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Living in the New Reality: The Reinvention Ultimatum

July 29, 2020
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“It is not the strongest of the species that survives, nor the most intelligent. It is the one that is most adaptable to change.”– Charles Darwin

The greatest competitive advantage for when organizations emerge from “the Great Lockdown” will be agility. The difference between COVID-19 and the past is that this is both a healthcare and an economic challenge. And it being a global occurrence has merely accelerated the need for innovation as a springboard for change.

Fiona Grandi, National Managing Partner, Innovation & Enterprise Solutions, KPMG LLP

Business leaders need to lean into this as opportunity to surge ahead of competitors. But doing that means challenging existing frameworks and ways of thinking about transformation. For one, while organizations typically evaluate transformational endeavors through the lens of the enterprise, leaders should look at the opportunities coming out of COVID-19 not only through the lens of business, operating and financial models, but as individuals who are also being impacted by disruptions taking place in their own daily lives.

A little background on why COVID-19 has accelerated the need for innovation:

  • What happened?  The old adage, Necessity is the mother of Invention,” has never rung more true. Even organizations with the broadest market share and the deepest balance sheets did not anticipate this pandemic. In a 2015 TED Talk, Bill Gates predicted this outbreak, and while thousands listened and nodded along, 99 percent of businesses did not run the black swan analysis, and thus were unprepared. Cleaning suppliers did not anticipate the months-long surge purchasing of their antibacterial wipes. Similarly, major hotel chains did not anticipate a complete falloff in spring break reservations.
  • Why is it a problem? You didn’t know you would be here – in this pandemic, with these economic uncertainties – but here you are. What you do next will define your business and your brand. The challenge we see is that companies are either frozen, still reacting to the impact of COVID-19, or are focused in pivoting just one part of their business. The problem with a single pivot is the same as turbocharging one engine on a ship – you will course correct hard in one direction, but what you need most is all engines going full speed in a new direction.
  • How do we begin to fix it? This article provides a simple framework to reinvent your business strategy across five primary pillars. A cautionary disclaimer: This is only a framework. The hard work is in the ability by your business leaders to reinvent. The assumption is that for each pillar, leaders can and should use design-thinking methods and apply an entrepreneurial mindset that embraces empathy, ideation, and prototyping.

Pillars of the Reinvention Ultimatum

Most organizations evaluate gaps and opportunities across the front, middle, and back office. The reinvention ultimatum is for business leaders looking to capitalize on an opportunity for enterprise-wide transformation and expand on that across five key areas: to employees, customers, financial models, supply chain and ecosystems, and unknown unknowns. Below, we have outlined the key considerations and questions for leaders to ask within each pillar, to inform their investments in innovation.

 

1. Employees

As reported in 2020, five million employees (making up 3.6 percent of the entire US workforce) work from home for at least half the time.1 That percentage is expected to be north of 85 percent in a post-COVID era. This pandemic has shown that a virtual company is a resilient company. More technology companies and consumer goods companies are forgoing formal headquarters or going fully remote. And employees are on the move: cities from New York to San Francisco are watching for an urban to suburban shift. According to a recent Harris Poll, more than 40 percent of city residents recently looked at a real estate site for a house or apartment to rent or buy, more than twice those in rural areas, and nearly double of those in the suburbs. The hard turn needed to enable the work from home environment was not a heavy lift for these forward-thinking organizations. Any company that can shift quickly – on the where and the how employees connect – will have the advantage.

Questions to Ask Your Leadership Team

☐ What will your employee needs be in the new reality?

☐ Do you have the right platforms/technology in place to be remote or virtual as the standard? Can you match personnel supply and demand?

☐ Do you have the tools and technologies in place to upskill your workforce to support the changing dynamics of your business?

2. Customers

In our New Reality, there’s going to be a lack of confidence in social engagement. 70 percent of GDP spend2 comes from consumer spend, with about 18 percent of all retail sales online.3 Some wholesale clubs and discount stores moved significant sales efforts online in the last few years, insulating them against drops in consumption. Now is the time to think creatively about how you’re engaging with your customers. Look at this as an opportunity to reach customers in new ways, through new digital channels and with new consumption needs. Consider pivoting your products and services into “essential need” categories. Other companies emerged while economies stumbled. We see surging in unexpected products – from hair color to lawnmowers – and we no longer want people doing things for us that we can do ourselves, safely at home. Further, map your customers and sales across geographies. If your top markets are synonymous with digital micro-economies, you may be better off than you thought!

Questions to Ask Your Leadership Team

☐ Are you evaluating new digital channels to address new consumption needs?

☐ Are you looking at the micro- and the macro-economic data?

☐ How will you gain customer trust in an environment that goes back and forth between virtual and physical?

☐ Are your current tools sufficient to support your future state sales strategy? Has your customer’s journey changed?

3. Financial Models

We’re already seeing a shift in the way companies are valued. In the M&A market, projection and duration of loss and the nature of recovery is dramatically affecting valuations. Your access to capital may not have been as important as it is in the post-pandemic marketplace. But financial resiliency takes many forms: cash conservation, canceled capital expenditures, securing debt lines, protecting working capital, and liquidity measures. To succeed, organizations will need to get a handle on the new reality market conditions. That involves a multitude of variables, including the duration of the scenario, as well as the recovery curve for your business and your clients.

Questions to Ask Your Leadership Team

☐ Are your models prepared for a new reality that’s both virtual and physical, and where shelter in place stops and starts?

☐ Does your scenario analysis account for unexpected shifts in your supply chain and/or geographical focus?

☐ Have your real estate needs changed?

☐ Can you accelerate automation or rethink back office functionality?

4. Supply Chain and Ecosystems

Now is the time to take stock of your domestic and international supplier ecosystem, as well as your own. In the last few months, we have witnessed massive manufacturing disruption on top of major falloff in the demand for commodities and energy. Consider how reliant you are, particularly in geographies like China, Korea, and more. Per the National Association of Business Economists, 85 percent of economists think supply chain will re-shore. Also, it is not just about what you need now, but establishing relationships for needs that you have not yet defined: academia, startups, think tanks, and other unlikely visionaries.

Questions to Ask Your Leadership Team

☐ Are your suppliers prepared for the next pandemic?

☐ Have you considered how reliant you are on offshore suppliers?

☐ Is your demand and supply well-matched across varying scenarios?

☐ Do your suppliers have debt which equates to counterparty risk to you?

☐ Have you evaluated which of your suppliers could be surging or stalling due to their own ability to transform?

☐ How specialized are your ecosystem partners?

5. Unknown Unknowns

If this is going to be different for everybody, you may or may not be as at risk: from climate change to politics, regulation, inflation, and social impact. With unemployment spiking to new levels and continued stock market volatility in the US, businesses are impacted in new ways. More than ever, businesses need to consider new scenarios to anticipate the unknowns.

Questions to Ask Your Leadership Team

☐ Have you thought about the previously impossible-to-conceive-of scenarios that are becoming more likely?

☐ Are your ecosystem partners thinking about that?

☐ Are you plugging external factors into your scenario plans — geopolitical, regulatory, and environmental events, as formerly “100-plus year events” are becoming regular?

A Springboard for Change

While none of us anticipated the disruption caused by COVID-19, organizations that use innovation as the springboard for change, not just in one area of the business, or across front-, middle-, and back-office areas, but across the entire value chain, will be best positioned in the new reality. Now is the time to double down on innovation across all five of these areas. Those companies which see a fast recovery and a high degree of permanent change to their industry’s value chain understand a perhaps counterintuitive truth: Disruptive events like COVID-19 can provide the canvas to rewrite your corporate future.

 

Fiona Grandi is National Managing Partner for Innovation & Enterprise Solutions at KPMG LLP. InnoLead regularly publishes Thought Leadership pieces written by our sponsors

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Footnotes:

1 US Census and analysis of 2018 American Community Service (ACS) data.

2 Components of Real GDP (2019); Source: Bureau of Economic Analysis. “Concepts and Methods of the U.S. National Income and Product Accounts: Table 1.1.6. Real GDP.”

3 US Census.

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