How to Navigate the New Normal: Anticipate.
To successfully manage over the last few months, business leaders applied a playbook developed from lessons learned during the 2008-2009 downturn. They recognized the imperative to move fast and quickly pulled all available levers. Companies have tapped credit facilities, cut discretionary spending, delayed capital investments, and created week-to-week dashboards to closely monitor key business indicators including order rates, shipment rates, accounts payable and accounts receivable.
Going forward, however, lessons learned in 2008-2009 will not be as relevant during our expected economic rebound. Unlike our recovery from the Great Recession, this journey promises to be quite different. As the summer approaches, many agree that a return to business as usual is unlikely. What our new normal will look like is uncertain and unknown; trends which have recently been amplified during our economic shutdown are now catalysts for creating uncertainty in demand in a shifting market landscape. Yet change brings both opportunities as well as threats. As John F. Kennedy once said “Change is the law of life. And those who only look to the past or present are certain to miss the future.”
As discussed in our last article, to avoid “missing the future,” you must develop a playbook to navigate your business through this different and rapidly evolving environment. The playbook has 3 components:
The first step along this journey is to anticipate – what will your new normal look like, and how will it impact your business? Understanding these changes will help you identify new opportunities, address encroaching challenges and drive future success. In many environments, there are structural changes underway that impact your business today, such as work-from-home. Other trends, however, may not be readily apparent at this time but are likely to be impacting your business, your direct customers’ businesses, and your end customers. Furthermore, there may be trends that haven’t yet fully taken hold or are just starting to emerge that will eventually cause second or third order effects. Key questions to evaluate these macro trends and re-imagine and rethink your outlook are:
- What trends will accelerate, fade away, or emerge?
- How will demand and value shift?
- How will customer needs and buying behaviors change?
- Which new customer segments will appear?
- How will the ecosystem (competitors, channels, partners, digital) evolve?
At Blue Canyon we have identified several major structural shifts underway that touch upon a cross section of different markets, industries and economic sectors. As you begin to anticipate your new world, we encourage you to contemplate how the following changes may impact you and your customers’ business models in the near future.
Work-on-the-Edge: The work-from-home trend is obvious – decentralize the office workforce to a distributed, safer, healthier environment. Remote work capabilities reach well beyond the traditional home office paradigm. In the off-road equipment market for example, new product launches traditionally required that a dealer travel to the end-customer’s site to guide the commissioning, training, and troubleshooting for the new equipment. Now OEMs have provided their dealers digital tools and software to create a completely virtual approach to this very important process. Other Work-on-the-Edge examples include allowing advance engineers to access cloud PaaS from distant locations, service technicians to remotely diagnose equipment in the field, and customer service reps to instantly handle customer inquiries from decentralized locations.
The Work-on-the-Edge trend is not new, but the adoption rate has been accelerated to address the COVID crisis. As you reflect on this trend to anticipate your future, it is critical to determine whether this trend will have second and third order effects across your entire customer chain. Just as importantly, it will be essential to evaluate whether this trend will fade away, accelerate, or emerge in a different form. For example, in the future, production of replacement parts could shift to the edge when distributors are equipped with additive manufacturing tools and can download specifications and drawings from the cloud to locally fabricate the spare part for the nearby customer.
Asset Mix: As customer needs have shifted to address the COVID crisis, suppliers have reorganized their assets to meet these new needs. In the food industry, when consumers largely moved from away-from-home dining to in-home food consumption, suppliers were required to reallocate products among their customer segments to meet the demand shift. This major disruption created ripple effects down and up the customer chain. Distributors increased their supply of plastic bags, boxes and shipping materials for take-out restaurant customers, and packaging companies re-calibrated equipment to produce in smaller allotments enabling food suppliers to place more product onto grocery store shelves.
Asset mix examples in the healthcare industry are plentiful. Ford shifted production from manufacturing auto systems to producing ventilators. As hospitals demand for oxygen equipment increased, suppliers shifted from low volume, high mix manufacturing to 24×7 high volume production. Many other manufacturers converted operations to temporarily produce hand sanitizer gels.
Major structural shifts sometimes create unexpected outcomes as well. As reported recently, the COVID outbreak negatively impacted Medline, a $14B-revenue supplier of medical products. While demand for PPE products boosted sales in this low-margin, relatively smaller part of their business, canceled elective surgery procedures hurt other product lines sales which represent approximately 40% of revenue.
These examples reinforce our view that regardless of the end customers you serve, the market segments where you have presence, or the competitive position you enjoy, the new world will challenge your previous assumptions. Going forward it will be important to re-balance your outlook, assumptions and market insights to address your new normal.
Relocation & Dislocation: This trend, relocation & dislocation, comes in many flavors and is perhaps the most stunning development of all in the last few months. Some markets ceased to function in a regular manner because of this trend. Furloughs and layoffs created an unexpected increased supply of talent, last mile deliveries shifted to homes instead of centralized offices, airline travel dropped while RV rentals sold out, and education moved online from the classroom. To describe the magnitude of this change, one executive recently commented “We have seen an uptick in customer orders for product lines that we didn’t anticipate, and a downturn in areas that just last January we thought would grow – this has created bottlenecks in certain factory capacity, reallocation of our sales and customer service focus, and a constant week-to-week reset of our forecast.”
This unfamiliar trend of relocation & dislocation is currently driving complexity and uncertainty. Questions abound. No one has a crystal ball to determine if office workers will return in part or fully to commercial office buildings, if students will be on campus this fall, or if last mile deliveries will require vehicle manufacturers to produce more class 2 delivery vans. Nevertheless, to be successful in your new normal you must thoroughly and deeply analyze how/if this trend impacts you, your direct customers, and your customers’ businesses.
Work-on-the-Edge, Asset Mix, and Relocation & Dislocation are three structural trends underway that we have identified. There are likely to be many others that are more relevant to your business model. Once you have properly identified the trends and changes that matter to you, you must next anticipate your new normal by asking: which of these trends will accelerate, fade away, or emerge differently? With those answers in hand, you will be well on your way to revise your outlook, determine where you will be advantaged, disadvantaged, and then adapt your strategy accordingly.
In our next article we will discuss the second component of the playbook: Adapt.
This article is a continuation of our thoughts on the impact of the COVID-19 pandemic and the key strategic decisions B2B companies should be focusing on. You can find our other articles here: