It is only in a crisis that the leadership counts. During ordinary times, processes run things.
The COVID crisis has posed unprecedented questions to the leaders and they have to provide answers without any guidance from either the experience or the data. They have been humbled and they have never been more willing to learn new ways of doing things. They are acutely aware that everybody is looking at them to ensure survival during the mandatory hibernation and to find ways to recover from the lockdown devastation.
All India Management Association (AIMA) has tried to help business leaders deal with lockdowns and getting back to business through a LeaderSpeak series of digital dialogue with India’s economic ministers, bureaucrats, economists and CEOs. Advertisement Advertisement Advertisement Advertisement Advertisement
The immediate task for the leaders is to ensure some semblance of business normality despite regulatory restrictions and the fear of the virus. Technology has come to the rescue and in-person meetings and dealings have been seamlessly replaced by online interactions. Desperate times can change the most obdurate and even the tech-phobic CEOs have turned into tech champions to keep things going. Even those bosses with a chronic obsession for micromanagement and total control have realized the joys of trusting and empowering employees.
However, the leaders’ job is getting harder as the governments are allowing reopening of factories and offices. The permissions to resume onsite operations are contingent on partial attendance of employees, social distancing at the workplace and extensive health safeguards. More than 70 per cent of the employees in most organizations, especial in manufacturing, can work only on site and having access to one-third or half of workers each day allows only emergency operations at best. Moreover, the reopening has coincided with the government arrangements to transport them back to their villages. Much of the manufacturing and urban services rely on migrant workers and without them, it will be hard to get things going again. Business leaders are trying to work out how best to cope with social distancing and shortage of labour.
Business leaders are acutely aware that any occurrence of COVID infection on the premise would result in an instant and total shutdown of the workplace and quarantine of all workers. It is too big a risk. So, they are trying to balance and coordinate onsite work with work from home. Still, resuming onsite work is fraught. Typically, workplaces are designed for proximity and not for distancing and putting space between people requires remodelling the office or addition of space - both cost. Also, to ensure separation of employees from each other and from customers requires investment in physical and digital tools, such as plexiglass separators and surveillance cameras. Business leaders are coming around to accepting these additional costs as a price of reviving revenues.
The leaders are also looking at increased automation of production and processes to reduce the dependence on onsite employees. The wish for having robots has never been stronger. The COVID crisis has changed the arbitrage between labour and capital and Industry 4.0 has been brought forward by many years. Leaders are more prepared to induct robots, chatbots, computer vision, augmented reality, 3D printing, internet of things, artificial intelligence etc to keep the business open. Now, they are looking at automation not as a cost-saving tool alone but more as a means of business resilience.
However, costs are the highest priority at the moment. Lockdowns stopped revenues instantly while most of the costs remained. Moreover, the government prohibited salary cuts and layoffs during the lockdown period. Now, a national minimum wage is to be introduced and it mandatory for all businesses with 10 or more employees to provide for income security and healthcare benefits. All workers have to be given formal contracts and all contractual workers have to paid gratuity. The reduction in PF contribution is a small relief as is the suspension of labour laws in some states.
However, at a time of severe cash shortage, business leaders are working on substantial cost reduction. While the government stimulus has focused on liquidity, businesses are ultimately concerned with viability and solvency. The terms ‘restructuring’ and ‘right-sizing’ are back in fashion. The leaders are trying to cut their variable costs and turn the fixed costs into variable costs as much as possible.
Business leaders are also busy sorting out the contractual mess caused by the serial lockdowns. Meeting contract obligations and enforcing those has been either extremely difficult or impossible during the lockdowns. All contracts have to be reviewed and revised to the extent possible. Business leaders are trying for suspension, extension, alteration or termination of contracts. Still, an outbreak of litigation is imminent, especially on the matter of sharing losses. Most business leaders would prefer to avoid the courts and rely on consultation and negotiation to resolve lockdown issues and move forward. Still, with COVID experience imprinted on their minds, they will ensure that the future contracts include provisions for even the improbable acts of nature and the government.
Resuming business requires getting supply chains up and running again. Business leaders are trying to keep their key suppliers afloat with long-term sourcing commitments, helpful advances and even buying a part of their share capital. At the same time, they are trying to reorganize the supply chains for resilience and are willing to take a small hit on the costs. The cost of disruption has exceeded their worst fears and now they want at least emergency alternatives to their regular suppliers. Since it costs a lot of time, money and management effort to develop new suppliers, most leaders are asking their key suppliers to supply from ‘safer’ locations.
Besides COVID, the growing protectionism is also making business leaders rethink their global supply chains. There is a clear and present danger of punitive and protective tariffs as well as sudden bans on exports and imports. Business leaders are looking to achieve the lowest costs while hedging the supply chain risks. They are asking the core suppliers to set up production and logistics facilities in countries that are closely aligned with one or the other global power.
The even bigger challenge is reviving demand. Much of the consumption is practically prohibited by the closure of both physical and digital commerce. Moreover, job losses and salary cuts have not improved the mood of consumers. The government has tried to restore some demand through cheap and easy lending to farmers, hawkers, migrant workers and MSMEs but the consumer confidence has been damaged by the loss of livelihood or the insecurity about it.
In such a scenario, business leaders realize that adaptation and innovation is the only way to get customers to spend now instead of later. Despite facing cash crunch themselves, they are trying to help customers purchase by offering discounts, add-ons, financing, deferred payments and pay-as-you-use terms for big-ticket assets. Many are looking to reposition products to either express solidarity or appeal to aspirations. The middling brands are in serious trouble as the demand is getting divided between the premium and the saving brands. The most astute leaders are trying to capitalize on the new abnormal when everyone is open to trying new things. They are investing in developing new products with significant new features and benefits to excite the customers. They are looking to create new markets instead of merely adapting to changed consumption behaviour.
Business leaders are preparing for coexistence with coronavirus as a vaccine for it still seems far away. A year or two are enough to completely transform markets and the leaders are resigned to relearn business and management. The uncertainty may see a dramatic shortening of CEO tenures. However, the fast learners will do just fine.