7 minute read 6 Apr 2020
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Why transformation is essential to a COVID-19 recovery

7 minute read 6 Apr 2020
Related topics Digital Consulting COVID-19

Leading companies will emerge from the current crisis with the motivation to reboot and rebalance.

In the weeks since the COVID-19 crisis escalated, there has been one overwhelmingly consistent theme: most leaders now recognize they weren’t ready. They’ve known for some time that in an era of unprecedented change, complexity and speed are needed to transform.

For the past 10 years, but more so in the past two or three, companies have been under pressure to evolve their business models in response to new sets of behaviors and rapidly shifting dynamics and competitors. It’s what I describe as the emergence of the overwhelming digital condition.

Most boards and executive teams made a transformation agenda a focal point, but with varying degrees of urgency and widely ranging levels of commitment. The challenge they faced was twofold:

  1. A natural desire for one, two or more consecutive quarters of predictable earnings growth
  2. An overreliance on using the traditional sources of competitive advantage of scope, scale and efficiency to move their businesses forward.

This recent, and extreme shock to the system has left many flat-footed.

At EY, we believe now, more than at any other time, leaders need to examine their efforts to transform their companies through a new lens and a different set of value drivers:

  • Putting humans at the center of their purpose, strategy and everyday business operations to enhance the human experience
  • Deploying technology at the speed at which people expect it, the organization and its employees need it, and considering today’s reality, demand it
  • Innovating at scale through ecosystems of partnerships and alliances that puts their organizations at the forefront of disruption rather than becoming disrupted

Think of recovery in three non-sequential phases: recovery, readiness and renaissance

Some executives will say: “I need to focus on the crisis first. Then I can return my attention to transformation.” It’s understandable. Fear and uncertainty can turn a company’s full attention to the immediate task of recovering without considering a path to readiness for the future and renaissance as the economy recovers. Other leaders are splitting their effort between recovery and readiness. These leaders will be better prepared for a return to economic prosperity, and will better endure in the near to intermediate term.

Leaders who are splitting their effort between recovery and readiness will be better prepared for a return to economic prosperity, and will better endure in the near to intermediate term.

Yet, the stages of recovery needn’t be an either-or proposition. Our work suggests leaders will think of recovery in three parallel phases: recovery, readiness and renaissance. Because every company is different – and  because there is no certainty whether the global economy will experience a V-, U- or L-shaped recovery – there’s no one-size-fits-all approach to balancing these phases. Some may choose to place 50% of their effort on recovery, 30% on readiness and 20% on renaissance. Others may feel the need to put 75% of their time and resources into recovery, 20% into readiness and 5% into renaissance.

Although there may be uncertainty in how economies — and businesses — will recover, there is a good deal of certainty there will be newfound and seismic shifts in human behavior and values, market dynamics and competition. If companies thought the world was moving fast before the COVID-19 crisis, they need to be prepared for the warpspeed of change ahead.

In this time of crisis, a future-back approach is essential

Traditional theory would suggest companies look at where they are today, what they have in terms of business units, assets, products, markets served, customer segments and market share, and then find areas for incremental improvement. It’s natural to consider the current state and consider a sequential and linear path forward.

However, we have seen that in times of change, including in past economic downturns, companies that experience exponential growth in value often got there by taking a future-back approach. Leaders of these exponential value creators look ahead and say, “will my business still be relevant”? They then use their purpose to enable true elasticity in their exploration, and their vision to work future-back scenarios that make sure they are following a path that will keep them relevant today and 15 years from now. 

Leaders use their purpose to enable true elasticity in their exploration, and their vision to work future-back scenarios that make sure they are following a path that will keep them relevant today and 15 years from now.

In this time of crisis and with a future that seems more uncertain by the day, a future-back approach becomes vital in charting a course through recovery, readiness and renaissance. Yet, more than creating a vision of the future, this is about companies confronting their inherent inability to adapt so there is enough agility in their operating model.

In thinking about the future, no one truly confronted the probability of such a pandemic, even if common sense and science said it could happen. What this experience has taught us, or should teach us, is companies need to be ready for anything. Adaptability is the new norm. Future-back thinking gives companies the tools to build the muscle necessary to adapt to whatever the future may hold. It’s not about predicting the future; it’s about making the company fit enough and ready enough to manage the risks and seize the opportunities in any scenario.

Transformation needs to be viewed through the lens of three dynamic value drivers

If leaders take a future-back approach to their companies’ transformation journeys through this challenging time and view it through the lens of the three dynamic value drivers — humans at center, technology at speed and innovation at scale — here’s what they may see:

  • Humans at center. Companies that are the most human-centric and have the deepest engagement with both their customers and employees will propel though recovery, readiness and renaissance faster and stronger. In times of crisis, humans want to know they matter and they are being cared for. For customers, this means listening, understanding and adapting to shifting behaviors, values and needs. It means higher degrees of personalization, predictability and authenticity. For employees, it’s about the depth to which they feel cared for and that leadership is thinking about their health, wellbeing and productivity. The most connected customers and employees will always lead companies to the future, just as the most engaged customers and employees have been there in the past to propel companies through cycles of change.
  • Technology at speed. Large incumbent companies often have to manage against the constraints of multiple, complex, outdated legacy networks and systems. In response, they are taking a two-speed approach that focuses on the immediate needs of the day-to-day, while incrementally investing in new digital technologies to take them into the future. This crisis has highlighted for many organizations they were underestimating the speed of technology and underinvesting in the technologies and tools that will enable them to operate in a digital world. Companies need to transform so they can deploy technology at the speed at which their customers and employees need it rather than as fast as their legacy systems will allow. The faster companies can apply technology, the faster they can create an advantage.
  • Innovation at scale. There is no shortage of opportunities for innovation at scale during this crisis. Under a traditional model, companies move from ideation to minimum viable product to prototype to pilot and test to commercialization. Companies today simply don’t have time for that. Traditional manufacturers may want to pivot from making automotive parts to making ventilators, or from making vodka to making hand sanitizer. Sadly, they may have neither the capability nor the capacity to do it as quickly as the market needs. The startup economy, on the other hand, is finding ways to quickly pivot. It’s not waiting for a viable product, prototype or pilot. Companies are pivoting on the fly and getting the product to market.

Leading companies will find the balance among the now, next and beyond

As companies navigate through this unprecedented crisis, they have, in many ways, the same fundamental choice we have as individuals. The one thing we can control in times like these – faced with externally imposed and unanticipated change – is our response. Do we retreat to what’s familiar? Do we focus only on the short term? Or, do we see this as an opportunity to reboot and rebalance?

We talk about this latter path as the transformative mindset. Although there will be a tendency to amplify the now and focus exclusively on resiliency, leading companies will find a way to balance building recovery, readying the company for what comes next and planning for renaissance in the period beyond the pandemic. They’ll embrace the opportunity to reimagine the transformation journey in a way that puts humans at the center, deploys technology at speed and innovates at scale. In doing so, these companies will improve their agility and their ability to adapt and emerge even stronger.

The future we desire depends on the choices we make today. Most of these choices will be difficult. But difficult becomes impossible if companies use old formulas in a market where the winners play by new and rapidly changing rules. The future will be written on the back of today’s choices. Companies need to choose wisely. 

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Leaders need to examine their efforts to transform their companies through a new lens and a different set of value drivers: putting humans at the center of their purpose; deploying technology at speed; and innovating at scale through ecosystems of partnerships and alliances.

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Related topics Digital Consulting COVID-19