Covid-19 is Giving Companies a Crash Course in the School of Hard Knocks
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It may be difficult to appreciate while the coronavirus pandemic still rages, but companies will be more resilient when they come out of the crisis than when they entered it.
This is one of the key lessons to emerge from the extensive research I carried out for my new book The New (Ab)Normal: Reshaping Business and Supply Chain Strategy Beyond Covid-19. The book details the mayhem unleashed by the pandemic and the impact on companies, especially their supply chains. Countless enterprises were hit and some – notably in the hospitality business – were decimated, but many persevered and will prosper. I also look at the lessons learned and the future implications for businesses.
Forced to find new paths
One of the most inspiring pandemic-related themes in the book is how companies pivoted to save their businesses when the Covid-19 virus struck.
J.W. Lopes is a small New England fresh produce distributor serving a variety of clients including restaurant chefs, institutional directors, and neighborhood grocers. At the end of January 2020, the business was in growth mode, having just built a processing center for pre-cut produce. Then the pandemic pushed the business off a cliff. As people stayed at home in compliance with stay-at-home mandates, 75 percent of the company’s customers closed down, and those that remained ordered less product. In response, Lopes deployed its logistics network – it operates some 20 trucks – to sell directly to consumers. The enterprise added fish to its product mix, sourced from more local suppliers, and invested in technology such as routing software. When the pandemic finally subsides, the food company is “going to build both businesses, work hard, and see where it takes us,” said owner Jeff Kotzen in an interview for the book.
The pandemic has forced companies of all shapes and sizes to think out of the box. In doing so, many have reaped unexpected rewards.
“We put our heads together over one weekend and looked at what equipment we have, what kind of skills we have, what kind of raw material supply domestically we have,” said Dave Wheeler, COO of sports apparel manufacturer New Balance. It designed a mask unique to New Balance that incorporates a no-sew fabric the manufacturer uses to produce its athletic shoes. Without much fanfare, on March 30, 2020, the company tweeted, “Made shoes yesterday. Making masks today,” along with a photo of a sturdy-looking face mask with elastic curly-shoelace straps. The product was an immediate success and earned the company a significant reputational return – the ad for the mask became the biggest social media hit in the manufacturer’s history, said Wheeler.
The power of positivity
Some companies are making the most of Covid-19’s disruptive influence by leaning into the crisis.
Texas Instruments learned from the 2008 financial meltdown to not overreact to bullwhip gyrations created by disruptions. During the company’s Q1 2020 earnings call, CEO Richard K. Templeton recalled how, in 2008, “Our customers overcorrected for the downside, and we then spent one-and-a-half years chasing backup to support demand.” In the Covid-19 pandemic, the company is ensuring “that we have the highest degree of optionality so that we can deal successfully with any outcome,” Templeton said. The company has reported that it has met unexpected demand caused by a surge in personal electronic sales associated with the work-from-home trend.
For consumer goods company Procter & Gamble, a critical lesson from the crisis is that the dramatic shift to e-commerce in China and the United States “is a great set up for the future,” said the company’s CFO, Jon Moeller. P&G makes many of the cleaning and personal care products sought by consumers and faces competition from other branded and generic suppliers. By staying alert and offering superior products, “there’s nothing I see in the ecosystem as it’s either evolving or being revolutionized that we can’t take advantage of,” Moeller said.
Chipotle is similarly bullish, even though it competes in the restaurant business decimated by the pandemic. Debt-free and flush with cash, Chipotle is expanding, building new restaurants and remodeling old ones to improve service for digital orders. The chain has less competition from new building sites and is planning to take over other companies shuttered retail locations once the immediate coronavirus crisis has passed.
The shape of things to come
The companies that adopted a “making lemonade out of lemons” attitude are, to a great extent, emulating the tenacity of businesses in many developing countries, where unstable competitive environments represent the norm. Companies in countries such as Argentina face rampant corruption, seemingly arbitrary regulations implemented without warning, runaway inflation, and financial crises. Another hurdle is underdeveloped business credit infrastructures.
Yet entrepreneurs in these countries start and build companies. In addition to being inured to instability, they are always preparing for crises of all kinds. It is standard practice to have a resilient psych and build flexibility into business models.
Their counterparts in Europe or North America would not attempt such a feat – unless calamitous events forced their hands. As I describe in The New (Ab)Normal, such adversity has arrived in the shape of the coronavirus.
Although no business wants to prolong or repeat the pandemic’s trauma, its survivors have adapted to the crisis and are in a much better position to push through future calamities.
If you enjoyed this article, please take a look at Professor Yossi Sheffi’s latest book, The New (Ab)nornmal.