26 AUG 2020
How to keep making decisions in the throes of a crisis
Before March 27, if you’d asked any SA business leader how long it would take to procure the equipment, train the staff and change the business culture to enable working from home five days a week, the answer would have been measured in decades. But the Covid-19 lockdown has forced many to realise the truth of what the information technology industry has been saying for 15 years or more: the essential requirement to complete most tasks is a laptop and an internet connection, nothing more.
Four months in and we’ve seen miracles happen. The impossible has become the essential, and Herculean efforts have been made to keep businesses open during lockdown. Even the most technophobic and set-in-their ways executives have embraced new applications — and the results have been overwhelmingly positive. From law firms to logistics, employees are proving that the age-old myth that they can’t be trusted to work without direct supervision is a lie: the economy may still be struggling, but there are many accounts that productivity is up. And not just for knowledge workers either.
Coping with the change has been terrifying, invigorating and exhausting. You’d be forgiven for wanting to take a breather about now, but with no signs of a let-up in infections or a cure, now is the time to start thinking beyond survival and preparing your business for what’s next. No-one knows if it will be one year, two years, three years or more until the immediate need to contain the virus is over, and the disruption caused is likely to continue longer than that.
Preparing for the next phase of your business means preparing for more uncertainty, and being ready to seize opportunities in the “low-touch” economy. The crisis isn’t over, but crisis thinking has to be. Accepting uncertainty must become part of your organisational DNA. And we need new frameworks for decision-making to support that.
There’s plenty that has been written about how a business can cope in dealing with uncertainty. Saras Sarasvathy’s principles for effectuation are a good starting place. Most pertinent is her advice to adopt the “pilot in the plane” ethos. Decision-making in uncertain times has to be based on keeping as much data as possible within fingertip reach, and understanding the implications for the long-term health of an organisation.
Right now, for example, there is a strong temptation for many businesses to start reducing prices, and there are two reasons this might seem a good idea. Caught between falling customer demand and tightening cash flows, it could be a sensible way to kick-start trade in tight times.
There may even be an element of inevitability about it. After all, the forced transition to digital has resulted in savings from cutting rent, building maintenance and travel. It makes sense to pass these savings to the customer to remain competitive, right?
But while the arguments for price reductions are compelling, they may come back to haunt you. It’s a fallacy, for example, that digital products are necessarily cheaper. It was expected in the early years of digital publishing that electronic books would bring down the cost of reading. Without all that paper, shelf space and logistics infrastructure, there’d be huge savings to be made. Yet as anyone who has purchased an e-book knows, the price difference between a paperback and a purely electronic text is tiny, and often nonexistent.
Publishers quickly learnt that the majority of their costs also applied to digital products — editors, designers, proofreaders and marketing departments all still need paying, as does the author, sometimes. Initially this left some readers who had been expecting price cuts disgruntled, but since the value of the product doesn’t change based on its medium, that didn’t last long.
When considering the implications of our discount, then, we might be tempted to consider just two key variables: our fixed costs and non-fixed costs. For the former we can count rent, insurance premiums, long-term leases, loan repayments and so on. These are what we are tied in to and cannot change. We could subsidise discounts by making changes to non-fixed costs: cutting staff, equipment hire, travel budgets and pay-per-use services. Some corporates have reported huge savings in spending on toilet paper. We could ask for a rent reduction while our office is empty.
Instead, our potential discounter should be thinking about how to use any savings to invest in making their business more agile and prepared for the challenges and opportunities yet to come.
Even this early in the pandemic crisis, we’re seeing that the businesses that will thrive and survive are the ones that have been able to quickly innovate their product lines and business models to suit this new low-touch world. Good examples abound: take the fuel companies that have switched production to hand sanitiser, or the engineering firms fulfilling demand for ventilators. The Board of Innovation lists other ways firms have risen to the challenge of lockdown limitations around the world in its recent “Low Touch Economy” paper. There are robotics firms that have re-engineered machines for UV-light disinfection, restaurants that have built single-table covered booths for isolated eating, and strip clubs that have adopted a drive-through model.
This kind of “pivoting” is par for the course for hi-tech, high-growth start-ups as they experiment and seek product-market fit — so much so that it is often mistaken for an easy decision to make. But for established businesses that haven’t started out with a data-led decision-making culture, pivoting is hard. Knowing how and when to change requires experience and information. Not only can it mean turning away from years of a successful business model, but the process of finding the right innovation to invest in may not be a natural one for the leadership. Their brains are colonised by the past.
Working towards a framework for planning how to invest in precarious times then, we could start by outlining the kinds of costs we need to be prepared to undertake in an uncertain future that will enable us to deal with the cost of opportunities as they arise. Here’s four for a start.
Certain costs. Preparing for opportunity means holding a reserve for the investment to make it happen. Our certain costs that we will incur include retooling and reskilling equipment and teams for new product lines and development. We can include the ongoing costs of digital transformation — more laptops and mobile Sims, training on agile project management tools and investments in HR to find new ways to support staff remotely. There might also be interest payments on short-term loans or catch-ups on payment holidays that have been offered as part of Covid-19 support.
Uncertain costs. Ironically, the ever-changing nature of the business landscape makes these easier to predict than normal. We know there are going to be rapid changes in legislation and regulations, and that they might change overnight (especially if you are involved in the liquor trade). There’s going to be extra expenses to covering health-monitoring equipment and staff, and building modifications to accommodate social distancing and better ventilation are inevitable — we just don’t know the details yet. We need to plan for potential tax increases, sick pay-per-use and redundancy payouts.
Opportunity costs. By its nature, pivoting means turning away from some current business activities and opening or closing the door on other opportunities. Understanding and weighing these against each other involves intricate scenario planning and testing hypotheses before committing.
Opportunities lost. Many businesses are getting by as far as their normal trade goes, but what are the opportunities they have been used to spotting that no longer exist? Think of the retailers whose turnover is boosted by a stall at a big show in the Northcliffe Dome. The London Business School, for example, has seen student numbers hold steady because professionals realise the ongoing value in its qualifications. Bespoke training programmes for corporate clients, however, have dried up.
The coronavirus crisis has hit businesses hard, but when we say there will be no return to business as normal, we really mean it. The challenge we all face isn’t as simple as whether to offer discounts; it’s what do we need to do to demonstrate real value beyond the coronavirus crisis. The shift in thinking from short-term survival to long-term growth and adaptation is going to be as difficult as the initial shock of lockdown. But as we proved then, with the right tools and motivation it’s not impossible.
At the core of Henley’s philosophy is the belief that we need to develop managers and leaders for the future. We believe the challenge facing future leaders is the need to solve dilemmas through making choices. We work with both individuals and organisations to create the appropriate learning environment to facilitate the critical thinking skills to prepare for the future.
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