Four Strategic Priorities For Businesses to Build Resilient Performance in the Post-COVID World
The first question business strategists will have to answer is not, “What’s in it for me?” but “What If?”
Quy Huy, INSEAD Professor of Strategic Management & The Solvay Chaired Professor of Technological Innovation
By now, everyone knows that the shattering impact of COVID-19 has brought on a business crisis without precedent in recent memory. On one level, though, the pandemic represents nothing new. For years, we have been hearing and talking about the impending VUCA (volatility, uncertainty, complexity and ambiguity) world. Over and over again, we were told to prepare for seismic change that was sure to arrive, to boost agility in anticipation of abrupt, profound disruption. COVID-19 was a misfortune long foreseen; only the dates and specific details were missing.
Regardless, the pandemic will fundamentally reshape how we do business from now on. Even if lockdowns end soon and commercial airliners once again take to the sky, and the virus is staunchly suppressed never to return, its effect will linger. Now that the whole world faces the VUCA that only emerging markets used to face, it can never again be treated as an abstraction.
So when business leaders share with me how their business strategies will likely change in the post virus period, many say they’ll continue with initiatives they’ve already started, such as digitalization or social responsibility, but faster and with higher intensity. I have to point out to them that this might not be enough. Some of their key strategic priorities will have to be modified in a radical way.
To start, the basic purpose of business strategy is to steer companies toward sustainable sources of growth and profit. There are many tried-and-true frameworks for guiding strategy, e.g. Michael Porter’s Five Forces, which allows to orient a firm’s competitive position according to coordinates of threat and power. For decades, this classic way of thinking has provided a useful lens for analyzing strategic moves of players within an industry. It no doubt remains relevant today. However, Porter’s neat chessboard does not account for whipping winds (think pandemics, political revolutions, climate change events such as Australian bushfires) that may kick up suddenly and blow away the pieces. Anticipating the disruptive events that live outside Porter’s frame will be a major part of business strategy going forward.
I see four new priorities that must be put on strategists’ radar for the years to come.
1) Aim for survivability & resilience before economic efficiency
It would seem meaningless to talk about an efficient dead organization. In the post-COVID world, contingency planning should be built into every link in the value chain to ensure survival. Instead of structuring partnerships on the basis of leverage and getting the better end of the deal whenever possible, firms will have to be much more strategic in selecting who are their survival versus transactional partners. Rather than What’s in it for me?, the first question asked ought to be, What if? It may be necessary to forego some of the most lucrative partnerships in favour of those that can withstand a missed shipment or delayed payment here or there when fate intervenes.
This means that to increase reliability, redundancy primes over efficiency in regard to critical resources. Investing too much in one partner, supplier or market can be as bad an idea as betting your life savings on one horse. For example, many major multinationals may be regretting their decision to rely so heavily on China as the pandemic exposes fissures in the nation’s prosperous façade. Apple and Foxconn’s joined-at-the-hip relationship is causing trouble for both companies, amid a vicious cycle of COVID-19 factory shutdowns and declining demand for premium smartphones. The uncertainty will only intensify as the rivalry between U.S. and China continues to escalate. (More about politics below.)
IKEA is an example of how a major company can balance long-term loyalty with diversification in the supply chain. The company deliberately maintains a large number of moderate size suppliers worldwide, helping them improve production quality, and engages in nurturing, long term relationships rather than squeezing the last cent out of them.
2) Quantify and plan for ecological & environmental threats rather than just describe them
Today, many executives and analysts talk about various types of threats in a descriptive way, with very little in-depth forethought about how to deal with them should they arise. The good old concept of scenario planning is still with us but very few businesses seem to practice it in a systematic and thorough way. One of the major barriers is that today’s businesses feel already overwhelmed with “clear and present” business challenges and unable to devote more attention to what they consider low probability events.
But recent history shows that extreme upheavals are far from rare. In the last century, the world has experienced at least five dangerous virus attacks, from the pandemic of 1918 that infected about one-third of the global population to Covid-19 in the present. There were also at least two devastating nuclear reactor meltdowns, two world wars and several near misses, numerous earthquakes and tsunamis, countless regional armed conflicts that threaten supply of essential goods. Climate change, overpopulation, and increasing worldwide inequality have only increased the likelihood of these threats occurring again in the future.
Businesses should thus dedicate more resources to quantify various types of threats although there is no broad consensus on the best way to do this. The main goal is not to be accurate but to train the organization to plan for various “unimaginable” events. What does not get measured does not get done, as many managers often claim. Thus deep qualitative analysis and scenario planning should be complemented with a number of computer-assisted algorithms providing data and various simulation models. Leaders will have to learn their way around AI and machine-learning tools – such as heat mapping algorithms that can quantify political risks based on social-media sentiment analysis – in the course of strategic decision-making.
3) Build strong organizational immune system rather than maximize short term profits
When it comes to measuring and anticipating threats, technology is an important part of the package – but it can’t overcome a deep-seated antipathy to hard truths. In the business world to come, advantage will belong to firms that convey bad news upward quickly rather than flinching from it.
Companies that can spot problems when they look small, learn from them quickly and build preventive measures early possess what I would call a strong organizational immune system. Just as our white blood cells keep us going by identifying and destroying invader cells early on before they start wreaking havoc in our bodies, companies need long, sensitive feelers and hyper-responsive capability at all levels of the organization to stay in the pink of health.
The downfall of Nokia’s smartphone business is a perfect example of how immune-compromised organisations collapse from within. Well before the iPhone came along, a “culture of fear” had set in at the Finnish firm. Senior and middle managers had developed a poisonous habit of sugarcoating and avoiding the serious problems with their devices and proprietary OS. Nokia had ample time and resources to develop a competitive response to the iPhone, but those advantages were squandered as toxic internal politics left management spinning its wheels.
It should be said that some top managers believe that using fear will lead to higher economic performance by reducing organizational complacency and inertia. This might have worked reasonably well in a fully controllable and predictable environment in which it is impossible for people to report good news only and hide bad news as long as they can. In today’s volatile context, however, it will result in priceless early warning signs going unheeded.
According to some observers, a Nokia-like scenario may have been behind China’s delayed response to COVID-19, stemming from long-standing misalignment between the central Communist Party authorities in Beijing and local officials, who knew of the virus in its early stages but lacked incentive to report local problems quickly. The result –massive human and economic harm– speaks to the high costs of complacency in this new world. Under the revived Nokia, the new board sought to build an organizational culture based on the following motto: “No news is bad news; bad news is good news; good news is no news.”
4) Integrate government politics rather than focusing only on business economics
Globalisation had a good run. The notion that the earth is flat, unencumbered travels, international business deals, outsourcing to the lowest-cost countries, trade deals, etc. had few high-powered detractors for several decades leading up to the 2008 financial crisis. Ever since the advent of Brexit and Trump, however, the idea of business without borders has been on the retreat. As I write this, international air travel is all but frozen entirely, and global supply chains have been chopped to bits. Nation-states, already making a comeback before COVID-19, will likely increase their leverage over multinational businesses in the months and years to come.
Beyond national security, firms in sectors deemed “essential” to national public welfare—covering a wide range of sectors from food to medical supply, machinery and electronics equipment, transportation and energy-- will be the first to feel the pressure to localize. Governments have learned the hard way that it can be dangerous to depend on foreign trade for items that make or break crisis response – such as the reactive agents that are key to COVID-19 testing or even low-tech medical gowns and face masks. They will be keen to maintain or rebuild these precious supply chains on their own soil. This could carry significant implications for businesses that seek overseas expansion. Firms should expect even more severe and close governmental scrutiny and rejection of their proposed joint ventures, mergers and acquisitions, R&D collaborations, even in non-defense related sectors.
This seeming adversity could create big opportunity for some firms who integrate government politics into their business strategies, though. For one, home-grown innovation capability will be valued by national governments and benefit from higher economic and regulatory support. Secondly, rising patriotism—creating “good” jobs for your own people—could benefit these firms in their own countries—much like Alibaba and Tencent and Baidu have profited in part from relatively low foreign competition in their home country.
What’s bigger than Big Business?
You may have already noticed some inter-relationships between these four priorities. Indeed, these four levers typically operate in combination in the Post-Covid19 world, rather than in isolation.
Broadly speaking, strategy after COVID-19 will be less about beating your economic competitors, and more about how businesses can contribute to combating a larger, shared enemy – like climate change, pandemics, or perhaps social-political priorities such as curbing inequality. There’s nothing new about this. The U.S. in World War Two, for example, saw tremendous cooperative effort between businesses, as well as between the private and public sectors. The COVID-19 “new normal” may actually be a return to an older equilibrium between business and society, and wide stakeholders’ collaboration.
It will hopefully serve as a meaningful wakeup call for societies and businesses to take bold, radical actions that could propel humanity to a superior quality of life.
Acknowledgment: I am grateful for improvement feedback from INSEAD editor Benjamin Kessler, Strategy Professors Guoli Chen, Felipe Monteiro, Daniel Simonovich, Phebo Wibbens, Christoph Zott.