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  • Agile Strategy – Rethinking the future of your business amidst disruptions

Agile Strategy – Rethinking the future of your business amidst disruptions

03 November 2020

"The greatest danger in times of turbulence isn't the turbulence, it is to act with yesterday's logic". Peter Druke. 


The whole world has been caught in a whirlwind of the change mainly triggered by the COVID – 19 pandemic and it is getting more complex with the second wave in some locations. The business environment has been characterized by volatility, uncertainty, complexity, and ambiguity (VUCA). Every country and sector has been impacted differently and therefore, the reactions/responses will be different. It is important to note that COVID – 19 was just a trigger which fast-tracked the change/disruption that was inevitably going to occur in future. COVID – 19 will certainly not be the last pandemic – more changes are coming, and businesses need to predict the changes and pro-actively prepare to mitigate them. 

Business leaders that had anticipated some of the disruptions arising from COVID – 19 have adapted quickly than those that had not anticipated the disruptions and the "new normal". A big picture analysis of the prevailing business environment - the speed of change and seeing what is likely "ahead of the curve" is required. Economies with less fiscal space will most likely prioritize health and social spending. Ultimately, the tone from the government and related interventions will provide insight to business leaders on how best they can strategise for the future and exploit future opportunities. 

Economic changes

The latest IMF's World Economic Outlook, October 2020, predicts the global economy to contract by 4.4% which is less severe than the initial projection before June. This is mainly due to the fact that economic activity improved sooner particularly in developed countries pointing to a stronger recovery in the last quarter than the earlier gloomy outlook predicted. After the rebound in 2021, global growth is expected to gradually slow to about 3.5 per cent into the medium term. (IMF's World Economic Outlook, October 2020)

We are only left with 2 months to complete the year 2020 and last half of 2020 is presenting the world with the picture of what the "new normal" will look like – at least in the short term. The response to the second wave has changed from the initial response as countries are now adopting targeted lockdowns to contain hotspots. Given the fact that COVID – 19 impact on sectors has been different, companies are adopting different approaches to re-align their strategies with the "new normal". For some companies, the pandemic has presented huge opportunities for growth and for others it may be a matter of survival in the short term. 

Most countries have witnessed increased debt as governments borrow to shore up the recovery of their economies through economic stimulus packages to support companies and the most vulnerable. Most governments of the largest economies have significantly increased spending and ultimately increasing budget deficits.

The long-term impact of the COVID – 19 pandemic to emerging and oil-dependent economies such as the GCC countries is yet to be assessed. However, the forecast points to a sharp decline in economic activities on the backdrop of depressed spending by consumers.  

Consumption and services output have dropped markedly

The economic downturn triggered by the COVID-19 pandemic has resulted in a different kind of recession – different from past recessions. Previous recessions significantly affected the manufacturing sectors than service-oriented sectors. However, in the current crisis, service sectors reliant on face-to-face interactions—particularly wholesale and retail trade, hospitality, and arts and entertainment—have seen larger contractions than manufacturing. In the absence of the vaccine, social distance and restrictions on the face to face interactions will continue and these sectors may face a particularly difficult path to recovery (IMF World Economic Outlook October 2020 Update).

According to the IMF World Economic Outlook October 2020 Update, COVID – 19 has brought a shock aggregate demand shock affecting various sectors globally. Consumers have been digging deeper into their savings to maintain their lifestyle. However, due to the lockdowns consumption levels have gone down and new consumption patterns have emerged which will require suppliers to respond accordingly to meet new consumer tastes and lifestyles. For example, online shopping has significantly increased, and these may in future reduce human traffic in shopping malls. Companies have also, in turn, cut down on investments with a longer payback period due to the uncertain future earnings prospects.

Depressed mobility

Most countries have lifted the intense local and international travel restrictions previously enforced during the peak of the pandemic. However, even though economies are opening up, road and air traffic may not revert to the previous levels as consumers have in some cases realised other effective and efficient ways to achieve results without travelling. Voluntary avoidance of travel is still prevalent - people have generally limited travel to reduce exposure and psychological issues resulting from quarantines. Mobility data from cellphone tracking, for example, indicate depressed activity in retail, recreation, transit stations, and workplaces in most countries. For example, for the UAE, according to the COVID-19 Community Mobility October Report - mobility trends for different places have declined against baseline of pre – COVID – 19. Some of the declines as at 18 October 2020 are as follows: retail and recreation (20%), parks (32%), transit stations (36%), workplaces (20%). These trends are likely to continue for some time and this would mean companies affected by a decline in these activities will need to revisit their business models if they are to survive in the short term. 

A severe hit to the labour market

The steep decline in economic activity comes with a significant adverse impact on the labour market. As industries and companies close or slow down there is a corresponding reduction in demand for labour or salary cuts especially in sectors largely affected by the pandemic. The loss of employment and salary cuts ultimately results in depressed consumer spending. With the GCC depending to a greater extent on migrant labour, the loss of employment results in these migrant labours going back home. This ultimately leads to a reduction in consumer spending as a result of the dwindled customer base. Companies whose business models largely depend on the large volume of consumer spending by locals will feel the pinch. 

Commodity prices

The Institute of International Finance (IIF) has predicted that due to the plunge in oil prices, the six GCC states will experience their biggest economic challenge in history in 2020. Several countries in The Middle East have largely been dependent on oil and the volatility in oil prices will most likely adversely impact these economies. The volatility in prices is due to a combination of lower demand, increased supply due to lack of agreement between OPEC and Russia and fierce competition from US producers. The forecasted depressed oil prices will have a significant impact on the GCC economies and public spending on capital projects will be affected resulting in a potential decline of GDP. 

Hotel and leisure

The hotel and leisure industry has been hit hard by the pandemic due to travel and gathering restrictions. As restrictions are slowly being eased – the hotel industry is working hard to assure health safety to hotel occupants. The Colliers MENA Hotel Forecasts July 2020 report forecast that recovery will start in Quarter 4 with a faster recovery in the UAE (due to EXPO 2021) and KSA (due to ongoing tourism initiatives) markets. The UAE is forecasted to finish 2020 with an average of 49.5% occupancy and KSA with 38.6% occupancy.

General uncertainties

There are several uncertainties on several elements which will affect the global and individual countries economic recovery. Some of the elements according to the June IMF Report are as follows:

  • The length of the pandemic and required lockdowns 
  • Voluntary social distancing, which will affect spending – this may be due to increased risk and fear of "second waves"
  • Displaced workers' ability to secure employment, possibly reallocating displaced workers to expanding sectors less affected by the pandemic.
  • The impact of changes to strengthen workplace safety—such as staggered work shifts, enhanced hygiene and cleaning between shifts, new workplace practices relating to the proximity of personnel on production lines—which incur business costs 
  • Global supply chain reconfigurations that affect productivity as companies try to enhance their resilience to supply disruptions  

Future outlook – scenario analysis

The IMF predicts that there will potentially be any of the two scenarios (downside and upside) below.

Worst case scenario - A second wave/outbreak in 2021 with accompanied reduced GDP reduction of 4.9% with longer adverse impact on economic production resulting in delayed economic recovery. These scenarios can be cascaded to country/ region level as the elimination of the pandemic if dependent on country-specific measures.

Best case scenario - This will happen where containment measures like testing, tracing and isolation are effective and fiscal support to struggling businesses is maintained including support to social safety nets to citizens. Under this scenario, global output is expected to be 3% higher than the baseline in 2021.

Governments, boards, and senior management of companies will need to undertake scenario planning considering the worst- and best-case scenarios and the related mitigations. This is one way of looking ahead of the curve to predict potential disruptions to the business and rethink the business model.

What leaders should be doing – Rethink

It is not easy to predict the future, but management can also not fold their hands in despair and wait for events to unfold and react. Here are a few things business leaders can do to prepare for the worst-case scenario – pandemic continues into 2021:

Pause and reflect - Curves have been flattened and economies reopened in some countries, although with varying degrees of success. This may be the time to pause and reflect not only at the macro-level (government tone), but also more specifically — within sectors, industries, and segments — and to reallocate resources appropriately. At government level resources may need to be re-allocated from investments with a longer payback period to sectors with high chances of recovery in the short term. Similarly, for companies, resources may need to be reallocated to key divisions that will likely provide a good return on investment in the short to medium term. This also includes resources to ensure employee safety and health.

Build resilience - Intentionally prepare for different future outcomes through scenario analysis and developing strategic options that are resilient to any adverse future outcomes. This also includes building resilient employees who will support a resilient strategy. The ability to predict and see what is "lurking" ahead of the curve may be the difference between survival and death. In the past, companies that did not exercise this foresight are either struggling or have collapsed as they failed to predict future changes that would affect the demand for their products and services. 

Seize the opportunity – the pandemic has fast-tracked some of the digital transformations that were soon to come. Business leaders that will not invest in innovation and digital transformation might find themselves irrelevant much sooner than initially predicted. Several companies have realised that they can still achieve the same production or even more with a reduced headcount and office or warehouse space. A lot of unnecessary waste has been identified and eliminated. This may not be the time to cut the budget on digital transformation.

In a world where every process is now expected to be agile, strategic planning cannot be left behind.

Gone are the days of a static annual or long-term strategy which is approved by the board and stored in drawers. The different adverse impacts raised in this article require and an agile strategy and agile employees, management and board who are able to predict and proactively prepare for the turbulence ahead. In today's rapidly changing environments, agility in strategic planning and execution has now become mandatory. A business will need to develop agile business practices which are focused and flexible and have short cycles that are designed to keep the key aspects of the business going even during a crisis.

If you are interested to know more on this topic – Rethinking the future of your business amidst disruptions, BDO is hosting a webinar on 29 November 2020 and Time 5.30PM – 6.30 PM (UAE). A link to the webinar registration page can be found here.