Can Covid-19 really be good for business?
While most economic commentators are yet to come out and officially say it, most countries in the world are now in recession.
Bad news? Normally yes - but it doesn’t need to be that way.
Just as there’s a strong cyclical nature to the stock markets, allowing us to predict longer-term trends, so there are lessons we can learn from previous recessions.
Convention suggests that businesses behave in a certain way during recessions – hunker down, cut costs, wait it out, or some variation of this theme. Some (or all) of these actions may well be valid – however these actions have longer-term repercussions. They create a time-lag and end up elongating, if not the recession itself, then certainly the effects of it.
How? Because even after we’re technically out of recession, many businesses look for evidence to make absolutely certain this is the case. Not just formal evidence confirming that recession is actually over, but also input from a range of other factors including their own levels of confidence.
This can add many months, if not years, to the length of time during which businesses "mark time”. This means they delay their own recovery! Only then do they consider investing in their business and they wait again to start seeing the results of this investment. All the while, such businesses are losing ground unnecessarily.
But what if there was another playbook? An alternative set of actions to accelerate recovery?
The Boston Consulting Group (BCG) recently issued a report which focused on businesses which led the way in the last recession (in 2007/8). Their growth was mapped from 2008 to 2019. They found:-
- EBITDA growth of the top 25 companies outgrew their competition six-fold
- Yet they experienced just as much turbulence as other businesses
- The top performers were from a range of industries
The one common theme such businesses had was that they took different actions than their competitors did at certain key points during and after recession. And as a consequence, they not only positioned themselves differently to the competition, but out-performed them on virtually every measure for the whole 12 year period.
“It is not the strongest of the species that survives, not the most intelligent that survives. It is the one that is the most adaptable to change.” ― Charles Darwin
So, if we can learn from the experience of such companies, what are the lessons?
BCG identified five key areas in which the top businesses behaved differently:
- ACT PROACTIVELY - 80% of the S&P Global 1200 tended to act reactively rather than proactively. In other words, they waited until the recession directly affected their business. The top 20% of companies did the opposite and applied a different philosophy of fixing it before it breaks. Actions such as improving liquidity and strategic acquisitions were seen in the top companies.
- AGILITY - Top performers don’t rest on their laurels. They know that no winning approach lasts long so they accelerated innovation; seeking out new ideas and re-inventing to find sustainable long-term growth.
- STICK TO A CLEAR VISION - At first sight this might appear to contradict the need for agility. But here we’re talking about the difference between purpose and tactics. The long- term vision of the top companies remained the same, but the way of achieving that vision changed. As a current example, many businesses have now fully embraced online (because in lockdown, they’ve had no choice). Post-lockdown, digital will continue to be a valid element of delivery of the overall vision – same vision, different method of delivery.
- BUILD RESILIENCE - Top performers know they can’t avoid global factors outside their control. But what they can control is their response, so scenario planning is a key part of the strategic toolkit of top performing businesses. Another period of lockdown? Top companies have their playbook ready.
- STREAMLINE - Possibly the one area that most people would agree on – the need to streamline processes, operations and embrace digital in ways which allows businesses to stockpile a war-chest of reserves to ride out future bumps in the road. Not only that, it allows those businesses to capitalise on opportunities which most businesses have to pass up during a recession. More market share changes hands in the depths of recession that in boom years, and it’s a lot cheaper too. Top companies realise this and are ready for it.
So, while recessions are tough and many businesses don’t make it through, we can learn from great companies. And those businesses which learn can end up saying that the recession was the best thing that happened to them because it forced them to transform how they operate.
What is your playbook during this recession?