While the economic impact is unknown scenario planning is key
The impact and effects of COVID-19 are being felt by businesses globally, and particularly in China where necessary radical measures to contain the outbreak are impacting day to day life.
- Accurately predicting the eventual impact of the outbreak is challenging at this stage – the China economy has become much more integrated with the global economy since the 2002-2003 SARS crisis and grown 7 times in size
- The outbreak presents specific potential business challenges around people, commercial operations, disruption to supply and government directives
- On an operational level, restrictions on employee movement create immediate logistical challenges, but the impact on morale created by uncertainty magnifies the impact
- A robust response plan with timely and effective communication – with both internal and external stakeholders – is absolutely crucial
So what should business leaders be considering in light of COVID-19? History shows that those who plan and act decisively at speed during such crises emerge as winners in their industry.
Four key principles to consider in managing the impact of COVID-19 on your business
1 – Have a clear vision of direction and be prepared to flex your muscles to make it happen
Now is the right moment, in light of the developing situation, to review your long-term strategy, consider how your competitors might react and what the longer term market conditions may look like. Redefine your business’s desired end-state once the crisis has passed and determine where to invest to facilitate accelerated growth.
Create your response strategy based on your principles and values; it is a great opportunity to clarify, promote and live your values.
Focus on reliable data. PwC’s 2019 Global Crisis Survey found that three-quarters of those in a better place post-crisis had a strong recognition of the importance of establishing facts accurately during the crisis. Strong data also reinforces a central element of crisis planning – exploring different scenarios and how they could affect the business in the short, medium and long term.
Consider the following steps to develop an action plan to mitigate potential effects of the crisis on your business.
Adjust your financial plan. Reconsider on-going projects, cut marketing spend and other SG&A costs in light of your restated revenue forecasts for 2020. Focus on cash and manage cash flows tightly, forecasting on a rolling basis. Realign your product offerings, your commercial organisation, and channel partners to respond to the changing market conditions, both now and after the epidemic ends. Urgent and clear engagement and communication with your investors and lenders is crucial – they will be facing increased scrutiny and heightened reporting requirements necessitating a clear understanding of the impact of your revised plans on the (future) financial position of the business. Our experience with such stakeholders is that information should be real-time, transparent, realistic and accurate – surprises and variances erode trust.
Never waste the opportunities presented by the adversity of a crisis. Proactively manage your M&A strategy to consider potential acquisitions, divestitures, partnerships and bold moves. Create capacity to act or react swiftly and perform due diligence with a distressed M&A mindset, i.e. focus on the cash and business interruptions.
2 – Gather the right team with representation acrossbusiness areas to drive a holistic approach
To support your action plan, create a strong, cross-function crisis team. A crisis like COVID-19 can have animpact on every part of the business. The response willdemand high-level sponsorship and cross-functionalworking. We recommend a core team overseen by theCEO drawn from HR, Legal and Operations to provide aframework and strategic guidance, supported by anextended cross-functional team to address the specificactions needed to get through the crisis. Especially inthe first weeks a 24 hour round the clock ResponseTeam builds trust in the organisation and towards yourstakeholders. Determine your external communicationstrategy and approach. Don’t forget to communicateinternally as well – your employees are your strongestasset.
3 – Keep your people and working environment safe. Protect your Talent
Your employees will be looking for clear guidance and regular communications. A well-managed response will build trust and enable your organisation to emerge quicker and stronger from the crisis. Make the safety and well-being of employees your priority and invest as needed to ensure a safe and healthy working environment for your employees and visitors (e.g. basic things such as “do we have enough masks for everyone?”).
During a crisis, a lot of data is needed for informed decision making…and fast. Do you know the detailed movements of your employees over the last 14 days? Were they exposed? What are the risks if they return to the office or production sites? Can your employees work remotely? In our experience, the response window for a crisis is typically measured in days and weeks, while recovery is measured in months and years.
4 – Cash is King: Your Supply Chain and economiccounter-measures determine your financial position
COVID-19 is already impacting on the supply chain ofbusinesses as the outbreak continues to spread.Factories and businesses have extended shutdowns,employees are not able to return to work and airlinesare suspending services or cancelling routes.Production disruptions in one company create adverseeffects in others, and companies will struggle to findalternatives. Your supply chain strategy needs to factorin the likelihood and impact of suspensions andshutdowns. Alternatively your clients might want torenegotiate prices because of the impact on their ownbusiness. Ultimately you need to consider all availablesteps to manage your own financial position.
We’re happy to discuss this further with you.
Dr. Sandra Ragaz, Partner
Leader Pharma & Life Science VAT, PwC Switzerland
Tel: +41 79 792 72 98
Reto Brunner, Partner
Advisory, PwC Switzerland
Tel.: +41 58 792 14 19
Benjamin Rutz, Director
Advisory, PwC Switzerland
Tel. +41 58 792 21 60