By Steve Wunker
This blog first appeared as Steve Wunker’s piece for Forbes
As parts of the economy begin to open after COVID’s first wave, the term “restart” is often heard. But it is a fictional premise, given that much of the economy has irrevocably changed. Rather than restarting, we are rebooting.
For many industries, this is a history-making Great Reboot for business realignment, and the updates taking place will lock in epochal change.
In a moment, we’ll examine six ways this will happen. First, however, consider how economic earthquakes occur. World War II produced one of these, as women entered the workforce in vast numbers, the US economy become more interconnected, and global trading patterns realigned. There have been several others throughout history, such as the transition from slavery and serfdom to mercantilism, and from mercantilism to capitalism. More recently, the information revolution transformed business competition, company ownership, and the nature of work. Each of these earthquakes involved major changes in who does work, how it is done, and what kind of companies lead.
While COVID may not rate at the scale of WWII in transforming the economy, it is no mere tremor either. At least in the developed world, we have almost never experienced such wrenching change in such a short time period. This breaks inertia – one of the most powerful economic phenomena in existence. In normal times, businesses err toward conserving the status quo, and decision-making by committee, complex business ecosystems, and fear of customer and competitor reaction deter sudden, mold-breaking change. Inertia is a big reason that market entrants are the ones so often leading disruptive innovation; the upstarts possess essentially no strategic advantages, but they are not captive to inertia’s powerful energy.
With COVID, those patterns stop. In an overwhelming number of cases, business operations have halted or transformed. Economic uncertainty has skyrocketed. Revenue sources have radically shifted. Companies have had to realign trading partners. Urgency has called for rapid-fire decisions, reducing the impetus for consensus-building. Once economic activity resumes, it will occur in phases, and marketplaces will not look like they did before. As with other major discontinuities in economic history, who does work, how it is done, and the types of companies that lead are all changing at once. And, this time, the shifts have happened not over decades or years, but weeks.
Each industry has its own pattern of dislocation, but there are six common patterns that make this period The Great Reboot:
1. Virtualization – Most obviously, our business and personal lives have gone virtual. As interactions ranging from large workshops to complex sales to medical consultations have become virtual events, the capabilities needed to excel have shifted. More than ever, the ground tilts in favor of those with ample background using virtual platforms, and highly differentiated businesses can extend their global reach while locally-oriented and less distinctive firms may struggle. Companies with strong digital capabilities are excelling. Indeed, over the past month of massive job losses, Amazon has announced plans to hire a shocking 175,000 workers.
After work virtualizes, some behavior changes will stick. Students may prefer online learning, workers will migrate from costly cities to telecommute, and sales representatives will make electronic rounds of their clients. Your choices as a buyer and seller of goods and services will multiply, as will your rivals. Competitive strategy can become a very different game.
2. Transformed Customer Experience – COVID has changed customer priorities, or Jobs to be Done, along with the feasible ways that people can interact with your business. The journeys that customers take in understanding and consuming products and services have radically shifted, for B2C and B2B companies alike. These principles don’t just apply to digital experiences. Expectations of what makes a good restaurant meal may be much altered in the coming months. Even auto mechanics are now covering the interior surfaces of a car prior to performing work, to convey the care that they are taking to be hygienic.
3. New supply chains – Even before the coronavirus, firms started to pursue an ABC sourcing strategy – Anywhere But China. While trade tensions highlighted the risks of reliance on a single country, COVID has illustrated the need for more robust supply chains in general. Intricate webs of suppliers, some relying on exclusive partnerships, can be highly vulnerable to shocks. Japan’s massive earthquake in 2011 taught local companies to create resiliency in their supply chains to avoid these issues. Now the rest of the world is learning the lesson. Responses may vary from increasing vertical integration of supply to more diversity in supplier bases, but either way the decisions will be governed by enterprise risk assessment alongside the typical financial metrics.
4. Direct sales and service – As virtual interactions grow, and as companies seek to reduce complex dependencies, many will embrace direct relationships with suppliers, cutting out the sales channel partners who may have historically ruled local distribution, sales, and service. This opens up room for firms willing to break with traditional distribution patterns, even for virtual kinds of products such as insurance policies. The capabilities required to succeed in these direct relationships can be vastly different than those which make channel partnerships thrive.
5. Competitive shakeout – Economic dislocations winnow competitors. The winners are the strongest or the most adaptable. As competitors consolidate due to economic pressures and a quest for new strategic advantages, the ways the companies differentiate, price, and interact with customers can all metamorphize. Consider how the auto industry transformed due to the Great Recession and the need for massive investments in electric and autonomous vehicle technologies.
6. Costovation – We are accustomed to innovating on the revenue side of the business, creating new products to seize market share or raise prices. But a downturn this severe, with such a change in patterns of consumption and production, calls equally for Costovation, which uses the tools of innovation on the cost side of the business. This is a time to radically rethink how a company operates, stripping out complexity, customers that are expensive to serve, and other hidden drivers of costs as much as the more obvious line items. There is much positive potential in this; however, we should also recognize that this process may well lead to many jobs not coming back, as firms find ways to automate and virtualize the hitherto human. And that will have further knock-on effects for labor markets and pressures for societal change.
Once moments of tremendous discontinuity pass, inertia resumes again. The Great Reboot will not last forever, and business models will solidify into a new state, much as the late 1940s created a mold for the Western economy that endured for decades after. With COVID, we can expect time to be compressed, moving at Internet speed. Soon, commercial patterns will reform, committees will rule, and managers will revert to conservative business habits after becoming exhausted by the current waves of dislocation.
The time for business change will be short, but it will shake the world. The Great Reboot has shut down the economy, and – together – we are creating the transformations that will shape its new operating system. As with other economic revolutions, the nature of work, how it is done, and what kind of companies lead may look quite different, and this time it will happen at whirlwind speed. Are you ready?
Click for a series of working papers on managing an organization through the coronavirus crisis.