” acronym is a term best used to describe the current state of the global landscape. It stands for Volatility, Uncertainty, Complexity, and Ambiguity, and is used to accentuate the challenging and unpredictable nature of the contemporary business environment. The leadership theories of Warren Bennis and Burt Nanus were the basis for the development of the “VUCA” acronym in 1987. It highlights the need for organizations to be adaptable and agile to navigate an environment that is constantly changing and full of uncertainty. This new normal requires businesses to be prepared for a wide range of potential challenges and opportunities and to be able to respond quickly and effectively to a complex and often ambiguous environment.
Winners or Losers – The Difference is Resilience
Corporate resilience is an integral part of corporate strategy building. As McKinsey & Company observed, amid the storm of disruption and crises, “some companies freeze and fail while others innovate, advance, and even thrive. The difference is resilience.” The unpredictability and dynamism of external shocks to businesses call for proactiveness. In other words, a business that does not innovate, evolve, and develop corporate resilience is bound to freeze and fail. Thus, organizations should leverage the key learnings from the pandemic to form the basis of their strategic decisions as one cannot wish away future pandemics
As the world struggled with the impact of the pandemic and many businesses collapsed, some companies were able to take advantage of the situation and increase their profits. The pandemic also created opportunities for new brands to emerge, particularly in the telecoms and social and digital spaces. Companies like Microsoft, Zoom, Netflix, Shopify, T-Mobile, PayPal, and Facebook were among the winners during the pandemic. These companies were able to leverage the situation to expand their business and improve their bottom line.
The aviation sector was among the hardest hit, along with hotels, restaurants, and leisure businesses. Energy equipment and services, speciality retail, and the automotive industry also suffered. Generally, the most successful companies were those that were able to quickly adapt, identify the changing needs of consumers and design products to meet those needs.
Since 1914, the world has experienced several global shocks. Over the course of several decades, beginning with the world wars and continuing through the great depression, all facets of society have been impacted in increasingly negative ways. To prepare for these uncertainties and promote economic recovery, businesses should focus on building corporate resilience.
COVID Experience and its Lessons
Indeed, the COVID-19 pandemic disrupted business operations, turnover, capacity utilization, and workforce dynamics. However, the depth, breadth and duration of pandemic-induced business disruptions could differ across countries, industries, and business structures. Everyone has a role to play, policymakers, investors, consumers, producers, & politicians all hands must be on deck to ensure buffers are created to prepare every facet for unforeseen future pandemics.
Therefore, policymakers should be well prepared for any pandemic in terms of human & financial costs andconsider the longer-term implications of policy measures taken during the pandemic (Inflation, High debt levels, etc.). Also, policymakers must understand that the world is now more interconnected which increases the risk of the country being easily prone to global shocks.
For investors, their focus should border on portfolio diversification, building portfolios with a longer-term view and embedding risk transfers in their investment choices.
Producers should create buffers for upcoming shocks by making provisions for emergency funds. They should also consider diversifying their revenue sources, investing in supply chain digitization and development, and strategic integrations, especially M&A and backward integration. Also, the interconnectedness of the business world implies that no business thrives in isolation. This reinforces the global call for corporates to promote equitable recovery. To achieve this, corporates must focus on being net positives by prioritising ESG.
To be proactive for consumers would mean their income stream should be diversified, maintain a strong saving culture, and acquire new skills. Meanwhile, with the events that trailed the lockdown, politicians should learn that anger and resentment can change political equations and a citizen-centric approach is becoming the new political order.
Five Proactive Scenarios for Corporates – Planning Ahead of Shocks
Corporate resilience will be fortified with the implementation of the following five proactive scenarios which could cushion the effect of future shocks regardless of the magnitude or nature:
- Retooling your business models & strategies to reflect economic realities & looming risks from global & regional perspective
- Increased investment in work-from-home facilities and communication tools
- Increased investment in technology and information infrastructure
- Enhancing the supply chain network through increased digitization
- Investment in backward integration to protect businesses from exogenous shocks
To build strategic resilience, corporates would need to focus on business-model innovation, risks mitigation and adoption of the ESG (environment, social & Governance) approach to corporate governance.
Historically, the disruption associated with economic shocks is a precursor of fundamental shifts that could pose an existential threat or offer a new frontier to businesses. It is followed by a recovery phase that rewards those who are resilient and flexible but penalizes the unprepared. It also offers new opportunities for those who are proactive and innovative. Corporates and great economies, if they take the lessons therein and leverage the same, often turn the tide, and find themselves back on track. As George Santayana succinctly put it, “Those who do not learn history are doomed to repeat it”, it is imperative for corporates to learn from the lessons of shocks and to understand how to manage it in future.
