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How should companies emerge in a post-COVID World?

The impact of COVID-19 pandemic in enterprises is a current topic in the business world. The extension of the changes will depend on how fast scientists develop a new vaccine or a new drug. However, to understand the influence of the pandemic in companies, specialists in management usually use the experiences from the 1918-1920 influenza. However, this article argues that the lessons from the 1918-1920 pandemic cannot be automatically applied to the COVID-19 pandemic because of three main reasons. First, the world in 1920 was very different than the one we currently live, which is more complex, more global, more digital, and more dependent on services, a striking difference compared to the global economy in 1920, which was based on manufacturing and agriculture. Second, besides its extraordinary virulence, the 1918-1920 epidemic was also unique in that a disproportionate number of its victims were ages 15 and 44, another key difference from the COVID-19. Third, some academic research suggests that the 1918-1920 influenza pandemic caused a shortage of labor that resulted in higher wages (at least temporarily) for workers, another fundamental difference from the current pandemic.

Regardless of the particularities of the COVID-19, it is necessary to emphasize that all crises offer a chance to experiment with new ways of doing things — and to question the wisdom of old habits. As a consequence, businesses should be aware of the changes required by the new normal life companies will face due to Coronavirus.

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Changes in Logistics
Supply Chains provide one important area of opportunity. While the focus of the pre-COVID-19 supply chains was efficiency, translated as high speed, superior quality, and low costs, the post-COVID-19 supply chains will focus on resilience, defined as the capacity to absorb shocks. After COVID-19, logistics will be more regionalized, to avoid the interruption of production. The segment of electronics is a good example of an industry the was severely affected by the COVID-19 epidemic, as China accounts for nearly 85% of the total value of components utilized in smartphones and nearly 75% in the case of televisions. Moreover, all critical components, such as printed circuit boards, mobile displays, LED chips, memory, open cell TV panels, and capacitors are imported from China.

To avoid future Regarding the supply chains, the pandemic creates two main opportunities:

The Redesign of Supply Chains: several manufacturing companies already plan to shift production from China to India, Vietnam, or Indonesia.
The Reshoring of manufacturing activities: multinationals from the United States, European Union, and Japan plan to move production capabilities back to their territory

Enterprises will need to go through a three-step recovery process
The future is no more what it used to be. To survive in the short term, companies will need to Respond to the Crisis by focusing on liquidity, reduction of CAPEX, and by cleaning the balance sheet. In the long term, companies will need to Reinvent by: (i) looking for adjacent markets once the “New Normal” becomes the “Normal, (ii) looking for M&A opportunities because many firms will be available for mergers and acquisitions, and (iii) looking for Joint Ventures, because companies will look for partners with complementary skills, competences, and assets.

There will be changes in the behavior of companies
The pandemic challenges the companies because it will strengthen the idea of the “triple bottom line”—profit, people, and planet, because societies will understand that the increase of shareholder value cannot be the only corporate goal. Moreover, there is the scrutiny of businesses, which will likely be operating to some extent with public money, which will affect the relations between government-business and business-society. Another change will come from the flattening of managerial structure, with fewer middle managers, as organizations are pulling out all sorts of layers of middle management. Finally, the rise of the humanistic-oriented leadership style: it is hard to believe a CEO that says that employees are the company´s most important asset and then fire 40% of the company´s workforce.

Photo by Adrien Delforge on Unsplash

There will be changes in the behavior of consumers
The consumer behavior is expected to change as well. Brand/product loyalty is likely to going to decrease due to the reduction of disposable income, exposure to alternative brands, and the introduction of new habits, which will offer opportunities for substitute products. There will also likely to occur a refocus towards lifestyle, indulgence, entertainment, and health care products because consumers were reminded by the disease that life is short and fragile. Moreover, there will be new roles for the spaces in the houses: family, entertainment/relaxing, workout, and work.

There are two potential scenarios for the outcomes of COVID-19. In the first one, the decisions made during and after the crisis lead to less prosperity, slower growth, widening inequality, bloated government bureaucracies, and rigid borders. In the second scenario, the decisions made during this crisis lead to a burst of innovation and productivity, more resilient industries, smarter government at all levels, and the emergence of a reconnected world. The outcome is probably more likely to be a mix of these two options and will vary by country and industry. Truth is that part of the changes in behaviors should remain after COVID-19 and the extension and impact of changes will depend on how fast scientists develop a new vaccine or a new drug. More than before, companies must be clear about their value propositions, and actions.

Evodio Kaltenecker, Ph.D., is a professor of business focused on management research and executive education. International Faculty at the Instituto Tecnológico de Monterrey and EGADE Business School (Mexico), Academic Leader – Management in Emerging Economies module at the Trinity Business School (Ireland), Faculty-in-Residence at the Austral Education Group (Chile), Research Fellow at the Samuel C. Johnson Graduate School of Management at Cornell University (USA), and Academic Leader – Management Strategy at the MCI – Management Center Innsbruck (Austria).

Note #1: Copyright-free photo by Christine Roy on Unsplash

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