Combating Challenging Times and Moving Forward
COVID-19 has no doubt brought the world to a standstill. The financial impact of Covid-19 could be much more painful and prolonged than the health impact it creates. The International Monetary Fund (IMF) has recently released its global growth projections, revealing that in the year 2020, the global economy is expected to plunge into the worst recession since the Great Depression. In fact, IMF estimates the impact to be far worse than the Global Financial Crisis and thus many of living now would not have seen adverse economic impacts of such magnitude. Just to give a sense the cumulative loss to the global GDP in the year 2020 and 2021 would be greater than the economy of Japan and Germany put together.
By when the issues will resolved and things will be back to normalcy for business enterprises cannot be predicted under the current circumstances. Time frames and opinions differ depending upon sectors in which the unit is operating. But, one thing that is agreed by all is that back to normalcy doesn’t mean things will be as it was before the outbreak of COVID. There will be a new normal which gets evolved based on the situations and the learning’s from the pandemic. As has been mentioned by Charles Darwin in Theory of Evolution in the current scenario also it would not be the strongest or toughest of enterprises that will survive, it will be those which are more adaptable to change that will survive. So, it is essential that enterprises take stock of the critical elements of their business and initiate corrective steps wherever required. The following aspects should definitely be looked into by entrepreneurs to minimise their losses and disruption in business, identify opportunities and remodel their business if required.
Your Employees
For any organisation, the employees are one of the most critical resources. Dedicated and motivated employees will definitely be very critical for any organisation for tiding over the current situation. So, during this challenging time organisations should take care of the health safety and welfare of their employees. During this lockdown period, work from home has become a new world order. Even after the lockdown is over this could continue as this results in a lot of savings to companies by way of lesser rent, utility charges etc. But, for achieving the desired results organisations has to ensure that proper work protocols, data security measures, reporting structures and performance measurement tools are put in place so that efficiency level of employees are monitored. If such systems and procedures are not put in place there could be an application of Parkinsons law which states that “work expands so as to fill the time available for its completion”.
Skill sets required for employees who work from home might be slightly different from those who work in an office atmosphere. The amount of self motivation and self discipline for work from home employees would definitely be higher than employees working from offices. Organisations that want to move to a work from home culture should therefore assess the skill sets of the employees especially on communication, organising, planning, and decision making. The ability and willingness of employees for continuous learning and up skilling are also very critical. As every employee is driven by different forces, identifying an employee’s strength and weaknesses would play an important role in enhancing productivity. For example, some employees will be challenge driven and such employees should be given challenging task. Some employees will be instruction driven and such employees should be given clear instructions.
The work from home can result in reshaping the current remuneration structures. Under the new order the salary packages might have less of a fixed component so as to satisfy the labour laws and more of performance/productivity based components. The work from home concept could attract new talent pool to your companies, especially people who had taken short employment breaks to take care of their kids or aged parents. In the context of current business slowdown enterprises should revisit their manpower requirement including redeployment of existing manpower and also their hiring plans. Employees on their part should be willing to unlearn, relearn and take up new roles and responsibilities so that they remain relevant for their organisations in the new world order.
Your Customers
Your customers are the reason why you exist in business. The business prospects of your customers will in turn affect your business prospects and so it is essential that you talk to your customers and understand how their business has been affected in the short term and the long term also. It would be relevant to understand how their business development plans have changed. This would be more relevant for businesses operating in the B2B segment. For businesses operating in the B2C segment broad industry impact studies prepared by various agencies can be looked into for understanding how their businesses will shape up. Customer expectations preferences and priorities could change. There could be customers who would now defer their purchases or even drop the plan. Enterprises would be looking at reducing the fixed cost by opting for operating expenses model than for capital expenditure model. There could be renegotiations on margins, terms of trade, credit limits etc. Enterprises should maintain flexibility in their business model to cater to such changing requirements from customers. Always remember it is not the strongest of species but those species that are more adaptable to change that have survived.
Your Suppliers
If you have to cater to the needs of your customers you should have your suppliers to support you. Just like talking to your customers and understanding the impact on their business, talk to your suppliers and understand how the situation has affected them. Find out if there could be time delay in executing the orders and take realistic timelines so that you can talk to your customers accordingly. Analyse the situation and find out whether there is a need for you to look out for alternate suppliers or even alternate material, technology etc. Remember, necessity is the mother of all creation. COVID 19 might be providing you an opportunity to revisit your established line of supplies, established terms of trade, established technology etc. and work out something new and better.
Your operations
The new business models you are developing or rather evolving might require you to relook at the how you manage the operations. It could be good to have a look at whether there is scope for digitization and simplification of process. Can paper files of the British Raaj be changed to digital documents and physical signature be replaced with digital signature? Can physical meetings changed to online meetings? On premise storage be replaced with cloud storage? Licensed software replaced with SAAS model software? Can onsite monitoring and data capturing changed to off site monitoring and online/digital data capturing? Can physical display at retail outlets be changed to digital display and physical delivery at shops replaced with home delivery? Can we use “just in time technology” to reduce inventory levels? From centralised supplies can we move to decentralised supplies to take care of business disruptions? Clearly, the operations teams will have to look at such things to ensure business continuity in case of such events occurring in future. Some of these changes could also result in reducing cost and improving operational efficiency and faster decision making.
Your finances and cashflows
Having talked to your customers and suppliers you will now be in a better position to assess the financial impact of COVID 19 on business. For the short term your focus should be on how COVID-19 will be impacting your cash flows and for the long term your focus should be on how it will be affecting your business profitability and viability. For managing the cash flows it would be good for you to prepare a daily cash budget capturing all your expected cash inflows and outflows. As short term cash management is very critical now prepare this on a daily basis for the next 30 days and then a weekly/fortnightly basis for the next 6 months. While preparing the cash budget segregate all your payments into two mandatory payments and optional payments. See how much of avoid or defer optional payments so that cash is preserved. In case there is a negative cash position see how you can balance it either by deferring some of your payments, intensifying collection efforts or by resorting to external borrowings. The cost of each of the options will have to be ascertained and the informed decisions will have to be taken considering the criticality of the situation and also profitability in mind.
Your long term business plan will also have to be revisited in the wake of the current circumstances. All parameters including revenue and costs should be reworked with focus on optimisation of resources and cost. Cost benefit analysis of all resources utilised shall be undertaken so as to ensure resources are put to optimum use. Nobody can predict the future with certainty and more so in situations like this. So when you prepare the medium to long term business plan it would be good to prepare multiple scenarios ranging from optimistic to pessimistic. Actions to be taken in each of these scenarios shall also be planned. Identify the key variables of your business and do a stress testing/sensitivity analysis of these key variables so as to understand the impact. This will help you to identify the areas you should focus on for taking corrective actions for ensuing business viability and growth. In case you find the business prospects are severely affected and a significant restructuring of your business is required, it might be good for companies to look at the options available under the Insolvency and Bankruptcy Code.
Your risk management practices
The floods in Kerala during 2018 and 2019 have improved the business continuity planning and preparedness of enterprises to a great extend. The learnings brought by these incidents including the COVID 19 should be documented and a formal business continuity plan should be prepared. For preparing the business continuity plan all the critical activities of the organisation should be captured, the multiple contingencies that can come up has to be listed and how the organisation will respond to each of these contingency should be mentioned. The trigger points for reporting contingency, who will report to whom, who will take decision etc has to be documented so as to avoid any confusion. This will help people deal with critical activities to handle various contingencies without panic in a better organised manner. While it is good to have BCP for all the activities, to begin with you should have it at least for the critical activities. For identifying the critical activities in an organisation the combined effect of probability of disruption and the impact given a disruption of that activity will have to be considered. You should also be looking at the business continuity plans of your suppliers and service providers as well so that you get these uninterruptedly. Laying down standard operating procedures, developing proper succession planning, developing incident trackers for keeping track on incidents, forming emergency response teams etc would be some of the basic risk management practices that all enterprises will have to focus on for sustainability and growth in the future .
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