A question running through the minds of any and all business leaders now is "What will it take to navigate this crisis?" Business as we know it as some of the traditional metrics and assumptions of today, risk becoming irrelevant. According to a report by McKinsey, there are five stages the economy will go through from now to the next normal.
Stage 1: Resolve
The first stage is what most leaders are currently focused on. When faced with a crisis, the first step is to determine the scale, pace, and depth of action required at the state and business levels.
In almost all countries, crisis-response efforts are in full motion with a large array of public-health interventions being deployed. Healthcare systems are on a war to increase their capacity of beds, supplies, and trained workers. Efforts are being made to alleviate shortages of much-needed medical supplies.
On a business front, business-continuity and employee safety plans have been escalated.
Remote work has been established as the default operating mode. Many businesses are dealing with acute slowdowns in their operations, while some seek to accelerate to meet demand in critical areas spanning food, household supplies, and paper goods.
Stage 2: Resilience
The second stage comes in when the pandemic has metastasised into a crisis for the economy and financial system. The acute pullback in economic activity in an attempt to protect public health, is simultaneously jeopardising the economic well-being of citizens and institutions.
During this stage, the liquidity and solvency challenges hitting multiple industries proves resistant to the efforts of central banks and governments to keep the financial system functioning. A financial crisis emerges when there is uncertainty about the size, duration, and shape of the decline in GDP and employment undermines what remains of business confidence.
In the face of these challenges, resilience is a vital necessity. Near-term issues of cash management for liquidity and solvency will be paramount. But soon afterward, businesses will need to act on broader resilience plans as the shock begins to upturn established industry structures, resetting competitive positions forever.
Much of the population will experience uncertainty and personal financial stress.
Public, private, and social-sector leaders will need to make difficult “through cycle” decisions that balance economic and social sustainability, given that social cohesion is already under severe pressure from populism and other challenges that existed pre-coronavirus.
Stage 3: Return
The next stage is for business to return to its operations. Returning businesses to operational health after a severe shutdown is extremely challenging. Most industries will need to reactivate their entire supply chain, even as global supply chains face disruption in multiple geographies. The weakest point in the chain will determine the success or failure of a return to rehiring, training, and attaining previous levels of workforce productivity.
Leaders must therefore reassess their entire business system and plan for contingent actions in order to return their business to effective production at pace and at scale.
Additionally, without a vaccine or effective prophylactic treatment, a rapid return to a rising spread of the virus is a genuine threat. In such a situation, government leaders may face an acutely painful “Sophie’s choice”: mitigating the resurgent risk to lives versus the risk to the population’s health that could follow another sharp economic pullback. This stage may therefore require expansive testing and surveillance capabilities, health-system capacity, and vaccine and treatment development to deal with a second surge.
Stage 4: Reimagination
A shock of this scale will create a discontinuous shift in the preferences and expectations of individuals. These shifts will impact how we live and work, and the use technology will emerge more clearly in the near future.
Institutions that reinvent themselves with foresight, as preferences evolve, will dis proportionally succeed.
The crisis will reveal not just vulnerabilities but opportunities to improve the performance of businesses. Leaders will need to reconsider which costs are truly fixed versus variable. Decisions about how far to flex operations without loss of efficiency will be informed by the experience of closing down much of global production. Opportunities to push the envelope of technology adoption will be accelerated by rapid learning about what it takes to drive productivity when labor is unavailable. The result will be a stronger sense of what makes business more resilient to shocks, more productive, and better able to deliver to customers.
Stage 5: Reform
After the crisis, the world will have a much sharper definition of what constitutes a black-swan event.
This shock will likely give way to a desire to restrict some factors that helped make the coronavirus a global challenge. During this stage, Governments are likely to feel emboldened and supported by their citizens to take a more active role in shaping economic activity. Business leaders need to anticipate popularly supported changes to policies and regulations, as society seeks to avoid, mitigate, and preempt a future health crisis, much like today's.
Public health approaches, in an interconnected and highly mobile world, must rethink the speed and global coordination with which they need to react. Managers of the financial system and the economy, having learned from the economically induced failures of the last global financial crisis, must now contend with strengthening the system to withstand acute and global exogenous shocks, such as this pandemic’s impact.
The aftermath of the pandemic will also provide an opportunity to learn from a plethora of social innovations and experiments, ranging from working from home to large-scale surveillance. With this will come an understanding of which innovations, if adopted permanently, might provide substantial uplift to economic and social welfare— and which would ultimately inhibit the broader betterment of society, even if helpful in halting or limiting the spread of the virus.
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