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Challenges Adapting to Covid 19

Updated: Aug 14, 2020

The Covid-19 lockdown left sectors of the economy with little or no source of cash. When it began, executives thought it would last three months, not seven months. With no apparent end in sight, many sectors and businesses face worsening cash flow and a shortage of working capital. Governments helped by backing loans, providing grants and paying employees through furlough scheme. In the short-term these have staved off insolvency but will soon end.

Because of the lockdown and customer behaviour caused an unexpected shift in their business model from a physical or mixed model to a purely online sales and service model. They had to adopt new working practices, such as WFH and implement more stringent health and safety standards.

Unfortunately, such valiant efforts may not fix the fundamental challenge to their survival, which is the capacity to pay their bills.

Sectors and businesses face three challenges:

  1. Ability to transform with the customer in mind

  2. Cutting the right costs

  3. Managing cash flow and working capital

Ability to transform with the customer in mind

Successful transformation isn’t just about moving employees to WFH or pushing customers into a digital self-service channel. It has to be with the customer in foremost in mind.

The consequences of rapidly shifting to an unplanned digital first strategy left many customers struggling with an infrastructure that wasn’t ready to cope with customers: websites that couldn’t handle the volume of contact and went down; call centres that were overwhelmed by customers when they weren’t able to get service from digital channels and chatbots that couldn’t solve actual problems without defaulting to human operators.

In shifting from an omnichannel model that provided capacity and flexibility, often the last thing in mind was the customer.

Cutting the right costs

To create ‘survival cash’ many CEOs have tasked their finance department with planning massive cost-cutting exercises.

A good idea in principle, as they have all the historic cost data available. But finance may not cope with the challenge of adapting to the new market and customer dynamics that have rendered the existing business model and plans obsolete.

The danger is that finance makes recommendations based on obsolete assumptions and data, that results in the business eliminating resources that support recovery, generate cash and exploit the new sales, service and distribution mix.

Managing cash flow and working capital

Businesses understand that changes in economic cycles affect their cash flow and working capital. The impact of a global pandemic caught most offside. Since 2010, the number of pandemics has been increasing year on year. Globalisation and the speed at which international travel speeds up the spread and impact of a pandemic have increased.

With the lessons learnt from Covid-19, businesses need to rethink how they become more resilient to future shocks.

This includes defining their new core business; adjusting the business structure to be more agile and resilient; how they manage pricing and margins; how they build reserves; how they can access government help programmes faster than they did; how they can mitigate risk through new ventures and partnerships.

They will need to be bold and innovative in trying new operating models that are less hierarchical and decide faster. They should look to new technology companies for insight.

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