Digital, Simpler, Survive
Of course, businesses must sell more, cut costs, and generate margin in order to survive. However, the simultaneous execution of those three objectives in the middle of a pandemic context it's an impossible mission. People is restrained at home, dramatically reducing the consumption of supplementary needs, don’t visit places, and don’t travel to foreign countries, not even need shoes or clothes, because the home confinement forces to keep the closet closed and many clothes unused. However, some basic needs are kept and increased, like food, drinks, and toilet paper. At home, people cook a lot and eat more (my son of 17 and daughter of 15, are always eating), and consume more paper (for cooking, cleaning, and toilet). Job losses and unemployment will be a real catastrophe in the next few months (BLS.GOV, 2020.08).
According to Mckinsey, “The auto industry is one of the world’s largest and has been devastated by the pandemic: sales may drop by 20 to 30 percent in 2020, and we estimate that profits will fall by $100 billion.” Geopolitics and supply chains will be top priorities in 2020/21 (2020.10.28).
Some of the Top Performer companies in 2020 were identified in a recent study by sciencemag.org, (Alaina G. Levine, 2020.10.30). We can observe the inclusion of different industries and geographies, with a significant representation of pharmaceuticals. Also, some interesting facts in the analysis are the focus on innovation, social responsibility, and work culture values aligned.
We can also identify (next image) a major contribution to GDP from industries like Technology, Pharmaceutical, Banking, Insurance, and Healthcare. Considering the Market cap, technology, media, and telecom make the difference (McKinsey, 2020.10.28).
In order to survive, companies need to sell more and increase their revenues. This implies to generate value to the customer, also to introduce some real product innovation, and cut the marketing bullshit. The surviving companies will be Top performers because there is no space for second places. The ocean is red, with strong competition everywhere. We can find some interesting analysis and proposals to increase sales:
- Communicate openly and frequently with customers; Be understanding and flexible with everyone; Ask for feedback; Give back to the community; Discuss the future;
Openly share with customers how you believe the business can improve and progress coming out of this experience. Use this unprecedented experience to develop strong relationships with customers and emphasize how the business’ ability to adapt has made the team more reliable. Be proactive (VeraSolve, 2020).
According to EY (EY, 2020), organizations should focus action across four customer-strategy areas as critical to achieving lasting impact and creating value to customers:
- Customer engagement — driven by disciplined approaches to consumer segmentation and lead generation, and moving faster to drive marketing and communications agility;
- Growth drivers — shifting the mix to new sales channels and extracting value from existing innovation to drive product strategy;
- Customer experience — prioritizing customer journeys and new means of engagement, experience, and service;
- The physical/digital divide — particularly solving delivery and last-mile challenges.
- Partnering with another brand. You may start creating value for your customers with co-branded offers. As a partner, you can choose a company that complements your brand. For example, certain bank customers can get higher cashback if buying from their partner’s retail website. If you propose relevant goods and services with this collaboration, customers will feel that you know their needs and care about providing an excellent service (ref url).
Organizations and business leaders must challenge the Status Quo and deliver real value to customers, to society, and to the environment. The return on investments must be significantly higher than the needed investment and the time needed to achieve positive results is minimum. For sure, everyone must understand and embrace change, as a permanent force to survival. Speed, Agility, and Collaboration will be common characteristics, all mandatory to be successful.
The importance of excellent communication is extremely high, being the vehicle to bring new leads and new sales opportunities. The sales and marketing approaches need to be reinvented and centered on the customer experience, delivering the information that customers demand, when they demand it. Also, with new multimedia formats, shorter, simpler, and with extremely good quality. A good video that simply shows the value-added for your products, can open ways to bring new customers, new markets, and new geographies.
People's mindset must adapt fast to new situations and breed an agile attitude, with simplification, automation, and digital innovation.
For the EU banks, the cost/income ratio can be as high as 84% in Germany, or lower than 42% in Norway. The average for European banks is 64%. This means that Banks with a higher ratio should consider investments in their efficiency or even redesign some business models that may be more expensive, because the challenger's FinTech’s are delivering new channels and tools (Apps) to customers, with new and simpler business models, promoting a huge change in the near future (Statista, 2020).
Looking at the evolution of companies Operating Margins for the past 3 years, we can observe a sustained growth in some industries like Agriculture, Communications, Paper, Water transportation, Transportation services, Real State, Financial Services, or Recreation Services (readyratios,2019). Six months after the COVID-19 pandemics, some of the same industries keep a good performance like food production, transportation, and logistics, communications, technology, or financial services. This means there is some structural correlation of those industries with the real demand for the global population, together with some investments of those industries in innovation.
Of course, the startup's ecosystem (FinTech’s, InsurTech’s, MedTech’s, xxxTech’s) introduced new approaches and new business models that proved to conquer customers and forced the incumbents to follow them. It’s all much easier for a startup because there is no legacy to carry and collaborators are typically younger, with a different mindset, more agile, and with a bigger drive for change. They can deliver a single digital channel and avoid huge investments in the traditional ones.
Now is the time for new investments and to redesign inefficient operations (EU,2020). The huge financial packages will be available early next year, to help companies surpass the dramatic cuts brought by the pandemic. This capital will allow companies to redesign the existing operating models and to introduce new products, new channels, and new business models, more adjusted to the present needs of people and organizations.
The EU approved last July a historical financial package (over 1,7 Trillion euro, 2021–2027) to help the economy and all citizens, representing an unprecedented act of solidarity in almost seven decades of European integration (EU,2020):
“It may have taken months of discussions, disagreements and squabbles, and an almost five-day-long summit, but European Union (EU) leaders have finally agreed on a “historic” stimulus plan to help pull their battered economies out of the coronavirus crisis.”
There’s a special urgency (4 months) to define and present good national strategies on the application of financial support, followed by organizations' applications on projects aligned with that strategy, and the potential to recover the balance sheet of companies, regions, and countries (EU,2020). It may represent the difference between survival or closing doors.
A strategic application of critical investments that allow product improvement, by introducing technology-based innovation will make the necessary difference to be a Top Performer and win (survive). The thing is, in order to reduce costs, organizations need to invest money, either their savings or from external financial support, available in banks or provided by governments (EBF,2020). There’s a new challenge that will be the run for this financial support because it will be significantly lower than the company’s global needs. Meaning that the best projects, with the stronger business model, will get funded, but the others will not have the resources to survive.
In a global scenario, this represents an opportunity for Europe to recover competitiveness and increase its participation in strategic initiatives with a huge economic impact (EU, 2020). For that to happen, it’s mandatory that Europe aligns its strategy and investments around some key differentiators like the ocean, technology, and the digital economy, sustainable energies, and education to keep the leadership of its labor market (EU, 2016). Education and training for European senior managers in organizations will play a key role by adjusting mentalities towards agility and a path of permanent change, as the unique predictable certainty.
Margin Generation while Operating in Crisis Mode
The establishment of loyalty programs and increase the price of products can help increase also the operational margins. Sell more and reduce costs by means of increasing efficiency are obvious and traditional options, supported in methodologies like lean six sigma or kaizen. All alternatives need common good practices and support by measurements. The statement “manage by numbers” never before represented a so important option for leaders, is crucial to navigating in the uncertain ocean of today’s reality (Mckinsey, 2020). “Data that are trustworthy, certain, definitive, and plentiful can be presented as facts, and evidence-based decisions can follow from them” (BMJ, 2020). The Yale School of Management delivered several case studies about the importance of management by numbers (Yale, 2018).
“Operating in crisis mode: discover, design, execute”. Rapidly moving events demand fast decisions and a big change in the organization’s management process for decision making. Today’s high speed of operations in which managers meet, discuss, and action needs to match the crisis context. It’s not enough to speed up the existing processes to accommodate the information needed by managers. Instead, it means creating entirely new procedures. Accurate and timely (near real-time) information is key to support good decisions. Processes automation introduced by innovative technology plays a key role in changing the obsolete procedures and business models. Organizations must adapt to change and must simplify operations, while, at the same time and with the same investments, introduce innovative business models to amaze their customers, registering feedback, and measuring each step of the sales cycle.
On top of amazing products, organizations must also communicate much better, using the same language and terminology of the target audience (customers), using digital channels and video produced with professional quality. The full package will bring customers to a new immersive experience that will make the (so much desired) difference!
Prepare yourself to change, learn to accept it naturally without resisting, and decide by numbers (facts). By achieving those and with a good amount of courage to face the red uncertainty ocean, you are eligible to arrive at a safe port. Please do not forget a slice of humanism to help you lead your teams.
by Eva Winter & Jorge Pereira @ Joyn Group, 2020.11.14