Get Ready For A Post-MCO Reset

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AROUND the world, countries have implemented various forms of containment measures to break the infection chain of the coronavirus (Covid-19).

The underlying principle for such measures is widely understood and supported, but it comes at a cost we are still trying to compute.

In Malaysia the enforced Movement Control Order (MCO), which has been extended twice since March 18, is costing our economy RM2.4bil each day.

The projections for Malaysia out of Bank Negara was a sobering forecast of -2% to 0.5% growth for 2020.

A local research house has also lowered SME growth forecast for the year from the initial 6% to 1.9% with the downside at -0.5%.

Viewing through a wider lens, the International Monetary Fund (IMF) has predicted that the global economy will contract by 3% in 2020, and that no country is likely to escape an economic downturn.

By now, there are enough clues to conclude that the current downturn is fundamentally different from the recessions we have seen in the past.

This is not just another turn of the business cycle, but a shakeup of the world economic order.

While countries and companies attempt to come to terms with the scale of this infectious pandemic, it is evident that we are staring at more permanent, structural changes in the way we live, play and work.

The post Covid-19 landscape

A new normal will emerge post COVID-19.

KPMG has identified seven ways in which the business landscape could shift, not only in Malaysia but around the world.

Since the MCO was enforced, businesses have been reacting and trying to respond to the crisis the best way they know how.

Now, business leaders need to fundamentally re-evaluate their assumptions and priorities in this “new normal”.

They must assess, strengthen and plan a phased response post MCO, to bolster resilience through to recovery.

Every company must triage, then prepare for the best recovery path fitting their situation. There are four recovery paths that may apply:

1. Hard reset: this would apply to companies that struggle to recover from Covid-19 due to permanently lowered demand for offerings, insufficient capital to ride out extended recession, and/or poor execution of digital transformation.

2. Transform to re-emerge: applies to companies that will recover but along a protracted path requiring reserves of capital to endure, and transform operating models to emerge stronger and more in line with changed consumer priorities.

3. Modified business-as-usual: companies seen as daily essentials will suffer effects of the consumer shutdown/recession but will recover more quickly as consumer demand returns in similar volumes.

4. Surge: companies whose consumer behaviour was altered in their favour during the crisis will find this to be their recovery pathway.

Investors will sense their potential to lead and provide capital to scale aggressively during recovery.

Whichever pathway applies, we believe that efforts should be prioritised towards the organisations’

Financial, Operational and Technology & Data pillars, ensuring that these three aspects of the business are agile enough to evolve over time to suit changing circumstances.

Financial

Without financial resilience, commercial and operational resilience cannot be maintained.

Keeping this pillar strong requires companies to adapt existing financial frameworks to a more hostile and volatile environment in which profitability, cash flow and access to finance are coming under simultaneous pressure.

Some of the key steps to sustain financial resilience are through performing financial stress testing and implementing robust short-term cash flow forecasts.

Proper liquidity planning by accessing financing options available can also help ease the financial pressure.

Companies should also prepare comprehensive financial crisis response and contingency planning by taking proper steps to preserve cash, consider various short termed solvent financial restructuring options, whilst taking into account the measures set by government agencies and regulators.

Operational

The maturity of a company’s operational resilience has the very real potential to dictate whether it will survive.

Achieving operational resilience will require companies to focus on governance, the management of their people and supply chain.

Under severe operational stress, business leaders will need to make important priority calls to decide which products, services and processes should be kept operational.

In these circumstances, they will need to understand their prioritisation criteria, what constitutes the minimum viable business model, and develop a viable recovery strategy.

Supporting the wellbeing of an organisation’s people, both physical and mental, over the coming months will also be urgent priorities for business leaders.

Organisations should consider providing proper support in the development and upskilling of employees rapidly to flex with demand.

Technology and data

Technology will be the key enabler for companies to reduce redundancy and operate efficiently.

It can be leveraged to provide business leaders with invaluable data such as customer purchasing behaviours, cash flows, operational effectiveness, and revenue pipelines.

This will enable the top management to make informed decisions to prioritise resources. And contrary to popular assumption, data and analytic tools and solutions do not require a hefty investment.

At the same time, companies should be cognisant to protect their assets by ensuring their IT infrastructure is secure and resilient to cyberattacks.

Due to necessity, companies are rolling out new remote working and cloud infrastructure at pace, and being forced to implement ad-hoc security models and approaches to secure that infrastructure.

If due care is not practised, cyber breach and thefts are a high possibility which will further distress an organisation currently under pressure.

In conclusion, this crisis is a story with an uncertain ending. What’s clear is that Covid-19 has introduced new challenges to the business environment that calls for a measured, practical and informed approach.

The key to business survival – and future success – is agility and flexibility throughout the entire enterprise.

The reset we need is a quick one, to address immediate cash burn and to attain a minimum viable business model quickly.

We are currently in the safety and viability period.

When this crisis story stabilises into some form of norm, we may see a new reality in the world order, and companies may then adapt and challenge their strategies towards profitability and growth.

Source TheStar

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