The Novel Coronavirus has presented us with novel challenges and an uncertain business environment, the response to which has to be focussed
The unprecedented Coronavirus pandemic has driven home the fact that the world is a very volatile, uncertain, complex and ambiguous (VUCA) place. Hence, survival and growth strategies have to be revisited and revised accordingly. Although the term VUCA was coined by the US Army, it is now widely used by business leaders to portray the unpredictable nature of the environment in which they operate. Over the decades, business models have changed dramatically, so have the things that businesses value, leading to a sea change in how they operate. And since situations are so uncertain and can change quickly, businesses also need to be agile and adapt quickly. Here are some of the strategies that business leaders can look at to keep their corporations afloat now.
Optimise costs: Since this pandemic has hit the entire world, all businesses will find it extremely difficult to match historic levels of profitability. With factories shutting down due to lockdowns ordered by the Government and lower sales turnover, the resources available with the companies will be very limited. Therefore, proper utilisation of the same is a must. Review various costs, both fixed and variable, to carefully determine what is in fact required to run your business. After this, review, strategise any cost-reduction initiatives, whether it is making your business lean by introducing a downsizing process, holding off any upcoming capital investment or introducing companywide innovative techniques to drive down costs. Employees can be motivated to join this campaign and suitably rewarded for any innovative ideas that help the firm. Although reduction in expenditure is a must, cost-cutting should be avoided in areas that have the potential for revenue generation in the future. However, caution has to be exercised to make sure that the cost-cutting does not cause any reputation loss.
Liquidity rules: The pandemic and the lockdown strategies adopted by nations will most definitely lead the global economies into recession. During such slow times, it is crucial to understand that cash is the lifeline of any business and follow strategies to maintain cash flows. Run sensitivity and scenario analysis to understand the impact of changes in one or all variables relevant to your business, whether the impact would be more short-term or long-term in nature and what management approach needs to be taken. Build cash reserves like there is no tomorrow. That will become the lifeline of your business till things settle down and there is an upward trend in growth. Managing of working capital is another significant aspect of managing cash. Strategise to increase all inflows and reduce all outflows and stretch the time frame of payables. Try and reduce the days for any receivables and delay all non-essential capital expenditure. Another fastest way of adding liquidity to a business is the existing banker. Communicate with your banker to explore the extension of any credit facility. If you have a long association with your bank and it understands the value of your business, discuss the current situation and your plans to tackle the same. Clarity and openness in your conversation will be the key here. Try and re-negotiate the terms of your debt repayments or consider the options of refinancing or recapitalisation. Therefore, engaging with your key stakeholders and lenders early on will help you stay on top of your challenges.
Renegotiate terms with stakeholders: Customers and suppliers are the important external stakeholders for any business. In these economically difficult times it is vital to carefully nurture important and credit-worthy customers and weed out economic drags on your business. During normal times, businesses are under pressure to increase the number of customers or suppliers and to attain them firms sometimes give out more favourable terms. Now is a good time to carefully monitor accounts, re-evaluate the supplier base and re-negotiate favourable terms with some of your suppliers.
Be more responsive: You should aim at developing and transforming your organisation’s culture to be more responsive. The values of integrity, trust and empowerment will be the main features of this new business environment. Leaders have to set the right tone of the culture of the business, hire the correct staff and empower them to perform. All the organisational systems and processes have to be aligned with the company culture and become more responsive as a strategy for this new normal situation.
Invest in your people: Organisational response and agility will only develop if values are communicated correctly to your staff as they are the ones to steer your business through these difficult times. Businesses should invest in training people in skills and attributes that will help set up the corporate culture they are trying to build. In addition, leadership development programmes, coaching and mentoring are also a necessity. Innovate and find cost-effective and impactful ways of training staff. The Novel Coronavirus has presented us with novel challenges and an uncertain business environment, the response to which has to be focussed and swift. All these strategies, if adopted in time, will make it easier for businesses to emerge bruised but certainly alive.
(The writer is Associate Professor, Amity University, Noida)
