Pandemics Affect Business Strategy
Pandemics affect business strategy. If you’re like most people, the Covid-19 virus that you’ve heard news about concerns you. Some of that concern may be personal, since anyone could be infected by the virus. Some of that concern, however, may be about the impact on your business. There are several ways a pandemic can affect business strategy, and it’s certainly appropriate to consider them. In some cases, you want to take action to counter the negative effects that you may experience.
How would a pandemic affect your business strategy?
To begin with, it’s useful to think about how your business would normally connect with the downside of a virus outbreak. Your company probably falls into one of these categories:
- You are going to do better because of an outbreak. This is most likely for businesses involved in steps you might take to prevent the disease, such as manufacturers of hand sanitizers and masks. It might also include you if your best customers are part of those industries.
- You will be directly hurt by an outbreak. This category includes any business that would see a direct drop in demand due to consumer precautions – companies in the travel industry are the best example of this. Anything people will buy less of because of health concerns would be included here.
- Your industry will be disrupted by an outbreak. This includes anyone whose supply chain may be interrupted because key suppliers are in highly affected areas, or whose normal operations involve travel through affected areas.
- You will suffer some downside because the economy will be hurt by an outbreak.
Where will your company fall?
Your business could be in any of these categories, though most companies probably fall into category 3 or 4. The outbreak will disrupt them and the economic downturn will hurt them. If you are in category 1, this is not a bad time for you, and it may be a great time. Many activities, such as raising capital and hiring, are likely to be easier for you, and your sales should show significant improvement during an outbreak. If you are in category 2, the opposite is true. You can expect your stock to take a beating, and your sales are likely to decline as employee turnover increases. In some cases, we may see some category 2 companies go out of business, as the decline in sales can be more than they can handle. But for most, an outbreak simply makes for a very tough year.
Have alternate sources for your critical needs.
When the outbreak occurs in key manufacturing areas, it will disrupt industries and operations. With adequate planning, you may already have alternate sources for your critical needs, but you can still expect some disruption. Even with alternative sources, costs may rise as interruptions in some areas test the capacity of the global economy. Temporary interruption of supply is inevitable, and cost and quality issues are likely as you seek new suppliers outside of affected areas.
Pandemics affect everyone’s business strategy in some way.
Category 4 companies include pretty much everyone else. Demand for your goods and services is likely to dip as the disruption of the outbreak affects your customers. How bad this gets depends on the economic importance of the affected geography and how deep the disruption is. If the outbreak affects a large, critical manufacturing region, one would expect the ripples from the outbreak to spread widely. If the effect of the outbreak is very deep, some businesses may completely shut down for a month or more. In this case, we would also expect to see a longer, deeper downturn in the economy. Certainly, the year following an outbreak wouldn’t be a good year for anyone except companies that benefit from outbreaks.
Pandemics affect business strategy. How can we address this threat?
If you use Simplified Strategic Planning, it’s likely you’ve already identified some version of this threat in your strategic planning. If you have not taken steps to directly mitigate the negative outcome, now is a good time. As a refresher, here are the possible steps for any threat.
Prevent the threat.
1. Prevent – If you can prevent the threat, you are way ahead. Unfortunately, we’re unlikely to be able to do that in the case of a pandemic.
Limit exposure.
2. Limit exposure – this step can be a winner. If you have prepared by arranging alternate sources of supply or targeting markets that are less affected by an outbreak, you will reap some of the benefits of that preparation when the outbreak hits.
Watch for an early warning.
3. Early warning – even after an initial outbreak, early warning can be helpful. The best early warning will give you notice that the downside is coming (or that it will be worse than expected) in time to take remedial steps. Watching the local statistics for your region or country will help, and any data that may give you an indication that the ripples from the outbreak are affecting your customers will also give you a chance to respond.
Have a contingency plan.
4. Contingency plan – again, the best contingency plan is one you have already made, but you may want to plan for a series of contingencies. For example, one client has a general economic downturn plan with milestones at 0%, -2% and -5% growth. If they see economic growth reaching down into lower numbers, additional steps in their contingency plan will be triggered.
Hedging
5. The final possibility, hedging, is unlikely to be economically useful after a pandemic has begun. This is because hedge markets typically accommodate the expected value of risk into pricing, driving up the cost of hedges as the probability of the risk approaches 100%. You could still hedge some economic downturn risks after an outbreak, but their value is unlikely to be high.
How has your company addressed this kind of threat? Do you feel well prepared for pandemics or other threats that may have a very real effect on your industry? Good strategic planning includes an effective assessment of threats and concrete steps to reduce their impact.
If you’d like to use Simplified Strategic Planning to prepare for threats, consider attending our next Simplified Strategic Planning seminar. If you’re like most people, you’d benefit from having an experienced professional lead you through the strategic planning process. Then you can focus on the content of your strategies. If you’d like to explore how you could do this, please contact me at rbradford@cssp.com. Center for Simplified Strategic Planning professionals have successfully conducted thousands of strategic planning meetings. Furthermore, they understand how to best use your planning time. Consider holding a one-day workshop on Simplified Strategic Planning in the next few months to improve your results.
Robert Bradford is President & CEO of the Center for Simplified Strategic Planning, Inc. He can be reached at rbradford@cssp.com.
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Author Robert Bradford