Is Coronavirus the systemic shock that breaks through business inertia to catalyze multi-dimensional change?

The best-laid plans of multi-national corporations, Wall Street bankers, event planners and travel agents for a rousing new year of increased business came undone in a Wuhan meat market (or was it a bio-research lab?) in mid-December. By now, the world is transfixed on the growing epidemic that has claimed more than 3,000 lives, striking fear into US consumers that created a weekend of panic buying at Costco warehouse stores (see the Twitter hashtag #CostcoPanicBuying for more).

Beyond the human toll, COVID-19 (as today’s variant of a common viral structure is called) is adversely affecting every industry from a combination of lost business, disrupted supply chains, quarantined employees and canceled meetings. However, business leaders can take inspiration from two sages from very different times: Nietzche, who said, “That which does not kill us makes us stronger” and Benjamin Franklin, who counseled, “Out of adversity comes opportunity.” Thus, if an organization can survive the initial shock, wise leaders can exploit the disruptions to reassess inefficient processes, wasteful habits and risky partnerships and dependencies. Indeed, just as the global financial crisis of 2007-09 weeded out weak companies, over-leveraged borrowers and speculative excesses, today’s COVID-19 emergency could lead to stronger, more resilient and efficient organizations, yielding decade-long benefits.

Epidemic exposes significant systemic problems

According to the OECD, the coronavirus epidemic will slow global growth this year before rebounding in 2021, meaning that lost revenue and robust growth will likely return to most businesses once the outbreak is contained. However, the financial hit could last significantly longer if the disruption to organizations reliant on Asian suppliers creates lengthy delays in product releases or limits inventory during this year’s back-to-school and holiday seasons. Indeed, the inability to get products and components out of China has some organizations already t diversifying their sources into Southeast Asia, India or back to the US. 

Coronavirus has exposed a serious flaw in the ‘flat world’ model of highly-distributed production and the concomitant offshoring all but high-level executive and product design functions. Offshoring is popular because it saves money by using low-cost foreign labor and can be more efficient since it allows contract manufacturers to operate at a scale that none of their customers can match. As Arizona State research scientist Shade Shutters presciently wrote almost three years ago, interdependence creates huge risks to human and organizational survival (emphasis added):

Interdependence has obvious upsides. It is wondrously efficient, as it removes the redundancies of effort involved when everyone has to, say, can their own fruit—or when every nation has to grow its own rice or mill its own steel. And interdependence has coincided with an extraordinary period of peace and prosperity in the industrialized world.

However, as corporate giants like Apple, Microsoft, Cummins, Best Buy and scores of pharmaceutical manufacturers have discovered, dependence on far-flung suppliers is risky. Shutters outlines the problems,

Interdependent societies are more connected and integrated, but they are also more fragile, more brittle, and more vulnerable to cascading failures. So while highly integrated societies can accomplish feats that no group of unspecialized laborers could dream of, they do not do so well when subjected to shocks such as earthquakes, epidemics, financial crises, and political conflict. A generation ago, such shocks generally had only local effects. But in today’s hyper-connected world, a disruption in one place can swiftly cascade across the entire planet, threatening global supplies of goods and information.

Source: Human society is totally interdependent—that’s a huge advantage, but also a huge survival risk; Shade Shutters, Research scientist, Arizona State University

While the coronavirus crises will be costly and painful to many organizations, it could also be the catalyst that initiates structural changes that make them stronger, more resilient and deft at reacting to unplanned events beyond their control.

Getting specific - how coronavirus could accelerate technological and organizational change

Large corporate conferences and business meetings are the immediate victims of the coronavirus epidemic. As I detail in my last diginomica article, the mounting number of cancelations could mark a tipping point for virtual events. Indeed, in the previous week, Adobe, Facebook, Google and NVIDIA are among the vendors canceling major (as in thousands of attendees each) events scheduled over the next two months. While many lament the loss of informal, serendipitous personal contact afforded at traditional events, as I noted, there are upsides to virtual alternatives:

Aside from minimizing travel during epidemics, early enterprise users will eventually find other benefits to virtual events, notably the flexibility inherent in online communications in which attendees can view presentations on their schedule, greater convenience when interacting with peers in distant time zones and the ability to leave events open for extended periods of asynchronous participation.

The rush to embrace virtual events and web conferences is merely the first of what likely will be many ramifications from the coronavirus epidemic. Azeem Azhar enumerates six ways coronavirus might change the world in a recent column which includes a shift to remote interactions. To his thoughtful, must-read list, I would add several more focus on the business of business:

• Accelerated adoption of robotics and other forms of mechanical and digital automation. The primary shortcoming of remote work is that it only addresses a subset of the employee base. What to do about jobs that can’t be accomplished remotely such as those providing personal services in industries like healthcare, hospitality, construction and building maintenance/housekeeping/lawn care where any widespread quarantines or absences due to an epidemic would cripple the business? One answer is by replacing or augmenting human workers with machines that don’t get sick (at least not from biological agents). The prospects of factories being shut down for weeks at a time, as happened in China, or other people-powered work going undone will lead many organizations to rebalance the cost-benefit calculus of robotic and automation investments. The resulting customer demand will stoke increased investment in technology and product development that will expand the robotic industry into new markets and use cases.
• Software improvements to enhance virtual collaboration on documents, particularly technical specifications, designs and prototypes. Collaborative technology is currently focused on document-based (memos, emails, slide presentations) administrative tasks, not product designs or physical workflows (such as manufacturing processes). Replacing physical with virtual interactions for these activities requires further development in both VR/AR technology and collaborative spaces for design documents, particularly three-dimensional models and blueprints.
• Accelerate the adoption of automation processes and collaborative tools for code development, testing, deployment. While software developers are leading-edge adopters of process automation, practices for such as end-to-end CI/CD toolchains haven’t crossed the chasm into mainstream adoption. An epidemic-fueled push to reduce physical meetings could bridge the gap.
• Fear will be the catalyst that breaks through employee resistance to virtual collaboration tools and processes; inertia that has stymied mass adoption of everything except email and slowed the uptake of tools like MS Teams, Slack, Asana, etc. Team spaces and other group collaboration tools have been around for decades. While the products have improved and adoption increased, we’re nowhere near the paperless, email-free office many expected, primarily due to personal and organizational inertia. Fear is a powerful motivator that can quickly change attitudes.
• Streamlined, more efficient management processes. Planning for and using virtual meetings to replace physical interactions forces attendees to focus on the task at hand, reduce irrelevant, procrastinating chit chat and minimize sidebar conversations that drag meetings into the weeds, wasting everyone’s time and derailing necessary decisions.
• Creative new methods to engage, i.e schmooze, with clients that doesn't involve expensive dinners or golf outings. One of the perks of being an executive is the opportunity to enjoy expensive meals, recreational activities and travel venues on someone else’s dime, all in the name of customer relations and outreach. Once such activities come with some risk or are banned outright (such as travel to China or other virus hotspots), expect creative minds to dream up alternatives. Sure, a virtual match at TopGolf isn’t the same as a trip to St. Andrews, but it’s better than nothing.

Aside from these changes to work processes  and methods, the coronavirus epidemic will accelerate a trend that’s already underway (and that Azhar also identified), shifting supply chains to more stable, local sources, i.e reshoring to the US or EU or otherwise away from China and East Asia. As noted above, Apple (partially) and Samsung (totally) have shifted phone production out of China, but electronics are just the start. Every company that sees a disruption in supplies from China due to its extensive and lengthy quarantines will be looking for alternatives. While good options might not exist, the demand for domestic and other exo-Chinese sources will lead to new manufacturing investments around the world.

My take

The human and economic toll from black swan events like the coronavirus epidemic or Great Recession are immense and, for those afflicted and taken by the deadly disease, impossible to measure. Indeed, some businesses also will not survive. For the majority that does, the crisis can stimulate much positive change by cutting through stifling bureaucracies, eliminating moribund practices and inciting radical changes that entail some short-term pain, but yield long-term gain. As Machiavellian politicians will occasionally admit, “Never let a good crisis go to waste.”