Getting to Your Next-Normal

by Tom Reeder

Most likely outcomes, based on survey of executives: “U” shaped recovery— virus is contained (scenario A3, achieve 209Q4 GDP in 2020Q4, light-blue); or “Swoosh” shaped recovery— virus recurs (scenario A1, achieve 2019Q4 GDP in 2023Q1, gray).  The global difference in estimates between the two most popular scenarios with a range as high as $15 trillion to $20 trillion.
Sources:
Survey “Big difference between economic scenarios executives view as most likely,” McKinsey, 5.29.20201
Graphic “Crushing coronavirus uncertainty: The big ‘unlock’ for our economies,” McKinsey, 5.13.20202

 

“Ultimately the virus is going to determine when we can safely reopen.  Not only in general, but in a particular location”
Dr. Anthony Fauci, M. D.
Director of National Institutes of Health’s National Institute of Allergy and Infectious Diseases3

 

We are in a novel crisis.  While unique in its speed and breadth of impact, what makes this event so distinctive is the lack of any social, political or economic triggers.  However, this COVID-19 novel-type crisis has been preceded by other novel-type crises, some recent enough and in our lifetimes to draw learnings and insight from.4

  • 1979: Energy crisis
  • 1986-1995: Savings and loan crisis
  • 2000-2002: Dot-com bubble
  • 2007-2009: Subprime mortgage crisis (The Great Recession)
  • 2020-TBD: Coronavirus pandemic

There are a number of academics, former military leaders and management consultants who have recently published a flood of articles including guides on what businesses should do to survive in the short-term and thrive in the long-term.  For example, a diverse group of professors from Harvard Business School all with an interest in crisis leadership, having studied and taught crisis management for years to thousands of executives and MBAs, recently conducted a series of webinars for alumni. During the 5-part series, the Harvard teaching group encouraged attendees to widely share their research, frame-works and approach.  The following provide my simple summary of their recommendations.5

 

LEADING AND MANAGING IN A CRISIS

What enterprise leadership should do in six steps

  • Establish a critical incident management team and process
  • Assemble the right people from three groups with three distinct perspectives (e.g., a group familiar with company; subject matter experts with unique expertise to understand root-cause of issue; a group who understand core company priorities)
  • Engage in iterative, agile problem-solving process
  • Create conditions for successful agile problem-solving
  • Execute chosen actions, but treat them as tentative and experimental
  • Set reasonable expectations

While survive now (e.g., the immediate and near-term time-horizon objective) was the burning issue for most enterprises during initial shut-down— and remains a constant and conscientious area of focus— most of the academics, consultants and enterprises sharing their advice believe it is time to launch teams to prepare to thrive in the next-normal.  For example, learning from the Great Recession, the companies which aggressively pursued and refined future-plans, increased their market position and total return to shareholders.6

 

TODAY

No one is certain how long it will take us to get to the next-normal; and the future destination’s environment is also unknowable.  Yet individuals and organizations do not perform well without clarity of purpose, a destination, and understanding the road to get them there.

Leveraging a concept called progressive elaboration,7 we suggest defining mosaic-like visions, which, with more calendar time and more information, become more clear— a more detailed or pixelated image of the future.  This approach requires three dynamic capabilities: Agile leadership for organizational adaptability, Scenarios to bound uncertainty, and Supply Chain for operational resilience (click on these capabilities for an at-a-glance post description of each). These three organizational capabilities combine to inform and support the following critical artifacts to help in getting to your next-normal.

 

A FEW FOUNDATIONAL BUILDING BLOCKS

1.  You need a stress-tested strategy

According to Dean of the Wharton School, Geoffrey Garrett, “the COVID-19 pandemic will reverse the trends of globalization and urbanization, increasing the distance between countries and among people.8”  Is this thinking baked into your 5 year strategy?  Should it be?

Using scenarios to bound the uncertainty of the future, consider the viability of your strategy— the choices which differentiate your enterprise in the marketplace— as you think through your strategic architecture.  As a quick, illustrative trial, consider the following- starting from the outside-in:

  • What are the implications of COVID on your ultimate consumer, distribution and customers, and employees and supplier/partners… …if it goes longer?  …if geographic breadth expands or contracts?  … if hot spots develop in geographically critical areas of customers, suppliers, or facilities?  …if regulatory, industry norms, and other knock-on effects of COVID occur?
  • What are the implications for… …how you go to market?  …your products and services?  …promotions and sales?  …how you deliver value physically and/or remotely?  …digital transformation?
  • What are the implications for… … your competitors? …their business model(s)? …your business model(s)?  …your supplier’s business model(s)?
  • How will you… …compete in the next-normal?  …assess key competitive risks? …identify competitive opportunities?
  • What changes in needs and wants of your…  …ultimate consumer? …distribution channels and customers?  …value propositions?  …stakeholders?
  • What are the geographic sourcing and lean implications for your supply chain?
  • What are the geographic citing implications, including digital opportunities, for your headquarters, divisions and local plants/offices?
  • Where are the biggest operational… …implications? …changes? …digital opportunities? …risks? …priorities?
  • What changes need to be made to your strategic themes, priorities, and initiatives?
  • What are the key messages to be communicated about… …your north star/purpose? …values and business drivers? …other elements of the Strategy Paksm change?

As you consider the range of implications of long-term (e.g., 5 year +/-) competitive strategy on your enterprise’s resilience, you should think about how the supporting visions define multiple planning horizons.

 

Key Thought: The impact of exogenous factors are unique to each industry, to each company within industry sector(s), and to each company’s distinctive competitive choices.

 

2.  You need a vision, a destination, to support your strategy

“There are four areas to focus on: recovering revenue, rebuilding operations, rethinking the organization, and accelerating the adoption of digital solutions,”9 according the Kevin Sneader, global managing partner of McKinsey’s management consulting.  Are these the four, or rather just some among many, drivers of your business to be highlighted in your strategic vision(s)?  How has and will these change over time? For example: What impact will COVID have on your key customers’ perspectives and relationships?

Rally your agile leadership team to create a measurable vision of the future within the boundaries of uncertainty defined by your scenarios— create the visions like mosaics with more precision for each nearer planning horizon.  Innosight, the innovation consultancy co-founded by the late Clay Christensen, describes the approach as Future-Back Strategy, one of four lenses and 10 questions for consideration of innovative learning in uncertain times.10 These interim visions become milestones for your adaptive roadmap, including implications for a multiple option (set-based design) operating model of your enterprise.

Your vision should include consideration of: operational support and requirements, measurable targets, and positioning to define “Where are we going?” within the scenario boundaries.  Critical to the agile leadership team are a number of roles including the agile concept of rapid feedback loops11 necessary to lead and manage volatility, uncertainty, complexity and ambiguity (VUVA).12

 

Key Thought: Keep the progressive elaboration concept in mind when creating your visions across planning horizons.  As environmentally, we don’t know what we don’t know.

 

3.  You need an adaptive roadmap

“Would you tell me, please, which way I ought to go from here?”
“That depends a good deal on where you want to get to,” said the Cat.
“I don’t much care where–” said Alice.
“Then it doesn’t matter which way you go,” said the Cat.
“–so long as I get SOMEWHERE,” Alice added as an explanation.
“Oh, you’re sure to do that,” said the Cat, “if you only walk long enough.”
Alice’s Adventures in Wonderland, Chapter 6 13

 

Unlike Alice, your strategy and vision give your organization a destination.  Characteristics of your next-normal vision may include: faster clock speed for the enterprise; more transparency and more frequent communication; more distributed decision making; increase in remote and digital work; and more sharing from the edge— particularly what customers of our organization need and want.  Consider simultaneously leading and managing through a combination of an efficient hierarchy and an innovative network— a dual operating system.  Execution of your strategic architecture— your strategy and your vision— need to be guided by simple guard rails to convey leadership’s direction and intent.  While vision defines a destination at some level of detail, it should vary by planning horizon and be informed by impactful events in near real-time.  There are many characteristics to consider when thinking “how to” manage, including, for example, agile-at-scale.  All of those characteristics, and more, particular to your organization need to be considered within your overall approach, as defined by your adaptive roadmap.

We believe in customizing roadmaps (e.g., high-level approaches) by conflating how you plan with relevant emerging and proven tools and techniques.  For example, today, we believe agile for the enterprise is best organized through the Structured Agile Framework (SAFe).  You should begin with milestones of multiple time horizon visions bringing strategy into view.  Visions which, like our mosaic metaphor, become more clear with time and information of progressive elaboration.  Visions with their uncertainty bounded by scenarios, yet ensuring the preparation of the foundations of common capabilities to support the breadth of relevant scenarios.  An example of this type of systemic thinking, of combining scenario planning with agile execution, is reflected in this McKinsey article’s Exhibit 3.

Source: Barriball, et al, “Jump-starting resilient and reimagined operations,” May 2020, https://www.mckinsey.com/business-functions/operations/our-insights/jump-starting-resilient-and-reimagined-operations

Systemic thinking leads us to a number of operational and tactical considerations including our globalized and lean supply chain.  Independent of how Professor Garrett’s prophecy of diminished globalization plays out in your planning, your scenarios and roadmap must consider how lean and concentrated you can afford to run your suppliers and supply chain inventory geographically.  During the “Harvard Business School’s Crisis Management for Leaders” series, Professor Raman, an expert in operations and supply chain, shared an observation that lean concepts had been misunderstood and carried too far— to the point where companies carry no safety stock.  We should not remove all safety stock— particularly if the cost of disruption is very-high (e.g., Personal Protective Equipment (PPE) at hospitals for COVID-19).14 Perhaps a guiding principle for your next-normal supply chain will rhyme with just-in-time and just-in-case to ensure operational resilience.15

 

Key Thought: There are a broad range of work streams to be considered for inclusion in an adaptive roadmap beyond issue-targeted agile-teams, supply chain team(s) and a next-normal conversion team.  Consider, for example, financial business case, change management and communications to name but a few.16

 

NEXT STEPS

Have you decided?  Are you ready?

If you haven’t already done so, you need to launch your next-normal team to thrive.  There are a number of approaches17 or combinations thereof, for your consideration.  And, capabilities to support remote collaboration is probably front-and-center to both engage geographically dispersed subject matter experts (SMEs) and high-potential team members still under quarantine or working from home to accommodate governmental requirements or mitigate COVID hot spots.  This organizational muscle is necessary to prepare for the next-normal novel crisis requiring remote collaboration for rapid adaptation— supporting the survive-to-thrive cycle.

 

Key Thought: Consider how those companies aggressively pursuing an offensive posture during a downturn outperform better on total return to shareholders during recovery and growth phases.  This offensive position historically allows a company to also capitalize on accelerated growth through your successive expansions.18

 

“Fear is a reaction.  Courage is a decision”
Winston Churchill

 

This article is part of our COVID series— “Getting to Your Next-Normal” – a four-part series originally distributed to clients and colleagues in early June, 2020.

Also see the remainder of the series

 

END NOTES


  1. “Big difference between economic scenarios executives view as most likely,” McKinsey, May 29, 2020, https://www.mckinsey.com/featured-insights/coronavirus-leading-through-the-crisis/charting-the-path-to-the-next-normal/big-difference-between-economic-scenarios-executives-view-as-most-likely
  2. “Crushing coronavirus uncertainty: The big ‘unlock’ for our economies,” McKinsey, May 13, 2020, https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/crushing-coronavirus-uncertainty-the-big-unlock-for-our-economies
  3. Fauci: Virus determines when US can safely reopen,” April 14, 2020, https://www.youtube.com/watch?v=DAilMa0C9u4
  4. Selective US domestic, economic crises, “List of economic crisis,” Wikipedia, https://en.wikipedia.org/wiki/List_of_economic_crises
  5. For more detail see “Summary of Harvard Business School’s Crisis Management for Leaders COVID-19 | 5 Program Series | MY NOTES,” LinkedIn, April 2020, https://www.linkedin.com/pulse/summary-harvard-business-schools-crisis-management-leaders-tom-reeder/. Once in the summary, see links to MY NOTES from each of the five programs. Expanding on the “engage in iterative, agile problem solving process,” consider their suggested iterative, learning process:
    0) Establish goals, priorities, and values
    1) Understand the situation
    2) Develop options
    3) Predict outcomes for each option
    4) Choose the best course of action
    5) Execute (repeat, starting with step 0 or step 1)
  6. See “Stronger for longer: How top performers thrive through downturns,” McKinsey December 2019, https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/stronger-for-longer-how-top-performers-thrive-through-downturns where, for example, McKinsey discusses study of 1,000 publicly traded companies in North America and Europe with more than 1 billion dollars in annual revenue. Top quintile of “resilients” in total return to shareholders included 25 point higher EBITDA than nonresilients with differences showing up in recovery/growth period through, for example: 1) faster, more aggressive cost cutting; 2) more aggressive deal makers; 3) more prone (25% versus 18%) to divestitures; and 4) increased optionality by financial deleveraging. Note: in this piece, the ability to take cost out was thought to be more difficult in a coming recession, and other future differences include digital disruption.
    Other articles studying previous economic downturns trend toward similar findings and recommendations. For example, Boston Consulting Group’s “Advantage in Adversity, Winning the next downturn” BCG 2.4.2019, https://www.bcg.com/publications/2019/advantage-in-adversity-winning-next-downturn.aspx where BCG’s research identified high performance companies (14% of whole) in the last four downturns averaged 14% of revenue growth and EBIT margin increase of 7 points more than the 44% of companies that showed losses in both metrics. BCG’s key recommendation was to prepare to Perform or “build resilience” following the Survive or “maintain viability” as both a defensive and an offensive posture. Thrive or “opportunities for growth and competitive advantage“ was their third level.
  7. Progressive Elaboration is “the iterative process of increasing the level of detail in a project management plan as greater amounts of information and more accurate estimates become available.” A Guide to the Project Management Body of Knowledge (PMBOK Guide), 5th Edition, (Project Management Institute: Newtown Square, PA: 2013), p 553.
  8. Garrett, “The Post-COVID-19 World Will Be Less Global and Less Urban,” Wharton, May 13, 2020, https://knowledge.wharton.upenn.edu/article/post-covid-19-world-will-less-global-less-urban/ Professor Garrett, Dean of the Wharton School at University of Pennsylvania, stated “In retrospect, we will come to view the years right before the 2008 financial crisis as ‘peak globalization.’ “ Statistical support for the build-up of globalization and urbanization drivers cited 1980 global trade at less than 40% of World GDP and has now increased to more than 60% today.
  9. Sneader, et al, “From thinking about the next normal to making it work: What to stop, start, and accelerate,” McKinsey, May 15, 2020 https://www.mckinsey.com/featured-insights/leadership/from-thinking-about-the-next-normal-to-making-it-work-what-to-stop-start-and-accelerate McKinsey puts forward 7 recommendation areas including, for example, No. 2 “From lines and silos to networks and teamwork” and No. 3 “From just-in-tune to just-in-time and just-in-case”
  10. See Anthony, et al, “10 Questions for Executives in Uncertain Times,” Innosight Executive Briefing, May 2020, https://www.innosight.com/insight/10-questions-for-executives-in-uncertain-times/ where Anthony suggests 10 questions and 4 lenses (e.g., Future-Back Strategy; Jobs to be Done; Disruptive Innovation; and Encouraging innovation habits) to aid executives in considering theory of frameworks, models and tools to support leadership and management during times of uncertainty. Note: this Innosight article advocates for considering opportunities in times of uncertainty, citing, for example, the iPod launch after the dot-com crash and Adobe’s transformation in the middle of the Great Recession.
  11. See “OODA Loop,” Wikipedia, https://en.wikipedia.org/wiki/OODA_loop. We refer to OODA when discussing process and agile feedback loops. “OODA is an acronym The OODA loop is the cycle observe–orient–decide–act, developed by military strategist and United States Air Force Colonel John Boyd. Boyd applied the concept to the combat operations process, often at the operational level during military campaigns. It is now also often applied to understand commercial operations and learning processes”
  12. Reeder, “Why Agile Management? Because it is an increasingly VUCA world,” Nextforge Point of View, http://nextforge.com/?p=2449
  13. Third quote on the page from “Book chapters & movie scripts, Alice in Wonderland quotes,” Alice-in-wonderland.net http://www.alice-in-wonderland.net/resources/chapters-script/alice-in-wonderland-quotes/ The quote should be attributed to the original: Dodgson, Charles Lutwidge (pseudonym, Lewis Carroll). Alice’s Adventures in Wonderland (London: Macmillan and Co.1865): Chapter 6 according to Fairbrothers, et al, “Going Somewhere?” Forbes, Nov 29, 2011, https://www.forbes.com/sites/greggfairbrothers/2011/11/29/going-somewhere-2/#f479614431eb. We have included the full quote for a number of reasons, but mostly to demonstrate the value in research versus accepting common group-think of the typical misquote “If you don’t know where you are going, any road will get you there” which is widely attributed to Lewis Carroll’s dialogue between Alice and the Cheshire cat
  14. See my summary notes of Program 4: “Case studies on identifying (or not) and managing novel risks,” from Reeder “Summary of Harvard Business School’s Crisis Management for Leaders COVID-19 | 5 Program Series | MY NOTES,” LinkedIn Article, April 14, 2020, https://www.linkedin.com/pulse/summary-harvard-business-schools-crisis-management-leaders-tom-reeder/
  15. See Sneader, et al, “From thinking about the next normal to making it work: What to stop, start, and accelerate,” McKinsey, May 15, 2020 https://www.mckinsey.com/featured-insights/leadership/from-thinking-about-the-next-normal-to-making-it-work-what-to-stop-start-and-accelerate McKinsey puts forward 7 recommendation areas including, for example, No. 2 “From lines and silos to networks and teamwork” and No. 3 “From just-in-tune to just-in-time and just-in-case”
  16. Consider the section entitled “Integrate planning and execution of all components: ‘One Approach Map’,“ Reeder, “Results’ Catalyst— Leading and Managing Change,” NextForge Point of View article, http://nextforge.com/?p=2612
  17. For example, McChrystal’s Team of Teams; McKinsey’s overview of militaristic structure including four common roles and activities (e.g., insights team, plan-ahead team, operations team, and communications team; see Atsmon, et al, “Lessons from the generals: Decisive action amid the chaos of crisis,” McKinsey, May 2020, https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/lessons-from-the-generals-decisive-action-amid-the-chaos-of-crisis); or Boston Consulting Group’s “Two Crisis Office for Steering and Acting on Scenarios” Exhibit 4, “How Scenarios can help companies win the COVID-19 battle,” BCG Henderson Institute, April 23, 2020, https://www.bcg.com/publications/2020/win-covid-19-battle-with-scenarios.aspx
  18. See “Stronger for longer: How top performers thrive through downturns,” McKinsey, December 2019, https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/stronger-for-longer-how-top-performers-thrive-through-downturns, in particular see Exhibit 2 where resilient firms outperformed the S&P 500 on total return to shareholders, not only during recovery phase, but continued to build on its lead during growth phase.
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