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Jakarta Post

Protect your margin: A four-step approach to planning for recovery through agility

  • Damien Dujacquier, Timothy Wong and Laurent Doucet

    -

Singapore/Hong Kong   /   Mon, March 30, 2020   /   03:11 pm
Protect your margin: A four-step approach to planning for recovery through agility Companies have survived and been built during economic downturns, by refraining from reacting and instead proactively following a rational plan. (Shutterstock/ESB Professional)

The COVID-19 pandemic is an unprecedented crisis that is bound to leave lasting implications in many areas of our lives. Fundamentally, it has pressured individuals, corporations and government institutions to reconsider their baseline assumptions and governance principles.

Many experts concede that the pandemic is becoming a crisis of a magnitude above any other 21st century "black swan events", such as the 2008 financial crisis and the Severe Acute Respiratory Syndrome (SARS) outbreak of 2002-2004. At extreme times like this, the calls for solid leadership and sensible thinking can never be too strong.

Logistics bottlenecks and facilities closures have drastically reduced the supply of consumer and industrial goods. Self-imposed quarantine measures alongside the decline in consumer confidence have curtailed consumer spending. Lending will be hampered.

All in all, the combination of the shock to supply and demand, as well as the credit crunch, will lead to considerable reductions of investment capital and consumable wealth. According to calculations by our team at Roland Berger, global GDP could take an aggregated hit of up to 3.2 percentage points.

Organizations need to deal with short-term operational issues to ensure business continuity as they play their part in corporate social responsibility, anticipate hampered revenues and learn to cope through cost rationalization, prioritizing essentials before all else.

Building a realistic path to recovery through cost containment is an unglamorous concept, but one that is necessary and cannot be taken for granted. Leaders need to remember that survival is possible even during downturns, but it requires agility in dealing with margin protection. The rule applies not just to businesses, but also to government institutions and individual households.

More than at any other time in this century, the long-term success of companies is predicated on their ability to build business agility, resilience and efficiency. Rational cost reduction is a high-stakes and high-reward activity, especially in periods of extreme VUCA (volatility, uncertainty, complexity and ambiguity) like the one we are living in.

This four-step checklist will help you focus in your pursuit of a lean organization and margin preservation:

  1. Start with a 360-degree checkup of your company's standing: Identify and document all known and unknown operational and organizational risks pertaining to COVID-19.
  2. Assess your risk profile and prepare a scenario analysis: Calculate your financial standing, especially your liquidity, for discussions with investors, banks and state aid administrators.
  3. Set up an emergency response room: Establish a COVID-19 task force to monitor further developments as they unfold and to prepare immediate effective actions.
  4. Design a purposeful performance improvement program: Develop both short- and medium-term improvement programs targeted at revenue, cost, margin and liquidity to stabilize the company.

We expect the crisis triggered by COVID-19 to last for 12 to 18 months, given that innovative medical treatments and new vaccines take time to get approved. Hence, ongoing performance improvement may be necessary to get through the quarters ahead.

When in doubt, think of the companies that have survived or were built during economic downturns. These companies resisted the temptation to react only as the news developed, and instead proactively built a logical plan to protect their margins and the lifeblood of their business.

Today, more than ever, you will realize that the most agile companies have the greatest abundance of alternatives to deal with unexpected events. Agile organization is what you should work towards to get through this period. If you can attain that level of corporate agility and efficiency, yield and margin will be protected to ensure your company's success in getting through this period.

The COVID-19 pandemic highlights the importance of nimble and agile organization during turbulent times. Agile organizations are more resistant to life-or-death economic downturns than others. Merely being reactive to the present economic cycle is a misstep that can hurt your business, especially during this fragile and stressful period.

The reality is, we are entering the unknown. All companies are facing shortfalls in revenue and do not or barely know how much and how long the impacts will last. Getting through the COVID-19 downturn without the right tools is therefore an incredibly tough challenge. The best decision for businesses is to manage the crisis with informed and calculated decisions.

Identify and prioritize from a long-list of measures to get through this period. Pay special attention to margin-oriented actions, for a start. Remember that knowledge and sensibility are the best tools to deal with any ongoing uncertainties.

***

The writers are consultants at Roland Berger strategy consultancy.

Disclaimer: The opinions expressed in this article are those of the author and do not reflect the official stance of The Jakarta Post.


If you want to help in the fight against COVID-19, we have compiled an up-to-date list of community initiatives designed to aid medical workers and low-income people in this article. Link: [UPDATED] Anti-COVID-19 initiatives: Helping Indonesia fight the outbreak