by
David A. J. Axson
| Aug 14, 2020
Interaction with companies, employees, and supply chains will continue to change. A consultant offers planning advice for moving forward.
In the long term, the effects of the
coronavirus pandemic on business remain
unclear. In the short term, company leaders
have been focused on ensuring the safety
of employees and customers, maintaining
financial sustainability, and plotting a
path to resuming business operations.
Even if that path hasn't been paved completely, it is
possible to identify the key strategic questions CFOs
and other executives will need to address:
How will the nature of interactions with workers,
partners, and customers change?
How can an organization increase financial and supply
chain resilience in times of stress?
How should planning and management processes be
adapted post-pandemic?
Interactions with employees, partners, and customers
The shutdown of large segments of the global economy,
increased working from home, and social-distancing guidelines
have changed the nature of almost every human and commercial
interaction. China’s economy went from 6.1 percent growth in
2019 to a 6.8 percent decline in the first quarter of 2020, the
first decline since quarterly numbers were first reported in 1992.
US retail sales declined 8.7 percent in a single month (March
2020), and overall US unemployment increased five-fold in the
five-week period to mid-April.
As the economy restarts, companies will need to determine which
elements of the behavior changes during the pandemic will
become permanent. Will all personal care/service professionals
have to use personal protective equipment? Will social-distancing
rules be enforced at large gatherings, retail stores, restaurants,
and on airplanes? Will enhanced cleaning regimes become a
permanent part of standard operating procedures?
One significant impact of the pandemic has been the increase
in working from home. In 2018, according to US Census data,
5.3 percent of Americans primarily worked from home. In
April 2020, Global Workplace Analytics estimated that 25
percent to 30 percent of the workforce will be working from
home multiple days a week by the end
of 2021. If true, organizations will need
to address a number of topics, such as
ensuring data and communication security
across a remote workforce; creating an
environment conducive to collaboration;
establishing policies for funding work-at-home
office set-up and operation; and
assessing the impact of reduced on-site
staff on real estate requirements.
More significant than the interactions
with employees will be changes to
the customer engagement model. Will
grocery delivery become the norm,
or will shoppers return to stores? One
supermarket chain in Ohio in the US converted one of its
traditional stores to become a delivery fulfillment store only. If
that becomes normal practice, what are the implications for store
location strategies? Will companies that have added pick-up
or delivery options maintain them after the pandemic abates?
How will hospitality organizations earn the trust of customers
with their hygiene and virus-prevention policies? Is the reduction
in oil consumption and prices simply a temporary aberration
due to reduced economic activity, or could routines such as
working from home continue, triggering an acceleration in the
decline in the use of carbon-based fuels?
At first glance, the implications may seem to be negatives in that
they increase costs without any commensurate offsets. While
that is true in some cases, it is important to consider the overall
economics associated with such investments. Organizations
that can successfully demonstrate their ability to adapt to a
post-coronavirus world are likely to benefit from increased
customer trust and confidence, reduced potential for worker
absenteeism, and an enhanced ability to attract and retain
employees. However, it will take time to develop a sustainable
economic model. The US airline industry took six years to
return to pre-9/11 performance levels. For strategic planners,
a willingness to envision alternatives and identify measures of
success to guide decision-making will be increasingly important.
Supply chain resilience
The heavy dependence of global supply chains on China became
clear as manufacturing stopped almost overnight, disrupting the
flow of goods across the globe. Many organizations went from
lean inventory to no inventory in a matter of days. As the virus
outbreak moved to Europe and the US, the impact expanded
rapidly. The food-processing industry was hurt by shutdowns
and absenteeism, and Amazon’s two-day guaranteed delivery
became a thing of the past for many deliveries.
However, except for a few notable exceptions, such as for
personal protective equipment, ventilators, cleaning supplies,
and toilet paper, supply chains have coped remarkably well given
the scope and scale of the disruption. We
have also seen a number of examples
of companies rapidly retooling their
business to address supply shortfalls in
critical areas such as distilleries making
hand sanitizer and automotive companies
producing ventilators.
Much of this relative success can be
attributed to companies working to
create more flexible and responsive
supply chains. It is unlikely that there will
be a significant move away from global
supply chains. The benefits of relocating
manufacturing operations to cheaper
labor markets, outsourcing large elements
of customer service and back-office work, and investment in
technology to reduce fixed and variable costs have been too
significant to abandon. Much more likely is that there will be
increased stress-testing of supply chains and potentially some
reduction in the concentration of supply on one company,
country, or region to create additional flexibility.
The answer is not to abandon lean principles and simply
increase stock levels across the board to provide a cushion
against supply disruptions. By using more granular demand
and supply data, focusing on both near-term and long-term
signals of market and customer behavior and incorporating
rational scenario planning capabilities, organizations can add
resilience and flexibility to already efficient processes.
(click on image to enlarge)
Planning and management processes
“Static”, “detailed”, and “wrong” define the results of most
organizations’ planning and budgeting processes. Months
of crunching numbers in spreadsheets yields a single, fixed
view of the future that has little or no basis in reality and rarely
contemplates that the future may not turn out exactly as expected.
This is true even in the absence of major global events.
Since the Great Recession of 2007–2009, organizations have
adopted techniques that better accommodate uncertainty
and ambiguity: rolling forecasts, driver-based plans, scenario
planning, machine learning, and advanced analytics. However,
progress has been fragmented and disjointed. Few organizations
can boast a holistic, integrated, and dynamic planning and
performance management process that fully leverages the
increasingly rich datasets that are available. Organizations need
to move from piecemeal projects that improve parts of the
process to prioritizing an integrated performance management
architecture that encompasses five attributes:
- Integrated. Seamless integration between strategic
planning, tactical planning, budgeting, forecasting, and
reporting processes.
- Scenario-based. Consistent use of scenario planning for
long-term strategic evaluations and sensitivity analysis for
shorter-term analysis.
- Data driven. Transition from calendar-driven cycles (annual
plans, quarterly forecasts, monthly reports) to data-driven
cycles that are triggered by changes in market, operational,
or financial data at a granular level.
- Analytic. Use of advanced analytics (artificial intelligence,
machine learning, cognitive computing, and the like) to run
large-scale simulations at speed to inform decision-making.
- Collaborative. Collaborative planning that goes beyond
finance, beyond cross-functional teams to embrace an
organization’s entire economic ecosystem including
customers, suppliers, employees, advisers, and regulators.
The bottom line
Within days of the pandemic spreading across the globe,
corporate cash piles diminished, credit facilities were drawn
down, loan and rent payments were missed, and unprecedented
government fiscal support was provided. It can be argued that all
were prudent and expedient actions given the unprecedented
nature of events. However, there should be some questioning
of the effectiveness of corporate governance, financing, and
shareholder principles in the light of recent events as it relates
to cash and capital utilization.
From 2017 to 2019, S&P 500 share buybacks exceeded $2
trillion, according to data from Yardeni Research Inc. In the
year to March 2019, share buybacks exceeded free cash flow
generation for the first time in more than a decade. While the
pandemic’s events are clearly unusual, can companies continue
to distribute so much cash to shareholders and then plead for
government relief when the unexpected happens?
No organization will ever be able to fully prepare for events of the
magnitude of COVID-19. Yet it is a certainty, not a probability, that
another seismic global economic event will occur in the future.
It could be triggered by another virus or a protracted timeline
combating the current virus; a communications, power, water,
or other system outage; a cyber or biological attack; a climate
event; or other natural disaster. The best strategists will be able
to model the impact of such events, develop rational mitigation
strategies, and, most importantly, position their organization to
emerge in a stronger competitive position when growth returns.
Consultant and author David A. J. Axson is a retired partner
from Accenture, a co-founder of The Hackett Group, and
former head of corporate planning at Bank of America.
This article appears in the summer 2020 issue of the Washington CPA Magazine. Read more here.
©2020, Association of International Certified Professional Accountants. All rights reserved. Used by permission.