Indisputably, we are now heading for the great economic crisis of 2020. The interesting question is how long will it last?
An interesting proxy I like to use is the almost perfect correlation between air transportation passengers and GDP using data from the 1970–2005 time period. A recent analysis of the air transportation from the International Air Transport Association (IATA) shows that in the case of previous disease outbreaks, it took about 6 to 7 months to recover the same volume of passengers than before the eruption. If we assume that the global economy will have an evolution parallel to that of air transportation, we may consider that the economic crisis, which just started in Europe and in the U.S., will last until September in the best-case scenario.
The magnitude of the incoming crisis may put the survival of many companies at stake. They could disappear or be acquired by competitors if they do not react. In this situation, speed is essential to implement a reorganisational plan that firmly addresses the problem. Nevertheless, speed does not mean precipitation. Leaders cannot overlook the preliminary analysis of the context in order to prepare for the appropriate change; although they must do so faster than usual and launch the corresponding operations quickly.
Recovery plans that work
In times of crisis, the primary responsibility of executives of sustainable firms is to clarify the direction of change and establish priorities to ensure the continuity of short-term financial liquidity and key skills necessary for business survival. They should not take the easy way out by stopping production and investment or implementing massive layoffs. These drastic measures only jeopardise the chance for success when the companies recover from the crisis.
| ACTIONS IN SUCCESSFUL RECOVERY PLANS | ACTIONS TO AVOID |
| Speed | Precipitation |
| Establish priorities to ensure the continuity of short-term financial liquidity | Stop investments |
| Focus on the groups of customers that are most essential to the company in terms of strategic ambition, profitability and loyalty | Put production on hold |
| Simplify the portfolio of products and activities | Implement massive layoffs |
| Ensure the support of key stakeholders (unions, governments, shareholders, etc.) | Respond to internal or external forces too quickly |
| Select a leader who knows the company well | Call in a leader from outside the company |
| ANTICIPATE AND ORGANISE | IMPROVISE |
Recovery plans that work best in an emergency are usually those that put the company back on the right track rather than making them venture into new territories without any experience or the proper preparation. These plans begin by focusing on the groups of customers that are most essential to the company in terms of strategic ambition, profitability, and loyalty.
There is no recovery plan without a deep understanding of customer expectations and a tailored response to these. This requires getting closer to the customers and having an effective marketing information system able to update on market developments.
In parallel, the portfolio of products and activities should be simplified to make it easier for customers to understand and less costly for the structure to manage. The supply, production, and logistics functions should also be tightened to be more efficient and productive.
The importance of stakeholder support
To be effective, leaders of sustainable companies ensure the support of the key stakeholders. Chief among them are the employees and their unions, for without their consent, nothing can be done and change can be blocked. Bankers and shareholders also have their say. A crisis frequently involves financial restructuring, which may result in the cancellation or rescheduling of debt or in the issuance of new shares to raise capital and establish the company’s financial security.
In some cases, the recovery plan must also receive the approval of international authorities, national or local governments. This happens when the company benefits from subsidies or public financial guarantees. It is also mandatory when the company operates in an area deemed critical to the safety or stature of a nation. The government may exercise its right to veto takeover attempts by a foreign competitor or veto the closure of an activity that is considered essential for the country.
Building from the inside: the road less travelled
Sustainable companies have all been through one or more crises. However, they always survive – if not, they would have disappeared already, as have many of their past competitors that went bankrupt or were absorbed by other firms in previous crises. They get through these crises thanks to their strategic ambition that is like a compass for them: in the storm, it allows them to discern the right direction to take and the actions to be carried out.
In a crisis, it is tempting to call on leaders from outside to bring a fresh perspective in setting up a recovery plan. Faced with a major crisis, many firms get rid of their leaders to demonstrate symbolically that the company is actually changing.
They justify the eviction of a CEO because of his lack of foresight and inability to avoid the worst; or because he no longer has credibility with various stakeholders involved in the recovery strategy.
Yet, sustainable firms rarely proceed in this direction – they do not suddenly change the captain when the storm approaches. If they are forced to change a leader, they prefer to select one from the pool of managers who already know the company and its procedures. It is a mistake to believe that a leader who is competent in one area can be a good manager in any company or any sector. To become efficient, leaders must develop a thorough knowledge of the sector, structure, and employees and their corresponding responsibilities. This takes time, and the best leaders realise their full potential only after years of experience and learning.
ABOUT THE AUTHOR
Dr Eric Viardot has a Doctorate in Management and he is a graduate of the HEC Business School and the Institute of Political Sciences, Paris. He has experience in Hewlett-Packard and Bain and Company in marketing, finance and consulting.
He is also an active consultant and trainer and has published various books and articles on strategic management and marketing with a strong focus on Technology and Innovation Management. Dr Viardot is a full time professor of Corporate Strategy and Marketing and Director of the Global Innovation Management Center at EADA.