How is COVID-19 disrupting organizations worldwide?
Organizations are facing multiple challenges: from the health and well-being of employees to disruption in the supply chain and from working capital shortages to complete closure of operations. Reports from across the world indicate that the following are emerging as areas of concern:
Health and safety:
Given concerns about the safety of customers and employees, theme parks, movie theatres and other public entertainment venues have suspended operations across Asia and Europe. Similarly, several companies have closed offices and factories due to regulatory lock-downs.
Aviation, retail, health, travel and other industries with front-line consumer interactions are already reporting higher than usual employee absenteeism due to panic and fear of infections. Many companies have enforced travel restrictions which are adversely impacting business operations. Even as some companies are allowing employees to work remotely, organizational effectiveness and productivity are being compromised.
While demand for arts and entertainment, hospitality, travel and transportation has been substantially impacted, luxury goods, consumer goods, retail, energy and manufacturing organizations are also reporting a drop in demand, and therefore revising their forecasts. The International Air Transport Association has warned that falling passenger demand could cost the industry over USD 29 billion in lost revenues this year. Channel-preferences are also getting impacted. For instance, consumers oriented towards traditional channels are opting for online banking and e-retail, requiring companies to make immediate adjustments and extend transition support.
In order to optimize cost, organisations have over the years built lean and concentrated supply chains, with limited flexibility. Several companies run on just-in-time inventory with high reliance on a few tier-1 vendors. Several such companies are facing stock-outs due to the closure of operations by suppliers, lack of identified alternate suppliers and closure of shipping routes. Organizations and service providers dependent on critical off-shore presence and third-parties are actively seeking alternate modes of working or new supply locations. One of the largest global manufacturers in Asia is idling its plants because of the lack of parts.
As a result of disruption in supplies, services and employee-absenteeism, several companies are staring at defaults on obligations. Insurance companies are reporting a significant jump in business interruption and event cancellation claims. A trade promotion organization in Asia has issued over 1,500 force majeure certificates as of February 2020, to shield companies from over USD 15 billion of legal damages.
Increased shipment time, falling production capabilities, deferral of purchases by customers combined with delayed payments are putting tremendous stress on the short-term capital requirements for companies globally. For instance, a European chemicals company has a high-value consignment on a ship quarantined in Asia with no clear timelines for its release. The company reported that the delay could materially impact its ability to manage financial commitments.
Security monitoring centres in COVID-19 affected areas have been shut down, rendering several companies exposed. Many such companies have been hit by cyberattacks, compromising sensitive data. Further, cybercriminals masquerading as WHO representatives are sending fake COVID-19 email updates to bait users and steal confidential information.
In times of crisis, stakeholders look up to organizations to put people ahead of profits. Indeed, a number of non-life insurance companies operating in COVID-19 affected areas have enhanced benefits for those diagnosed with the virus. Several organizations are working with communities and extending support to those who need it the most. Such actions build trust, enhance reputation and create long-term societal value.