Most chief executives have only navigated a decade of steady growth and prosperity. Coronavirus ended that overnight. Stunned bosses are trying to pivot out of this once-in-a-century event, while trying to future-proof their ailing businesses for the post-pandemic, day after tomorrow. Smart ones are quickly realising that COVID-19 is in fact a once-in-a-lifetime opportunity to reinvent their organisation.
Much-revered economist Klaus Schwab, founder and executive chairman of the World Economic Forum, has called for a “great reset of capitalism”. He explains that while the pandemic will have serious long-term consequences for economic growth, governments and the private sector must come together swiftly to “revamp all aspects of our societies and economies, from education to social contracts and working conditions”.
This long-term recalibration is being considered alongside the short-term adaptation to the greatest cessation of economic activity in peace time. Bosses are navigating both in parallel. The “v-shaped” recovery has morphed into a “u” and is now potentially “bath shaped” for many.
How to respond to uncertainty
The pandemic is also sparking questions over climate change, social and racial inequalities. It’s unsurprisingly keeping many titans of industry up at night. And there’s no crystal ball or historical precedent.
“CEOs need a microscope and a telescope to figure it all out. The microscope is to understand the here and now, as well as make the best of what’s left of 2020 and 2021, focusing on how quickly they can ramp back up, and what their finance and cash position is. The telescope is to work out what the ‘new normal’ will look like in the longer term,” says Sven Smit, director of the McKinsey Global Institute.
“It’s all deeply uncertain. Economic scenarios range from ones that suggest recovery in two to three years to those ‘you wish’ scenarios that foresee a recovery next year. At the same time, we’re seeing a dramatic acceleration of trends predicted much further out, including automation and digitalisation.”
That uncertainty is why some CEOs created what McKinsey aptly called “nerve centres” during lockdown, so-called business war rooms that responded with agility to the shifting sands of disrupted markets, supply chains and a wholesale move online by customers. Nimble, decisive and quick response times were needed.
“One consequence of this crisis is these structures may stay, with an expansion of the role of risk within business,” says Alissa Amico, managing director of GOVERN.
Time for a corporate reset?
As lockdown eases, one thing that CEOs realise is that damage limitation, cutting costs or laying off workers won’t achieve long-term prosperity. “Our world has changed. We cannot go back to yesterday. To succeed, CEOs must reset their thinking,” says Murat Sönmez, managing director of the World Economic Forum.
Reimagining demand for the products and services a company sells is the CEO’s fresh focus, with an eye on exploiting new opportunities and reviewing markets. Expect the boss to bring in new thinking, since the need to innovate quickly will be paramount; if not, competitors will.
“Our analysis suggests that 15 per cent of companies flourish during crises and that the competitive spread – the gap between high and low-performing companies – widens. Streamlining will probably not be enough. Winning will require tough decisions about which growth engines to invest in, how to update business models, how to build new capabilities and how to enable new digital platforms,” says Martin Reeves, chairman of the BCG Henderson Institute.
Making sure not to slip back into bad habits
There’s no doubt that the pandemic has been a great catalyst for change. Although it’s also easy to pay lip service to it as lockdowns ease and people go back to their old habits, which die hard. After all, car pollution is already creeping back up, as is traffic congestion, and the homeless are back on the streets. Yet new realities only become cemented when old norms simply no longer exist.
“One of the most radical examples are those organisations that have let their leases on office buildings expire. If you want flexible working from home to be the new reality for everyone, take away the office,” says Michael Smets, professor of management at the Saïd Business School, Oxford University.
“If CEOs are serious about consolidating some of the great advances they have accomplished during the crisis, they must now cut off the way back. This is likely to be controversial and painful, but that’s what it can take to future-proof an organisation and protect against slipping back into old habits.”
Smets and his team are also calling for “ripple intelligence” from CEOs, where all the social trends, business disruptions and shifts in markets are viewed collectively as ripples on a pond. “Chief executives need to anticipate how these interact and possibly reinforce each other,” he says.
“The challenge is to make sense of the underlying complexity and lead us through. This far exceeds the issues we faced during the global financial crisis. I am also nervous about the post-pandemic being referred to as the ‘new normal’. It is not a ready-made future that we’ll pick off the shelf soon. We underestimate the responsibility and opportunity we have to shape this new normal.”
CEOs can write their own rule book
One piece of good news is that the pandemic has no equivalent in recent history; it’s therefore a contemporary unknown. Historical recessions and other disruptions have something we can learn from, but not this time. Refreshingly, CEOs, like governments, are writing their own rule books in the wake of what was a human-initiated economic shutdown.
“The forces that made economies strong before the pandemic hit still exist, let’s not forget that,” says Professor Charles Elson, director of the Center for Corporate Governance at the University of Delaware.
The SARS epidemic also gives us some clues; in its wake the digital transformation of China speeded up greatly. Other indicators can come from other economies, sectors and businesses that are much further ahead in terms of coming out of lockdown and rebuilding.
“CEOs need to view the post-pandemic then as a ‘new normal’ that’s yet to be defined. The only view of the post-pandemic landscape will be in hindsight. The future is here; it’s just not evenly distributed,” says Dr William Klepper, adjunct professor of management at New York’s Columbia Business School.
One thing for sure is the CEO is now under intense scrutiny, even if the board can only do so via Zoom or Teams. This comes as compensation is back on the table, since some bosses took pay cuts to retain employees during the crisis, while others have had to deal with new government shareholders that have taken stakes in ailing companies. Many CEOs have more than the future to worry about.
“Until a vaccine against COVID-19 is produced, CEOs will be playing blind man’s buff,” concludes Professor John Antonakis, at the University of Lausanne’s faculty of business and economics. Right now, they may prefer it that way.