History of sudden upheavals like the epidemic we are facing today has shown us that even in severe economic downturns, some companies are gaining an advantage. Second, crisis produces plenty of short term changes and also a few long-lasting changes.
We discuss here how companies can reassess growth opportunities and reconfigure their business models to take advantage of these opportunities and reallocate capital.
Reassess growth opportunities
The epidemic has forced people to unlearn old habits and learn some new habits. the extended lockdown has forced people to significantly change habits that have been the foundation of demand and supply in the past.
Companies must develop a good understanding of changing habits. This will require a new process to identify and assess the shifts before it becomes obvious to everyone. The first step is to map the effects of trends to identify specific products or service that will grow in these circumstances. One should sensitise themselves to new habits and their indirect effects, to spot the signals and opportunities to shape the markets.
The next step is to categorise the demand shifts in a 2X2 matrix based on whether they are short term or long term and if they were existing before the crisis or have emerged since then. The four quadrants distinguish among boosts(short term existing trends), displacements (short terms new trends), catalysts (long term existing trends) and innovations (long term new trends)
As an example, shopping online, a shift away from a retail store, can be considered as a catalyst. the epidemic has only accelerated an existing trend rather than created a new one. This shift is structural than temporary and in many categories customer will not see much benefit in switching back to retail shopping. So the retailers have to shape their strategies to the new reality.
This framework will help highlight the trends to follow and the trends to shape aggressively. Companies cannot pursue all the possibilities and should not try to do so. They should ask themselves which ones to pursue - temporary or permanent? An analysis of growth opportunities goes well beyond this categorisation. It is necessary to challenge oneself to what is happening by taking a fresh, careful look at the data. One should seek out the anomalies and surprises that the data throws up.
Take multiple perspectives
Check within your industry who is doing well? What markets are they focused on? What products or services are they launching? Similarly, examine your customers. Who are exhibiting new behaviours? Who has stayed loyal? What are they paying attention to? A similar analysis can be made for countries. Within the company, ask which workplace innovations are taking place in leading firms? What new needs are the employees responding to?
This analysis would help the company in understanding where the next opportunity lies, and take the next step to capture them.
Reconfigure your business model
The new business model will be shaped by demand and supply shifts in the industry. many manufacturing companies would be affected by the structural changs especially the supply chain disruption. Big markets may raise trade barriers and many companies may need to restore the critical components in the supply chain.
To figure out what the new business model requires, ask the basic question of how to create and deliver value, who will you collaborate with, who your customers will be?
Reallocate your capital.
During a crisis, cash flows are sure to be affected but this is the right time to take a few risks. Most successful companies invest more than their peers in new opportunities and devote more than 90% of their spending to segments with high growth and returns. the crisis offers an opportunity to carve out new competitive positions.
Evaluate your products along two dimensions - estimated value tomorrow and the amount of money required to keep them live today. In a crisis, large corporations with strong cash flows will be well placed to take advantage of the shifts in demand. rather than hoard cash, companies should engage in aggressive capital investment. They should frequently update their portfolios, reallocating funds as required making sure they are balanced over time and fit the long term priorities.
In times of crisis, it is easy for companies to revert to their old habits, but these are the times when new approaches are valuable. As companies position themselves for the new normal, they cannot be constrained by traditional models and instead they must challenge the existing models, revamp and invest dynamically to not only survive but also strive in post-epidemic world.
Adapt your business to the new reality
by Michael G. Jacobides and Martin Reeves
HBR 2020/09-10
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