Attention managers, now it is time to turn on “survival mode”!
In this article I would like to deal with the
impact of the pandemic in the organizations. The idea is to work with important
points and actions which will help the process to corporation survival.
It is based on an experience that I had managing a business
company during an economic crisis with a strong impact in the agricultural sectors
here in Brazil.
Certainly, very few professionals and/or
corporations were prepared to face the current situation. Covid 19 emerged as a
low-probability event, but with a very high impact.
The impact of this event on the global economy is
not yet known, but based on the forecasts and what we are experiencing, it will
be deep. For sure, in medium-term, it will break with the existing pattern of
economic, social and market structure. Of
course, the short-term impacts, due to the halt in business activities, must be
the management focus.
We do not know how long all this situation will
last, but it will be much longer than companies can endure. Some sectors, will
grow at this time, but most companies will suffer a negative impact on their
business, for some, the impact will be deadly.
Those corporations that have done their homework by
implementing effective corporate governance, based on best management
practices, will have a greater chance of survival. Those who have not taken the
same care, will possibly not survive.
In some lectures I had already commented that
linear companies with a traditional organizational structure had little time to
change, because the (physical) world was converging quickly and unequivocally
into the virtual world, a world that no longer accepts structured hierarchical
organizations from traditional way; then the change would be a matter of time.
I imagined that they still had about five years to adapt, however, now, with
all this happen, this time, in my view, does not exist anymore.
Now, one topic that should be on the agenda of any
corporation, be it large, medium or small, is the short-term survival of the
business.
The crucial point, at this moment, is not knowing
how long this event will last, and how worse it will be. The problem is not
being able to see the possible post-pandemic scenarios, thus making it
difficult to take actions in order to direct business.
There are many unanswered questions in the air:
Will the economic hubs change? Will global supply and logistics structures be
maintained? How will the consumer market behave? And what will be the impacts
on the workforce?
Organizations will need to answer these questions
in order to start thinking about their structure, the organizational and
operational architecture for this new world ahead.
But before that, companies must go through this
turbulence, and for that now it is time to start the "survival mode".
At this moment nothing is more important than the
maintenance and health of the operational cash. In the short and medium term,
it is not the lack of profit that breaks a company, but the lack of cash, which
is a fact, either you have money or you have no money.
It is interesting how some experiences are
remarkable, and now, providing supporting for some companies in directing the
“survival mode”, I remembered the year of 1994, when the advent of the Real
Plan (Brazilian economic plan which move from hyperinflation for more stable
economy), where the companies that worked in the agricultural sector were
severely impacted by freezing the price of agricultural commodities, but with
no freezing interest on loans and financing for planting, harvesting and
mechanization, which cause a great financial mismatch, and disruption of the
economic base of this market.
At this time, I was the financial director of a
tractor and harvester company in southern Brazil, and we felt this impact head
on, without warning, investing in expanding production capacity. It really was
an odd experience in my career.
Imagine being idle for about 160 days, with no
sales and no production; leveraged in the financial market, strong delay in
accounts receivable, three thousand employees on the payroll and negative R$
180 million (almost US$ 120 million) in cash. My luck, at this moment, was that
I had one of the best teams I have ever had in my entire professional life,
composed of highly trained and committed professionals.
I believe that this experience was the closest
thing to what I imagine the day-to-day life of companies at this time of
pandemic.
When I talk about of "Survival Mode" I may
make the analogy with a boat sailing in the middle of a rough sea, with more
water entering than the pump has the capacity to expel. In this situation decisions
must be quick and oriented to maintain the buoyancy of the vessel for as long
as possible.
Well, let's get to it, what I am going to share with
you are some actions that helped me a lot in 1994, and perhaps it can help your
corporations at the present time.
Are they:
1. Create a crisis management committee, composed
in a multifunctional way by the board and specialized managers,
2. Unlike 1994, an eminently economic event, this
is an event related to health, so it is important to take actions to preserve
the health of employees, especially when there are employees in the risk group.
Some will work remotely in the home-office, and others in in the office, but in
a controlled way.
3. Fast and objective communication is essential,
so I suggest creating a daily meeting to discuss the actions that should be
taken to protect the cash. As some fronts are open for the execution of
specific actions that must be carried out immediately, such as rational cash
advance, extension of accounts payable and banking operations, monitoring the
performance of future cash and others.
4. Identifying the essential processes to maintain
the operation. It is important in order to decide which process or task can be
put on stand-by with low business impact. For projects under implementation,
some will need to continue, but others should be put on stand-by. If the
organization has specialists in internal controls or internal auditors, they
are the appropriate professionals to carry out this survey.
5. Identify the existing possibilities for sales
continuity, even in smaller volumes, and make it in line with the logistics
process.
6. All this information will help the committee to
know in advance what can be shut down, without having a strong impact on the
continuity of the organization. The objective is to provide data for decision that
can be taken to maintain the organization's survival.
7. In some sectors, the workforce has a large
weight in the organization's cash flow, and a quick study should be done to
create a phased layoff plan to face the cash shortage. In 1994, we decided to
reduce wages at all levels, where higher levels had a higher percentage of
reduction than lower levels. This plan was approved in a vote by all employees,
without support from the works union, which was contrary to this measure.
The more the company manages to prolong its life,
the greater will be the opportunity to have a clearer vision of this post-pandemic
new world, which will help managers to take more assertive actions in the
definition of a structure, aligned to the needs of this new market.
All efforts must be in the direction of taking the
organization to the other side of the storm, with the least possible damage and
loss.
In the case I reported above, we managed to take
the company up until the moment it was sold to the company that owns the brand,
and today this company remains one of the most prominent worldwide companies in
the sector.
Unlike other crisis, the retraction will be
worldwide, and it will impact all consumer markets, which makes this crisis, at
least "special".
Today we are seeing a retraction in supply, but
sooner we will also see a retraction in demand, a consequence of the closing of
small and medium companies, and also due to massive labor layoff.
The estimated global recession in 2020 is 2.1%,
however, it is still unknown how far it can go.
In a risk management process, we must work with at
least three scenarios, the worst, the best and the balanced. In crisis
management, work with the worst to make decisions and actions, as you may have
only one chance to act.
I hope, the professionals and corporations may learn
the value to have an effective corporate governance in place, with risk management
and internal controls in the culture and management awareness.
At the end,
Be happy!