Combining tactics and strategy in turbulent times
- How should we be thinking about tactics and strategy at this time? Can we look beyond the present and if so how? Here is one way to consider the options.
Business executives that spent their formative years grappling with the aftermath of 9/11 and were honed during the Great Recession are getting the ultimate leadership test in the current global health crisis. Unlike natural disasters, where the bulk of damage occurs in one cataclysmic event, viral epidemics unfold over time, are unique in their epidemiological characteristics and have a far higher degree of uncertainty about the overall cost in lives, productivity, economic output and business revenue.
The unpredictability is magnified because pandemics prompt a mix of rational decisions and irrational panic, where even the former are subject to widely divergent opinions depending upon one’s assessment of the risks and individual risk tolerance. Consequently, events like the novel Coronavirus crisis require business leaders to tactically navigate short-term disruptions while strategically assessing and repositioning for eventual long-term changes.
Given the breadth and magnitude of social, personal and business disruption caused by the current crisis, there is a higher than normal probability of permanent changes as many areas of society and business resets to new norms. The novel Coronavirus has redefined the measures of business and executive success.
The winners will be organizations that correctly ascertain and capitalize on persistent trends while not prematurely abandoning temporarily harmed products and services that will return to their pre-crisis status. In contrast, the business landscape will be littered with companies that couldn’t see or adjust to permanent, systemic shifts in business processes, consumer behavior, and societal norms.
No industry has been immune to the impact of this event. For some, like grocers, disinfectant manufacturers and food delivery services, the temporary symptoms are beneficial, not injurious. Other industries, like airlines, hotel and convention operators and video conferencing services, have seen such profound disruption, both positive and negative, that it could result in permanent transformations or bankruptcy. Survival depends on how rapidly business leaders can filter the transient noise from the persistent trends since there are indications that some industries won’t return to their former states.
A framework for thinking about change
The venture capitalists at Loup Ventures offer a useful way of categorizing the duration and persistence of coronavirus-caused changes.
- Temporary changes include things like binge buying of toilet paper and hand sanitizer, restaurant and gym closures, manufacturing shutdowns, cratered airline travel and cancellations of live sports and entertainment events. While some of these are undoubtedly ephemeral, like stockpiling toilet paper, I argue that some could morph into persistent cultural shifts. For example, people will likely always want a well-cooked meal out. Still, some might decide that home delivery is a better option on most occasions since it combines the benefit of professionally prepared food with the comfort and convenience of home.
Likewise, urban transportation patterns could be permanently altered as some businesses see that forced home working didn’t reduce productivity or accountability.
Similarly, global air transportation might never recover to pre-crisis levels due to a combination of reduced competition (bankruptcies), higher prices, businesses partially substituting teleconferences for trips, individuals shifting to closer vacation venues and realigned social consciousness to disfavor highly-emissive forms of transportation. These examples illustrate how temporary changes can evolve into permanent societal shifts.
- Cultural shifts are epochal events that permanently alter the psyche and outlook of those living through them, with the back-to-back crises of the Great Depression and World War II being the quintessential example. These crises forged a toughness, frugality and self-reliance on the Greatest Generation that never left them, no matter how much wealth and success they might have enjoyed later in life.
Cultural shifts are difficult to predict since they are shaped by the length and severity of disruptive events, but since the pandemic response has already put us in unprecedented territory on many fronts, we are likely to see long-term ramifications in many areas.
- Accelerated change results when a crisis catalyzes the adoption of pre-existing technology or service by highlighting its value or, as in the case of restaurant deliveries, its indispensability. As Loup's analyst writes, "The adoption curve is accelerated because users are forced to start something today that they likely would have adopted eventually." Again, there's some subjectivity involved since one analyst's inevitability is another's accidentally, but I agree with Loup's assessment that service related to remote work, health, entertainment and commerce are getting an enormous boost by the coronavirus crisis. Primary examples include telemedicine, digital health and health-related wearables, remote classrooms and training, online shopping and food and grocery delivery.
Some companies, like Zoom Video and DoorDash will benefit by being in the right place at the right time. They developed products and services that are uniquely suited to the needs of a quarantined world. Others, like Amazon, Walmart, Netflix, wireless carriers and ISPs, can capitalize on prior capital investments to build massive, distributed distribution infrastructure for goods and data. However, there's another attribute that makes these firms well-suited to thrive in a global pandemic.
The Coronavirus crisis bears characteristics of a Black Swan event, i.e. something completely unexpected that has significant consequences beyond the bounds of traditional statistical risk analysis. The difference between this event and the classic Black Swan is that there is evidence that COVID-19 was predictable to the extent that the ermegence of novel Coronoviruses was predicted in a number of academic papers.
Black Swans are closely related to another concept popularized by Nassim Taleb, fragility and antifragility. As he describes the idea (emphasis added),
Some things benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressorsand love adventure , risk, and uncertainty. Yet, in spite of the ubiquity of the phenomenon, there is no word for the exact opposite of fragile. Let us call it antifragile.Antifragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better… Antifragility has a singular property of allowing us to deal with the unknown, to do things without understanding them— and do them well … It is far easier to figure out if something is fragile than to predict the occurrence of an event that may harm it. Fragility can be measured; risk is not measurable (outside of casinos or the minds of people who call themselves “risk experts”).
The organizations most likely to capitalize on both the Type 2 and Type 3 changes listed above (cultural shifts and accelerated change) are built to be antifragile. Fragile companies like highly indebted airlines utterly reliant on free movement of business people and vacationers will likely suffer permanent damage and changes to their business model. In contrast, antifragile companies like Amazon, Google and Walmart don't just adapt to survive in a new environment, but they evolve to exploit others' weaknesses.
Organizations can thrive in such a crisis by identifying their areas of fragility and aggressively changing them to become antifragile. Doing so will accelerate several technological trends such as this list from ABI Research (my comments in bold):
- A more concerted and widespread move to lights-out manufacturing (robotics, process automation; enables a less geographically-concentrated supply and manufacturing chain)
- Increased usage of autonomous materials handling and goods vehicles (morerobotics, autonomous vehicles)
- A more integrated, diverse, and coordinated supply chain (re-shoring from China, less concentrated production)
- Investment in smart cities to support community resilience
- A move to virtual workspaces and practices (technology for remote work, learning and events)
Because events like the novel Coronavirus crisis are outside our wildest expectations and ability to statistically model, they are inherently unpredictable, destabilizing and psychologically traumatizing. Business and organizational leaders must resist the panic impulse while simultaneously juggling two critical tasks:
- Quickly adapting to short-term disruptions to minimize financial and personal disaster doing what's required to live to fight another day.
- Assessing the long-term cultural and catalytic changes that affect its products and services to position the organization to thrive under new circumstances.
It is critical not to let task 1 distract from carefully considered strategies that enable and expedite task 2. Therefore, leadership requires not reverting to what might be familiar or comfortable, but both sticking to long-term business priorities that are relevant in a post-crisis world. It also means embracing changes like WFH or new business models that decrease fragility and provide a competitive advantage under new business rules.
Do you agree? Is this a good way to look at how to survive and thrive in a post-COVID-19 world?