Strategising for a new era of separations

Man on his own. An era of emerging separations

The current global health crisis has of course generated huge changes in how we think about everyday life. But along the way, this new age of lockdown is also introducing important, new separations into how we view aspects of our economy and indeed the wider global trading environment.

Five separations that have appeared almost overnight

We now have a delineation between “essential” and “non-essential” services. This divide  fundamentally redefines the right to trade (under emergency powers) and represents a whole new take on social license to operate. In New Zealand at least, that seems to me to pretty  much translate to the ability of the Government to decide who has the right to earn and who doesn’t. And there’s an interesting side effect. Organisations such as supermarkets that once were taken for granted and seen as utility brands now find themselves elevated to near-hero status. Airlines on the other hand find themselves locked out of the skies and forced to dramatically redefine their role. Once prized brands are facing relegation because they are either publicly deemed non-essential or they have lost their place in consumers’ priority queue.

Alongside that, we can increasingly distinguish between those sectors that gain their leverage and their income through bringing people together (and are therefore directly affected by social distancing and lockdowns), and those that don’t. If your brand’s income streams have been driven (and valued) by the ability to organise, form and deliver to a physical crowd, the new stay-at-home environment has effectively seen your contribution nullified and your business model decimated. The value tide has all but disappeared for everyone from keynote speakers and performers to professional sportspeople. New models, such as virtual games and performances, are emerging. But will they do so fast enough? And can they change the business models of brands that have always depended on collective, rather than separated, enthusiasm?

For those that make stuff, we can separate out brands with long, vulnerable supply chains and those that are vertically integrated and/or have dependable, close-at-hand, scalable supply and distribution systems. Those that have to shift anything across an international  border right now, especially if they are moving non-essential perishable goods, often have no choice but to destroy their hard work. In a world where motion has ground to a halt, momentum can shift from a positive force to one that could be very destructive. Goods everywhere are piling up at ports and at sea because they have nowhere to land or leave. Where do you put the aviation fuel that you ordered months ago when nothing is flying? On the other hand, those that can adapt their production to deliver the goods that the world can’t get enough of, such as hand sanitiser and PPE, find themselves shipping volumes of goods that may or may not align with what their brands are known for, in the short term at least. All of this redefines the parameters, liabilities and opportunities of physical goods.

We can also sort those businesses that require people to be on-site all the time, from those who only need some of their people on-site some of the time, and those that can function just as easily with everyone remote. There’s some interesting tensions here too, in terms of both the short-term effects on relationships and the longer-term implications for a brand’s culture. As people adjust to a world of greater distance between colleagues, supply partners  and other teams, how will that impact who they trust, who they feel loyalty to, how they forge relationships and how they make integrated and sophisticated decisions? At a time when the ability to think and invest for the longer term is more crucial than ever, it remains to be seen how capable leaders and teams are to do that outside of the normal working cocoon. I’ve been wondering about the effects of the gig economy on overall performance and culture for some time. The new operating environment stress-tests the cohesion of what people believe and what they will do without direct supervision to a huge degree.

Finally, there are those organisations that are digitally adaptive and those for whom non-physical interactions are difficult. Brands that are having to adjust to whole new ways of working find themselves grappling not just with analogue structures but also with the non-digital mindsets of much of their workforce. And all of this against the backdrop of a volatile trading environment that is physically distancing them from their customers in unprecedented ways. Not that any of this is their fault. Some businesses just happen to have been on the wrong side of the essential/non-essential divide I referred to earlier.

What has happened as a result?

Hard times have been good times for some. If you’re an essential service with a reliable, proximate supply chain that can serve people individually through a strong distribution system without risk of contamination, you operate remotely and your business model is digital by design, you’re probably in the box seat to ride out the challenges ahead.

By contrast, if you’re deemed a non-essential service that depends on drawing people to one place in order to even function and/or has a protracted, complex or distant supply/distribution model, is face to face in its working style and/or is not inherently digital, the challenges of Covid-19 will linger for some considerable time. Tourism, hospitality and travel companies face precipitous falls.

Moving forward, restarting or choosing to stop

Those companies that can recognise, react to and fund solutions to their perceived shortcomings quickly will hopefully come right. More importantly, they will need not just to strategise the way forward, but also how they take investors and stakeholders with them on that journey.

For some, those solutions will focus on becoming indispensable. They will seek to forge a strategy that takes them as close to “essential” as they can get: by repositioning what they do; re-routing their supply chains; deeply personalising their relationships; sanitising and strengthening their distribution systems; re-deploying their workforce (or at least making them more flexible); and/or digitising how they work and think.

For others, answers will come from off-setting what they cannot change in order to build deeper affinity with their customers. For example, some brands may not be able to re-route their supply chains quickly, but they can “compensate” for that to a degree through the services or experiences they offer. Some who have rigid distribution systems may be able to add to how customers access their products or employ hybrid systems like click and collect that they can use in the meantime. Companies that have always worked from a central office may choose to instigate more flexible working arrangements and/or distribute that workforce into communities to help them get closer to their customers while they adjust.

A third option will be to reset. We’re already seeing airports around the world using the downtime to shut, downgrade or reconfigure terminals to deal with changes in demand. For some businesses, this will be an opportunity to redefine who they want to appeal to, how and on what value basis – and to use the re-emergence from recession as an opportunity to scale into new ways of working that might otherwise have been deemed impossible.

For those companies that do need to close, doing so in a timely and responsible manner will be critical. There is a big difference, reputationally and financially, between those brands that stop trading and those that just collapse. It’s interesting that strategists often help companies grow but as a group we spend too little time helping companies manage their exit strategy. Brands that do this well and in a disciplined manner – that give notice to the market and work out their time, so to speak – are the ones best placed to re-emerge at a later time, to be absorbed by another entity, to sell on assets such as their customer bases and to retain relationships that they can call on at a later date. The temptation is to battle on until collapse and to present a brave face to the world throughout that time. However brands that keep their networks informed and work with them to wind down their affairs – particularly where they have extended networks like franchisees – are more likely to go out with their reputation intact.

Thinking beyond no end in sight

The one thing we don’t know yet is if global containment is possible. If Covid-19 cannot be stopped, or until we have a vaccine that can be circulated widely (and taken up universally) brands may also have to plan on the basis of mutating Covid-20, Covid-21 et al, where nations and trading economies potentially come in and out of states of lockdown over the foreseeable future, giving companies open and closed windows for where and how they can trade locally, internationally or both.

This may also mean they need to strategise getting back to market on the basis of a range of scenarios, including stop-and-start, steady build or all-on.

In New Zealand, it’s been suggested that companies should prepare specific trading responses to the four levels of lockdown that the government has categorised. This will allow brands to know precisely what to do if Covid-19 surges and retreats. But it will also enable risk managers to plan more specifically for dynamic economic scenarios ranging in shape from V to U to W to L. Your government may or may not have organised its response along similar lines, but the idea talks to the need to elevate historically unconsidered threats into specific, fluctuating risk factors affecting the world’s trading environments at different times, different speeds, different costs, in different areas and with different levels of severity.

How has this pandemic changed how you think about your brand and your future?