Picking up from where I left off in Part 1, this piece is about the impact on Business. Though I initially thought to make this one about People, I reasoned that adversity affecting Businesses and the Economy in general, is the very source for the unprecedented angst, anxiety and uncertainity in the minds of people and therefore reversed the order of release (watch out for the People issues in Part 3 in this series).
That Economies are in dire straits is now a well established fact and its also clear that initial forecasts fell short of realities now emerging. India seems to be leading the charge, what with a 23% drop in GDP, Britain and France following closely and other leading countries in the double digits.
Let’s look at the recently published numbers and compare them to initial forecasts from back in March’20 or thereabouts. The World Bank forecast a contraction of 5.2 % for 2020, predicting a shrinking by 7% of advanced economies and emerging and developing economies shrinking by 2.5%. The latest Q2 numbers in the infographic below provide strong indication that the period end numbers will be far worse than the initial forecasts. There is some debate and discussion on how the published numbers should be interpreted, but whichever way one chooses to interpret, the situation is far worse than was earlier guaged.
Economies are all about the Green or whatever colour paper or plastic your currency notes are printed on. Printed? Think surface contamination! Now think, contactless, paperless. Think DIGITAL! A completely different paradigm. Interesting though, as Chris Skinner, an authority on FinTech and Digital opines, Digital is just 1 – 2% done and these estimates are Pre-Covid. Meaning what exactly? Simply this, that the need to accelerate digital has gone up by a factor of 10? 100?
Looking at the big names who have gone almost bust, we see that those having a strong digital presense are the ones who are weathering the storm (not the teacup variety) much better that others. Despite that this thrust for Digital is no longer something that can be relegated to a future date, decision making has slowed, budgets have been slashed, cashflows seem not to permit investments despite the clear need. And then there is the fact that Digital encompasses a relook and rethink from the ground up and that presents a challenge when you can’t get all in the same room at once.
And then we have China, putting out numbers that suggest that it is unaffected? Go figure! Whats more? There is a whistleblower virologist who claims that this virus is man made, that it was already spreading was a given and did naught to act in time and supressed the facts. If indeed this is the reality isn’t this nothing short of mass genocide and akin to war crimes?
Of course her claims are being disputed by all concerned parties (naturally), but Dr. Li-Meng Yan promised to release incontrovertial evidence. Let’s see how that pans out, but let’s keep in mind that China still posts numbers that are contrarian to the global decline in GDP! So what seems to have insulated China? Are the numbers even real?
It’s been one hairy ride thus far and there’s no saying how much longer this lasts. Think mutation, think community spread, think “we’re all going to get it” kinda magnitude or so they say. But hopefully we will all have developed immunity by the time it hits those who have not yet been affected.
In the hostile takeover business there is this thing called “The Poison Pill Defence”, where the target company usually comes up with a plan to thwart the hostile takeover. Whats happening now is very similar, except this isn’t a corporate game, its become a very matter of survival! So when the magnitude of this “thing” finally manifested, au naturalle, everyone cut back = Poison Pill Defence. Cut back spending on just about on every possible bogey on the radar.
What do the people upstairs do when faced with looming reversals? Business ain’t growing so increasing renevues is not a viable option, but cutting cost is. Typically the cost centre’s that go under the lamp are People Costs, Travel Costs, Real Estate, Benefits, Incentives, Variable Comp and carrying cost of inventories. Three main approaches? Either you look at the pecking order and start high (I’ve been at the receiving end of this in a past life and barely survived), or then you look at the bottom of the pyramid and lay off enmasse or then you do a bit of both. Travel costs went out the window anyway and did save up oodles of cash. Business continuity was maintained on the backbone of digital communication channels (look out for my article covering this all important lifeline).
Laying people off, salary freezes, salary deferments, pulling out of projects and such measures were frowned upon by many industry stalwarts (all well intended I’m sure) on every channel, social, professional, the tube, print and online. I however have a nagging question now and indeed had this nagging question then.
Most of the comments, opinions and the preaching from the pulpit kinda advise not to lay off etc came from as I said, industry stalwarts and perhaps they have the luxury to say these things. But what about smaller companies? Ones that do not have deep pockets, who have not had the opportunity to shore up cash and build contingency reserves? What about startups? If I’m not mistaken, startups don’t have much more than 3-6 months of a runway (depending on what stage they are in) AND now by the by there is this business downturn…. So many startups are in the quick app space, relying on downloads and mass market usage for their survival (and the potential of obscene valuations if the idea sells to the deep pockets). Don’t forget the statistic that 80% or so of startups fail and now this! Startups that were frugal, kept their cost base and ops costs minimalist will have longer runways and have so much more of a chance to weather this, but even they will look to be even more minimalist at times like this. Poison Pill Defence again.
Governments, Organizations, both big and small, as well as solely owned businesses are the ones generating employment. So isn’t it better to do the cost containment measures and ensure survival, albeit with a sustainable resource base, as opposed to letting the whole thing go Kaput? I mean how many companies or for that matter governments have pockets that deep, that they carry on as if nothing happened? Organizations can’t possibly raise funds nor increase revenue. Governments can’t rely on increasing tax revenue nor increase the tax rate. Banks can lend, as some banks are doing aggressively, but what about when its time to collect? What about the NPAs and delinquincy rates as incomes dwindle?
See the graphic from my previous post, where I’ve made an attempt to depict the domino effect, so I won’t go on about it here…
Will not “the greater common good” approach rule the roost? It’s war as I said in my earlier article, nary a bullet fired. Well maybe it was engineered as this whistleblower seems to suggest and if that’s the case then that is something completely different.
Chanakya Pandit (Circa 321–297 BCE), a renowned Brahmin (not a popular thing in India these days, to say you’re a Brahmin), thinker, philosopher, political genius (Author of Chanakya Niti), guru and kingmaker (seems I’m from his lineage – no jokes) asked Chandragupta Maurya (the King he made), What is the FIRST DUTY of a King? Everyone I ask, almost everyone, says things like, take care of his subjects, protect his subjects, create wealth, be just and so on. Hell no! That’s NOT it at all. The FIRST and FOREMOST duty of a King is to guard his throne. No throne, no subjects and no subjects means the King can’t do squat!
Similarly, Organisations need to survive, ie: they need to take care of themselves first, so therefore the cutbacks, layoffs and so on. In war, innocents fall by the wayside and we are in a war, innit? So either live to fight another day or then go out with a bang! There it is! Take your pick.
We want to sit safely in our comfortable homes, watching Netflix and Prime, ordering takeaway and yet we are sending Doctors, healthworkers and others who keep the lights on for us, our networks up and running, out into battle DAY IN AND DAY OUT? We want our farmers out in the fields sowing and harvesting while we don’t want to step out.
I have this really cose friend, a Doctor. She doesn’t have the CHOICE to stay safe. She’s been commandeered! If she wants to stay safe she looses her licence to practice. So you see the dilemma? Throw away years of hard work, experience, knowledge and a lot of cash invested in med school fees, or show up to save others! Simple choice, its BINARY. She’s no less than a hero or heroine, she’s an Avenger, no less, fighting Thanos. Doctors are being given targets I hear and in Mysore a Doctor committed suicide, alledgedly due to this.
Some of us? All we want is our Veggies and then there are others who still want their luxuries. We want to order online (Digital is great is it not?) from the saftey of our homes. We want people to show up for work so we can be serviced with no inconvenience. There is a real person at the end of the last mile. We need those people to save lives and treat patients, we need those people to produce our luxuries and conveniences, we need those people to fuel the food industry and we need people to deliver stuff to us safely. We can’t teleport stuff from the shop floor or for that matter the farm, to our homes and neither will our groceries and staples materialize before us, at least not yet!
- Lockdowns, both local and international as the numbers are now tellin’ us, created the first wave and entire industries Travel and Tourism, the Restaurant Business, the Airline Industry, were all hit.
- The next wave took out the supply chain, supplying to and feeding off those industries.
- The third wave set in when cash became scarce and the cascading impact of the cutbacks came into our homes compelling many to curb spending and only take care of essentials. That took out the fashion and glamour and so many such industries.
- The next BIG one is Real Estate, so when we figured that WFH and Remote Working is something that can be made to outlast temporary BCP Ops, Real Estate suddenly became a pariah. There you have it, another one bites the dust!
Not all businesses can be run remotely, nor can all services be rendered remotely, with some needing that physical contact, yet physical contact is taboo. This is further amplified when we’re taking about countries who still have a largely agrarian economic model and support structure purely based on cash for daily livelyhoods.
Of course the long term sustainability of 100% remote working, even if theoretically within the realm of possibility, remains to be seen, not just in terms of practicality, support and operational models, but also in terms of impact on people, families relationships. That’s the hidden impact not often forming part of the math (coming up in the next part).
The Global Economy cannot just shut down and even if COVID does not dissapate as quickly as we’d like or just disappear like a bad dream, businesses that did not die completely will pick thmselves up, morph, adapt and start working under a new set of rules, a new set of realities, albeit fraught with risks. Money needs to start flowing again, people need to work to earn and survive. Mouths need feeding, students need to continue learning.
As I said in Part 1, Business Models are rapidly polarizing depending how big the ship is….sooo much harder to get a BIG ship to turn around. Economic Models are changing, the way we do business is changing and in cases have already changed a while ago. The fundamentals may not have changed a lot but, everything around the fundamentals has changed and perhaps in some cases the fundamentals too! The old rules need a serious dose of refresh. Read more about this in an interesting article on Management Theories, here is the link: https://thefinanser.com/2020/09/does-management-theory-work-anymore.html/
Therefore we’re seeing lockdowns being lifted, curbs on travel are being relaxed and this is really the worst possible Catch 22. Damned if you do – Damned if you don’t! Poison Pill Defence once again. The numbers don’t lie. Harsh realities need to be faced, risks will need to be taken and we will all need to move on, stop living in fear, remain cautious and take every possible precaution, BUT STOP living in fear.