Amidst the unprecedented impact of Covid-19, we recognize that many of you are now faced with significant uncertainty, often requiring revisions, and in some cases, wholesale changes, to your goals and strategic choices. To help guide your path forward, we developed a new white paper: ‘Strategy Adaptation in Turbulent Times’. We hope that you find it an interesting read and relevant to your current and future strategy development and decision-making.
Our Current Situation
In a November 2019 survey by Harvard Business Review Analytic Services, nearly all (93%) of the 324 executives in North America surveyed said they were grappling with volatility in their markets, whether caused by changing customer demands, new competitive threats, or some other factor. What’s more, nearly half (49%) of the business leaders described the level of change as “high.” Add to already volatile markets an unanticipated global pandemic, and business leaders are now faced with arguably unprecedented uncertainty and turbulence, often requiring revisions to goals and strategic choices. The following looks to provide a framework to help business leaders navigate these turbulent times.
Over the span of a few weeks, COVID-19 went from a hot spot in one country to a worldwide pandemic, significantly impacting the daily lives of the vast majority of the planet, not to mention resulting in tens of thousands of deaths worldwide, a number that, sadly, continues to grow. After enjoying years of global economic growth, as a result of COVID-19, we’re faced with a major downturn in the world’s economy, skyrocketing unemployment rates, and, depending on the industry, numerous companies wondering if they will survive this massive upheaval in the status quo. To help ensure a strong position coming out of this downturn, or in some cases, just survival, businesses will need to quickly adapt, set new goals and strategies, reallocate resources, and motivate their organizations through this time of uncertainty.
Normally, developing a growth strategy is predicated on generating insights from a rigorous analysis of the past combined with an assessment of the various possibilities for the future. This presupposes that the past serves as a viable predictor of the future; however, we doubt that many, if any, business strategists would have accounted for an environment where entire countries’ citizens are ordered to stay at home, markets drop precipitously, and “non-essential” businesses are required to temporarily close. Outlining a relatively reliable path to the future by assessing the past is extremely challenging, if not impossible during turbulent times.
A Framework for Strategic Adaptation
As a growth strategy consulting firm, Denneen & Company focuses on establishing clear and achievable paths to growth for clients, predicated not only on the past, but also on the current and dynamic, or even volatile and unpredictable, market conditions. In massively turbulent times like today, growth may not be as easily captured, and in many cases, companies will be searching for solutions that will merely enable survival. Looking ahead and using the current strategy as a starting point, business leaders should consider applying the following framework to effectively adapt their strategies while reinforcing business health and organizational confidence.
Assessing the Situation
- Understand the drivers by establishing a common organizational understanding of the key characteristics of the recessionary force, including the magnitude, depth, timing, duration, regulatory impacts and path(s) to recovery.
- Conduct a deep dive analysis of the potential impact(s) of the recessionary force across key factors (industry, consumers, customers & channel partners, competitors and the supply chain) to identify potential pitfalls and uncover new opportunities.
- Quantify the specific financial impact to your business and organization to provide a foundational and aligned understanding to enable setting goal-setting and strategic decision-making going forward.
Understanding the Drivers
This step is perhaps the most challenging, if not daunting, especially in times of significant volatility and uncertainty. It is also the most critical element as it is the bases of all subsequent steps. Companies that can identify, understand, quantify, and track the changes in drivers, both internal and external, will be best positioned to manage through the turbulent times, while also positioning themselves for longer-term success.
It starts with understanding the “recessionary force”. Every recessionary force is different and will have nuances from market agnostic (e.g. COVID-19 pandemic) to industry-specific (e.g. Pet Food Recall of 2007 or financial sector collapse of 2008) to event-specific (e.g. 9/11). This includes having a full grasp of the regulatory restrictions or requirements that may be happening as a result of the recessionary force. Understanding the recessionary force – its magnitude, depth, timing, duration, regulatory impact and path(s) to recovery is critical in being able to develop a comprehensive strategy that is rooted in the current situation.
The next part is to dig deeper into changes in existing drivers as well as identify new drivers across key factors (market and industry, consumers, customers and channel partners, competitors and supply chain). As we cover each of the key factors, we will highlight some key questions that a business may ask to understand the drivers better; these questions are industry/business agnostic, not exhaustive and offered as thought starters and examples to enable you to think through how your business has and will be impacted by the recessionary force. The goal of these is to allow you to quantify the effect of the recessionary force on your business.
Market and Industry: To get an understanding of how demand and supply may change for a given industry, businesses should examine critical changes in current industry drivers and potential new industry drivers. What are the current and emerging drivers for your industry? What is the geographic/regional development of your industry relative to the recessionary force? What industry vulnerabilities or opportunities have been exposed as a result of the recessionary force? Understanding these drivers provides visibility to the impact on the industry pipeline, supply/demand, supply-chain, costing/pricing as well as market-size changes. For example, what will the significant decline in business travel do the airline industry? What will the restaurant industry look like given closures and regulations on social distancing? How will hotels manage through the pandemic when they have historically relied primarily on business travelers and vacationers? How will demand shift from gym memberships to at-home workouts?
Cosmetics company Lin Qingxuan was forced to close 40% of its stores during the crisis, including all locations in Wuhan. Without the ability to interact with consumers face-to-face and store traffic being a key driver for the retail sector, the company had to find different means of reaching and engaging with its consumers. It quickly redeployed its 100+ in-store beauty advisors to become online influencers leveraging digital tools like WeChat to engage consumers virtually and drive online sales. As a result, its sales in Wuhan achieved 200% growth compared to prior year sales.
Consumers: Understanding the underlying changes in consumer habits, practices and behaviors is foundational. The changes that impact these stakeholders are likely to have the largest impact on your business and thus on your strategy. The COVID-19 pandemic has seen a panic-induced spike in demand for products including disinfectants, hand sanitizers, and toilet paper. Shelter-in-place orders and restaurant closures have forced consumers to do significantly more cooking and baking at home, creating a run on flour (King Arthur flour sales are up 600% vs. last year), in addition to increases in refrigerator purchases as consumers stock up on food in general. And with so many people working from home for the first time, electronics and office supply companies have experienced an unexpected lift in demand for computer monitors and office accessories. While the spike in cleaning supplies may have been obvious, digging deeper into the cascading impact that a recessionary force can have on consumers can reveal less obvious changes in their habits and practices. How have consumers’ “Jobs to be Done” changed? How are different consumer segments impacted or the entire consumer segmentation changed? What has been the impact on consumer buying power? How are consumers changing their purchasing habits and patterns? What product attributes are most important/relevant to consumers in the current environment? How has the category volume decomposition (awareness, trial, repeat, transaction size, purchase frequency, etc.) been impacted? How is demand shifting between price tiers?
Recognizing that consumers were driving significantly fewer miles during the pandemic, USAA decided to proactively provide a 20% credit on the next 2 months of their policyholders’ auto insurance policies. While this could be viewed as lost revenue, less vehicle miles traveled translates to significantly less risk for USAA, and the less that they will need to pay out in accident claims. An analysis of the impact of less driving on their risk portfolio, a recognition of potentially more price sensitive consumers, and knowledge of competitors’ positioning around cost savings likely revealed that USAA would be better off in both the short and long term by crediting premium payments. And doing it proactively, and before competition, builds even further loyalty and keeps their consumer base extremely loyal for at least the next two months, if not much longer. The key for USAA was understanding and getting out ahead of this consumer trend before consumers began asking for discounts or refunds based on their new driving habits. Since USAA has implemented the credit to its consumers, other insurance companies have also followed with similar credits to their policy holders.
Customers & Channel Partners: Your customers and the channel partners that you work with to reach your customers may be impacted by the recessionary force as well. Having a grasp on how they have been impacted and their drivers will be important in developing how to best reach your consumer proactively identifying challenges you may face along the way. How is demand shifting between channels? Will/have your customers/channel partners come under financial distress? How are customers changing their strategies? What metrics are important to them in the current environment? How are customers’ supply patterns and needs been impacted?
With restaurants shuttered, food wholesalers and distributors like Pro*Act, a fresh food supply chain management company, have seen demand essentially disappear overnight. Without any customers, Pro-Act has attempted to bypass their traditional distribution channels and go direct to consumers with pre-packaged boxes of a week’s worth of fruits and vegetables. Deliveries can be made to consumers in front of restaurants and in some cases, directly to consumers’ homes.
Competitors: Examining the changes and impact on your competitors’ business is critical. This understanding can open up opportunities that may not have been present or possible before as well as introduce new barriers or magnify existing ones. Taking a critical eye at competitors’ drivers and how they are positioned and responding to the recessionary force will enable you to expose opportunities as well as avoid potential challenges in a resource constrained environment. What are competitors’ level of exposure (relative to the recessionary force)? What unique capabilities and/or offers does competition have and how do they align with consumer behavior changes? How will changing consumer attitudes, needs and behaviors enable substitutes or threats of new entrants? What is the anticipated impact to competitors sales fundamentals? What is your competitors’ access to capital? How have competitions investment priorities been impacted by the recessionary force? How has competitions supply-chain uniquely been impacted? And where has your competitive position/advantage improved or declined in the current market environment?
Zoom | Skype
Skype has been well positioned to be the preferred video conference provider for business and personal use; this was the reason Microsoft purchased it in 2011 for $8.5B. Launched in 2011, Zoom, however, has become one of the most, if not the most, widely used video conferencing platforms in the world (this cannot be confirmed as Zoom does not share its usage data). The pandemic opened the door for broader adoption of all video conferencing applications, but Zoom won the day. The key reasons are based in consumer understanding – Zoom is easier to use, comes with free-for-all features, is bug-free, was designed for both mobile and computer interfaces and, perhaps most importantly, requires minimal or no work to install and interface with on the part of the user. It has not, however, been without its challenges (concerns over security, privacy, time limits on calls, etc.), but it continues to be one of the top apps used for video conferences, both personal and professional, through the pandemic and globally. Its momentum may not be easily stopped once the pandemic is behind us, begging the question of whether we will ever really “Skype” again.
Supply-chain: Whether it is the supplier-base to you and/or your industry (raw materials providers, etc.), the network (e.g. carriers, distributors, warehouses, etc.), support network (pallet manufacturers, logistics brokers, etc.) or regulations that govern the supply-chain, executional success of your strategy will depend on your understanding of the impact and drivers to the supply-chain. How has your/the industry supply-chain been impacted? Do you have sufficient capacity to meet current demand or do you have more capacity then demand (and for how long)? Are you able to manufacture/produce your products/services in the current environment and what are the quantifiable ramifications of doing so or not doing so? How have input costs and availability changed? What are the opportunities and risks in your supply-chain disruption in the near-term that could transform into potential long-term changes?
With “shelter-in-place” orders in effect in many parts of the country, some “essential” employees opting to stay home, the inability to social distance, and plant closures due to virus outbreaks, meat processing plants have found themselves short of workers during the COVID-19 Pandemic. This has significantly constrained the meat supply in the US resulting in short supply at retail, price increases and even the slaughter of animals that could not be processed in-time (as they grew too large for processing).
In the early stages of the outbreak, Master Kong, a leading instant noodle and beverage producer, reviewed dynamics daily and reprioritized efforts regularly. It anticipated hoarding and stock-outs, and it tilted its focus away from offline, large retail channels to O2O (online-to-offline), e-commerce, and smaller stores. By continuously tracking retail outlets’ re-opening plans it was also able to adapt its supply chain in a highly flexible manner. As a result, its supply chain had recovered by more than 50% just a few weeks after the outbreak, and it was able to supply 60% of the stores that were reopened during this period — three times as many as some competitors. (Martin Reeves, 2020).
Quantify the Impact
The objective in this step to establish a clear, quantified understanding of the financial impact that the recessionary force and subsequent drivers will have on the business as it operates today. Applying the drivers from the previous step will provide an understanding of the future demand for your products or services, while other factors, such as competitor, channel partner, and supplier challenges, opportunities, and activities provide insight as to distribution, margin pressures, and COGs. Given the levels of uncertainty, this may also require various planning and modeling scenarios to establish a range of where the business is headed for the foreseeable future. In addition to the most common business metrics (e.g. market size, volume, revenue, COGs, overhead cost, profit, cash, volume/value share, growth, etc.), start by quanitifying the key metrics your current strategy measures. Note that these may change once your strategy is adapted, but understanding the impact to these metrics and the net impact on your key financial metrics will help uncover whether the current metrics are still valuable, if they need to be replaced or can be deprioritized.This quantified financial forecast provides the backdrop from which management will need to determine what success means in the turbulent time, the new strategic direction and key choices to navigate.
US Healthcare System
US healthcare provider system revenue has decreased (representing a significant part of Q1 US GDP decline). This is driven by the reallocation of resources by hospital systems to prioritize care for COVID-19 patients and essential procedures. Additionally, traditional doctor visits for non-critical care patients have been replaced with telemedicine and elective procedures have been delayed due to stay-at-home orders and restrictions (elective procedures make-up more than 30% of hospital revenue, but can be as high as 50 – 77% for some hospitals that rely more heavily on out-patient and surgical revenue). Beyond the near-term contraction in revenue, the pandemic has shifted hospital financial outlooks to potentially more consumer preferred and lower cost/reimbursement care models impacting short AND, likely, long-term hospital P&Ls, space capacity requirements, capital investment outlooks, cashflow/liquidity needs, etc.
Finally, as you build a clear picture of the drivers and a quantified view of the impact, keep in mind that this is unlikely to be a one-time exercise. Implementing tracking and monitoring of the identified drivers and applying that to a dynamic understanding of the projected business will help to shape decisions regarding where and when to reinvest to ensure that you capture at least your fair share of the market recovery. Recognizing the more permanent fundamental and potentially transformational changes in the market, including consumer and customer attitudes, behaviors, and beliefs, will also provide a platform from which to evolve as the marketplace continues to change.
Redefine the Strategy
- Using the financial impact on the business as a guide, set the short-term goals – whether it be to grow, break-even or manage a decline – taking into account previously identified opportunities and downsides.
- Prioritize strategic choices by identifying critical where to play opportunities that deliver against the new goals and reallocate resources accordingly. Maintain line of sight on how short-term decisions could influence the organization’s future, longer-term growth.
- As a new business model or adaptation of the current model may be necessary to meet short-term goals, explore different business model options, leveraging technology, and evaluating effort, expense, and complexity to execute. Choosing a model that will take months to execute is likely not a pragmatic choice during this time, as agility and speed are also key.
Set Short-Term Goals
With a clearer understanding of the overall impact to the industry, consumers, channel partners, and competition, and ultimately your business, the next step is to establish the realistic short-term goals that will not only focus your organization on managing through the turbulent time, but also set the company up for success coming out of it. For some, the goal may be to grow, based on the industry dynamics and opportunities previously identified or uncovered. However, for many, the overall goal may be to break even, manage a decline, or merely survive. These short-term goals should be specific and quantifiably measurable (sales, profit, market share targets), as well as time based (monthly, quarterly, annual).
Prioritize Strategic Choices
A Harvard Business Review study looked at the business performance prior to and following recessions and slowdowns 1980-2002 of ~4,700 companies. A key finding from the study indicated that companies who are able to identify the elusive balance between taking defensive (cuts, loss mitigation) and offensive (investments, growth drivers) measures had the highest likelihood of outperforming peers following the recession. Those that focused solely on defensive measures, loss mitigation, and cutting their way to success had the least likelihood of outperforming others coming out of the downturn. With this in mind, to achieve the short-term goals, companies will need to determine where to, and where not to, play.
Where to Play: With clear goals in mind, determine the strategic Where to Play choices to focus the organization on high-impact actions that have the highest likelihood of success and will deliver against the short-term goals. Start with a common organizational understanding of WHERE and HOW your business is making money. While a simple concept, it is often something that companies surprisingly do not understand. Are there specific product lines/types that drive company profitability? Are there certain geographies, channels, customers, or consumers that drive a disproportionate amount of sales that are critical to maintain? Are there key initiatives that still require attention and investment? Based on the potential areas of impact identified, in step 2, are there new opportunities that require focus and resources?
Where Not to Play: As important as it is to identify the focus areas of where the company will play, identifying where not to play is also critical. If the short-term goals focus more around survival, or navigating a difficult period, shift the organization away from areas that are a drain on resources or do not line up with the goals. Should longer-term projects or initiatives be put on hold to focus on delivering today? Can resources allocated to less profitable/critical parts of the business be re-deployed? Are parts of the business untenable based on newly instituted government regulations or an organization that is working from home, and how can those resources be optimally allocated? Saying “no” to product teams, customers, or initiative leaders can be both challenging and liberating, as it should ultimately focus on the organization on what matters today.
Sysco, the leading global foodservice provider, is taking action to manage costs, capital spend and working capital to achieve the short-term goal of maintaining a positive free cash flow position. To achieve this short-term goal, in addition to the current cuts, Sysco is actively pursuing new sources of revenue by leveraging its supply chain expertise to provide services to the retail grocery sector, a growing segment, especially in online sales, as consumers eat out less. This new business will help off-set some of the declines in the food-away-from-home segment and positions them to capitalize on growth opportunities after the COVID-19 crisis subsides. Some examples of new growth initiatives include providing logistics services to retail grocery customers, becoming a supplier of product to retail grocery customers, enabling small restaurants to stand up home delivery operations and online order pick-up service, and distributing cleaning supplies to keep kitchens safe and virus- free.
Adjust the Business Model
Selecting where to play may also require an adjustment to the business model. Currently, traditional means of reaching consumers through retail outlets, restaurants, and health care facilities has been significantly disrupted. And social distancing measures could have a longer-term impact on how and when these traditional means return. Adjusting to this potential new normal may require adaptation of the business model to meet both government restrictions/guidelines and consumer needs. To stay in business, investment in digital enablement technology has become essential for many: numerous retail locations have added online ordering capabilities to their sites and offer curbside pick-up. Restaurants have added contactless pickup and shifted into offering groceries, alcohol and even toilet paper as part of the pickup order. Companies are seeing growth in sales through online platforms and further building out their offer and product portfolio on sites like Amazon and Zappos, while others are merely seeking ways to access and simplify their ecommerce presence.
Trillium, a local brewer in Boston quickly built an online ordering platform for both curbside pickup at the brewery and delivery. As they needed to operate outside of aggregator delivery services like Instacart and Drizly, as their beer is not widely available at retail, Trillium set up a delivery service using their own limited truck fleet to target different regions of Boston on different days. Orders are limited to 150 per day per region, require a 1 case minimum, and have been selling out almost daily. Trillium has also shifted all of their social media presence to drive this service. With this quick adjustment in their business model, which was originally based on two retail locations, they have been able to maintain their business while setting themselves up for continued success once the turbulent time has passed. Now, with a relaxing of restrictions, Trillium is leveraging their online presence to drive both delivery and take-out orders at their three locations.
Businesses that were struggling prior to COVID-19 will find the hurdles to overcome in this new reality may be too high. Some businesses will be unable to survive, with new restrictions and guidelines on business operations exceeding their ability to adjust a business model built on significant human interaction.
Buffet-style restaurants, which had already been on shaky ground and steadily declining as consumers’ tastes changed, are being dealt a final blow. Garden Fresh, parent company of Souplantation and Sweet Tomatoes, announced they would be permanently closing their buffet restaurant chain, due to COVID-19. Despite exploring multiple options, the company could not see a way to reopen profitably, with a business based on a buffet-style model. Their assessment was based on new FDA guidelines, such as discontinuing self-serve stations, which made it impossible for Souplantation and Sweet Tomatoes to survive and cost prohibitive to pivot to a new/different offering or business model.
Times of economic distress can also open up M&A opportunities that can help to supplement and/or adapt the business model. Competitors and adjacent players who are not as financially stable, are underperforming, under-capitalized, or positioned poorly to weather the recessionary force may begin to look for potential partners or acquirers. Similarly, corporations with diversified portfolios may look to divest non-core assets to manage cash generation in the near-term. Opportunistic companies with the flexibility to take a longer-term view may be able to strategically acquire companies that set them up for even greater success once the turbulent time eases.
It’s also worth noting that, when considering where to play choices and business model adaptations, agility, urgency, and technology will likely play key roles in your decision-making. Turbulent times call for companies to be agile and move quickly, something large incumbents may struggle with, putting them at further risk in the current environment as others respond faster. Additionally, technology is likely a key enabler for many to adjust and adapt to turbulent times. Restaurants, as previously noted, quickly built up digital capabilities themselves or via partners to change their brick & mortar offering to online. Manufacturing plants may be considering a further push into automation as COVID-19 continues to infect and threaten line workers. Finally, education has undergone a complete transformation, as schools and universities switched their entire curriculums online, many of whom to plan to continue to do so into the fall.
Execute the Plan
- Reevaluate the budget to ensure that funding follows the prioritized strategic choices to deliver the short-term goals, while setting up the organization for success in the future.
- Proactively purposefully communicate to external stakeholders, customers and consumers to drive confidence that the company has a plan in place to manage the recessionary force while garnering additional goodwill.
- Engage and communicate with employees through each step and activity throughout the entire process, also recognizing that employees are key sources of input as well. Especially in times of crisis and uncertainty, make efforts to over communicate so that employees feel confident there is a clear plan in place and understand their role in supporting the plan.
Budget to the Strategy
During turbulent times, one of the first places management will look to ensure business profitability, or even survival, is the budget, including both internal and external spending. In this stage, it is important to make cuts (or investments) strategically, and not take a blanket percent reduction to budgets across the board. The latter approach is dangerous and can have a lasting negative impact on the business.
With strategic Where to Play choices made, companies will need to ensure each choice is appropriately resourced. Areas of the budget that support the Where to Play choices should be categorized as sacred investments, with spending tied specifically to the established goals. Conversely, support for areas that have been deprioritized can be targeted for potential cuts or reductions. However, cutting too deeply or dipping below certain thresholds can make it much more difficult to return once through the turbulent time. Internal capabilities and building brand equity externally can take significant time and investment, but can also be very challenging to rebuild if cuts run too deeply. Given potentially new time horizons coming out of the understanding the impact scenarios, there may be some additional flexibility with regard to longer-term initiatives and planned capital investments. But larger cuts that impact the long-term should be carefully considered so as to not jeopardize company performance coming out the turbulent time. That said, if survival is the short-term goal, long-term investments should be sacrificed just to make it to tomorrow.
Another critical, and often sensitive decision for companies during turbulent times is the organization. With short term goals and where to play choices established, what organizational changes, if any, should be made?
The organization may very well be one of the hardest sections to objectively quantify as it could impact the livelihood of your employees, career succession planning and the culture of your organization. Evaluating the impact to your structure, capabilities and labor force are important to not only your financials, but also your strategy. Taking stock of what your organization can do, how fast it can do it and what gaps you have will enable you to move faster and ensure the right resources are employed to execute the strategy you define. Some key questions to help quantify the impact: How flexible is your work force? What resources are required to maintain business functionality/continuity? What types of policies, procedures, equipment and training are required to manage the work arrangements required through the turbulent times?
Additionally, budget decisions should not be made in a vacuum, it is important to consider that competition may be dialing back spending at the same time, thus creating potential opportunities to invest and get ahead of competitors. For example, during the recession in the 1990s, McDonald’s made significant cuts to ad spending. Pizza Hut and Taco Bell, recognizing a potential shift from higher priced restaurants to fast food, as well as the opportunity to capture share from McDonald’s, increased their advertising spend and drove sales and share growth.
Peloton has been in the enviable position of benefitting from the explosion of growth of at-home exercise equipment sales. Their revenue for the third quarter, ending March 31, grew 66 percent to $524 million while total membership jumped 30% quarter-over-quarter from 2 million to 2.6 million. In light of continued growth, they paused all cancelable marketing beginning in mid-March., Peloton has said this experience has made them reassess the “how” of their media investment, as they have learned more buyers than ever before have cited “word of mouth” as influencing their purchase decision. This has led rethinking of future marketing choices, as there is now evidence they will benefit even more from marketing efficiencies than originally forecast.
With numerous external stakeholders, shareholders, customers, and consumers affected by how your business navigates turbulent times, it elevates the importance of clear, purposeful external communication. For investors, clearly laying out the plan in the short-term will provide confidence and reassurance that you are strategically navigating the situation. Letting consumers and customers know how you are managing gives them confidence that, for example, products will be both available and safe. Or if there are potential issues with supply or inventory, how you are handling, and setting expectations of when supply will be available. And while communicating externally, it’s important to keep in mind the mindset of your external audience. Are they concerned about safety? Are they financially constrained? Are there new barriers in consumers or customers minds that should be addressed in your communications. Take the time to ensure that message is relevant to the external audience, while remaining sensitive to the economic environment and general anxiety caused by the recessionary force.
Town Sports International
Companies that don’t properly and proactively navigate the external communication landscape put themselves at greater risk of possible backlash and a longer-term negative impact. Town Sports International, owners of the popular Boston and New York Sports Clubs gyms, temporarily closed their locations due to COVID-19 in mid-March and all non-executive staff were subsequently terminated. However, the company still collected membership fees from their over 600k members. Additionally, members who wished to cancel their memberships could only do so in person…at closed locations. Public pressure and pending lawsuits forced Town Sports International into freezing membership fees, but the damage had already been done. While the decision to close all locations, terminate front line employees, make membership cancellation impossible, and still collect membership fees comes across as arguably fraudulent, Town Sports International had the opportunity to proactively communicate externally to better manage public opinion. Or perhaps they remained purposefully quiet to gain at least a few days of fees. Regardless, this decision and lack of communication will likely have a long-lasting impact on their brands if they’re able to stay in business.
“Companies need to increase communication, balancing the needs of the business with expectation setting and morale building, so employees know that their well-being is top of mind. ”
Engage the Organization
This is not the last step, but something that should be done throughout the entire process. Engaging and over-communicating to the organization is of the utmost importance. Employees will be uncertain about both their and the company’s future. And many, especially front-line employees who are often closest to your customers and the end consumer, will have key insights that can be leveraged throughout the process. Cascading information to the organization immediately is of utmost importance. It is critical for the company leaders to pull their key team members together and communicate with them. This prevents anyone feeling left in the dark. Especially in the current pandemic when employees are all working remotely, they must feel like they are in the know and are not surprised. With all the surrounding uncertainty, the leader’s role is to create clarity where possible. Explaining the plan, sharing the short-term goals, and in many cases, engaging the organization in their development will reduce uncertainty, build confidence, and increase the likelihood of successfully navigating the current environment. The more leadership engages the broader organization, the more they will be willing to adjust and deliver against the goals, regardless of their new working situations. However, not all news will be good, and difficult decisions may need to be made. Openness and honesty should guide these communications, with the understanding that the communications likely will not remain internal. The way the organization treats employees that are let go or furloughed will have a lasting impact on the remaining employees.
Huazhu, which operates 6,000 hotels in 400 cities across China, set up a crisis task force that met daily to review procedures and issued top-down guidance for the entire chain. In addition, it leveraged its internal information platform, an app called Huatong, to make sure employees and franchisees were armed with timely information. This allowed franchisees to adapt central guidance to their own local situations, in terms of disease conditions and local public health measures .
In summary, turbulent times can be incredibly challenging for business leaders to navigate. Significant uncertainty and volatility can create both headwinds and opportunities. With a thoughtful approach to adapting the strategy to navigate the turbulent time, including the understanding of drivers, the quantified impact to the business, establishing new goals and strategic choices, directing resources accordingly, and communicating internally and externally, companies can increase the likelihood of successfully navigating the turbulence while taking advantage of the potential opportunities the turbulent time provides as well.
Authored by Neelam Modi, Niti Patel, & Phil Ryan
1. Chinese Beauty Retailer Moves in-store advisors online during COVID-19, Springwise, March 2020
2. New York Times, May 22, 2020
3. Jobs to be Done are the underlying “tasks” that a consumer “hires” a product or solution to complete. For example, putting a picture on the wall or keeping ones’ teeth healthy. The job does not pre-suppose a solution or products, but rather, is the desired end-result of what the consumer is looking to accomplish.
4. Consumer Segmentation is a means of breaking down consumers into distinct groupings based on habits, practices, category purchase drivers and/or demographics that better enable a brand/company to target likely consumers.
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