Because new times are emerging you will also have to think about the changed behaviour of both colleagues and customers. They will be forming new habits: on average new habit formation settles in after 66 days. The current lockdown will be creating new habits which will persist.
Towards a new (digitally enabled) normal
A joke has been circulating recently: “Who led the digital transformation of your business? Was it the CEO, the CIO, or was it…COVID-19?”
Digitalisation, long put off in some quarters, has arrived – fast. Life will not be returning to normal. A study by the BCG Henderson Institute has looked at longer term implications of new customer behaviour. Commercial real estate, for example, could suffer if people spend more time at home.
The effect of the crisis will be similar to that of a wildfire, Professor Jacobides suggests. Yes, there will be destruction. But new opportunities will emerge too. New businesses can grow.
For example, Bookshop.org has established itself in the US as an alternative to Amazon. It is a low budget, independent platform helping smaller booksellers to stay in business, and providing an alternative for those who do not want to shop with Amazon.
My Local Token, in the US state of Virginia, has developed a cryptocurrency-based token that will work in local shops of participating high streets. This is a way for shoppers to support their local city centre, and government to focus its support on retail generation.
More broadly, digital ecosystems will become a lot more important, Professor Jacobides points out. This too has been a long time coming. We have seen in recent years the eclipsing (in terms of market capitalisation) of traditional stock market champions – Exxon, GE, Total, Citibank – by the digital giants: Microsoft, Amazon, Google, Apple, Facebook, Netflix. These big firms will have an even stronger hold in the future. We are so reliant on them, as this crisis has pushed everything to be mediated by digital interfaces. Consumers have been forcibly adjusting to new forms of service delivery- with digital intermediaries, who orchestrate digital ecosystems. Finding ways to compete through these ecosystems will become a top priority.
The known unknowns
This raises the question of how our societies deal with data.
we, as citizens, connect to businesses and government. The Chinese government has long fostered collaboration with tech companies, and the major tech players there have collaborated with the state on pandemic-related information. Western societies have very different views on the sharing and use of data. In South Korea, Hong Kong and Taiwan, for example, the government has played a “key actor” role; in Singapore, the state is more of a facilitator. Where should we be on that scale?
Another big unknown is the question of regulation. In the past, regulators were not comfortable thinking about business models, Professor Jacobides says, but this may be about to change. There will be a discussion about how we use our data, and this may change the strategic landscape. Regulators’ pent-up mistrust for the Big Tech players may get a temporary détente because of their support in dealing with the crisis, but their important role is meant to backfire. So the landscape may change drastically: 2020 will be a year of transformation.
Given all this, leaders will have to wrestle with how their business will be embedded in digital ecosystems, whose very shape may change.
Be bold: reallocate cash and capital
Whatever society decides, this will be a time to reposition and invest, Professor Jacobides insists. We should look upon this disruption as “a fortuitous discomfort”. The next three years will have been compressed into a few months.
“Don’t let history dictate your future,” Professor Jacobides advises. “Break from the tyranny of the past.” Your company’s allocation of capital will have to change. A McKinsey Quarterly study has shown how effective capital reallocation can lead to success and higher shareholder returns.
Firms will need to think about how they reallocate capital. There may even be opportunities for unexpected M&A transactions, prompted by distress. The ownership landscape will be different, changing the map of entire sectors.
He suggests a simple two-by-two matrix to help with your decisions. Ruthlessly and quickly divest from businesses which are challenged today and promise little in the future; consolidate and expand where the future prospects are good, and there is little pressure today; harvest or reposition “cash cows”, which are not bleeding today but are heading to trouble; and build up those businesses which may be struggling now but look likely to generate strong revenue in the future. And, as you do so, consider how each business affects your current position in terms of cash-flow, and how much future profit it may bring in. It is the tradeoff between today’s (scarce) cash use, and tomorrow’s profit potential that should be used to guide your choices.
There are a number of tantalising new questions thrown up, with no immediate answers. Whether the dip is fairly limited or steep, whether the distribution model becomes digitised or not, whether Big Tech disrupts a little or a lot, what about other strategic choices? What will be the most vulnerable business models? Is it selling products and services, or shifting to a subscription model, which had become a favorite by early 2020? And, how will your competitors’ vulnerabilities change the landscape?
Whatever the answers, your management style and priorities are going to have to change, along with all this. In discussions with creditors you will not only need one turnaround story for a temporary revenue and cash dip, but also a Plan B if the current trends are not temporary. It’s time to ask the big questions – not just batten the hatches.
In all, here are Professor Jacobides’ suggested priorities for the next few weeks and months:
- Focus on cash
- Get new skills/leadership
- Keep stakeholders involved
- Leverage this burning platform
- Drastically cull and reinvest
- Engage in digital platforms and ecosystems
- Communicate, often, frankly, humbly, directly