In October 2018, when I published the Management Tips issue on the Indispensable Symbiosis between Business Model and Strategy, I emphasized the importance of alignment between the two.
This alignment becomes even more fundamental in view of environmental changes caused by COVID-19, since companies designed for the pre-pandemic world will run the risk of failing in a post-COVID-19 world, if they do not revise their business model to align it to their strategies.
So, what should a company’s business model and strategy look like after the disruption caused by COVID-19?
The underlying premise of this analysis is that the pandemic will bring about disruptive changes in the business environment and, therefore, in the way of doing business.
The first of these changes will be regarding the role of the State. Certainly, the State will have a very different role in the economy from the one it has been playing in recent years. This role will undergo significant transformations both in Brazil and in other countries.
In times of deep crisis, the importance of the State in society, and particularly in the economy, usually becomes more apparent. It will be the measures adopted by governments at different levels and their implementation that will allow countries to recover. The better the public policy measures and investments made by governments, the easier the recovery of nations so weakened by the pandemic will be. The “minimum state” discourse will tend to be replaced by the realization of the importance of having a strong state with resources to support not only the citizenry, but also the companies experiencing significant pain.
One illustration: the US government approved at the end of March a stimulus package of about USD 2 trillion to help workers, companies, and the healthcare system. Democratic Party legislators proposed an additional aid package of USD 500 billion aimed at small and medium-sized businesses.
Germany, which values austerity in public spending, recently approved a package of resources to guarantee business loans, public investment, and aid to workers impacted by social isolation.
But it is not just the State that will have to redesign itself. Companies will also have to rethink their business model, due to changes in the competitive environment and in consumer behavior.
It is believed consumers will adopt new buying habits and behaviors. In the past, when consumers have made such changes, they tended to place even greater value on trusted brands. Further, consumers are using time at home to develop new skills and abilities, and those skills and abilities will not go away when the pandemic is controlled.
Companies are transforming face-to-face events into virtual ones, as are consumers, who are adjusting to the digitalization of their behavior. Many believe the fact of so many professionals working at home will cause significant change in professional relationships, generating new forms of work that seem to be more flexible.
The increased protection of privacy and personal data will continue to be an even more consistent trend.
The global economic pole will move further from the USA, severely affected by the pandemic, to China, generating several implications in terms of global supply networks, new organizational models and, of course, disruptive business models.
And how will companies fare in the face of so many changes?
When the news from COVID-19 spread, companies began to consider how it would affect access to the supply chain, product launches, employee well-being and business survival. However, many did not consider the importance of developing a resilient business model.
Concern for business model resilience is generally not part of business plans. Companies plan for interruptions to resources and processes, but do not recognize that obsolete business models can threaten the continuity of operations. The key, therefore, is to ensure that the business model is resistant to external impacts.
“Companies need to take advantage of a systematic approach to strengthen the resilience of their current business model to ensure its continued operation during COVID-19,” says Daniel Sun, Vice President at Gartner.
Gartner, in the recently published study “Create a Resilient Business Model in the Face of COVID-19,” developed by Kasey Panetta, recommends a five-phase approach to ensure business model resilience in the face of threats posed by COVID-19. The five phases, illustrated in Figure 1, are: Define the current business model, Identify uncertainties, Assess the impact, Design changes, and Execute changes.
Let’s look at each phase in the study.
Phase 1 – Define the current business model
The study suggests starting by identifying the core customer base that is essential for your business and its core needs. It then recommends expanding this idea to enhance propositions, capabilities and financial models.
Customers: Who are our key customers?
Value proposition: What do we offer to fulfill their main needs?
Capabilities: What ecosystem partners do we need to deliver value propositions?
Financial models: What revenue models do we use for key customers?
Phase 2 – Identify uncertainties
In the second phase, the study recommends that you gather a diverse group of employees and seek to identify the uncertainties that are more likely to be detrimental to the business, i.e., those with a strong impact on the business. Then, identify possible disruptions that can be caused by the spread of COVID-19.
For example, for a company operating in the retail segment, this would include scenarios in which fewer customers can enter the store, due to social isolation, or where customers avoid having physical contact with employees during payment.
Phase 3 – Assess the impact
In phase 3, assess the impact after identifying the uncertainties. Consider how each would impact business. A Business Impact Analysis is a separate framework from the resilience of the business model and, according to the author, can be developed in six stages:·
· Developing impact categories
· Developing impact time frames
· Defining cyclical impacts
· Defining business impact scales and scoring
· Weighting impact parameters
· Identifying and assessing risk dependencies
Phase 4 – Design changes
In phase 4, you manage possible impacts. Record all potential solution alternatives and, perhaps at a later date, evaluate them. Analyze how IT solutions can facilitate these changes. For example, when governments close physical spaces, or people are unwilling to enter a physical store, the potential impact is high. A change strategy would focus on changing the way businesses use physical space.
In China, retailers converted store spaces into warehouses and distribution centers. This limited the impact of closed physical stores and increases online retail storage and operations. For IT, the challenge is to support the increase in e-commerce solutions. Establishing plans for these changes in advance is critical for companies, considering that quick reactions and flexibility make a big difference.
Phase 5 – Execute changes
Though decisions will be made by senior leadership, phases 1 through 4 will act as essential input for implementation. Once these decisions are made, focus on agile execution. Ensure that business unit leaders are aware of the changes and have final approval. This will help achieve alignment of the strategy with the business model, ensuring quicker results.