Beyond the storm

Critical questions for leaders of businesses aiming to thrive and grow out of the coronavirus crisis

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Citation: Nicholas S. Fleming (2020) Beyond the storm – Critical questions for business leaders aiming to thrive and grow out of the coronavirus crisis, Innergise Pty Ltd, Melbourne.

Published on 4 May 2020, revised 27 July 2020.

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Critical questions for leaders of businesses aiming to thrive and grow out of the coronavirus crisis

The challenge The solution The benefits

The world is in the midst of a Every organisation will respond to In a crisis, an executive team must pandemic which, while not the crisis in their own unique way. be supported by the board to unexpected, has hit with a speed But all organisations can take respond swiftly and effectively to and scale of impact that is similar steps to discern what their immediate challenges to business unparalleled. Governments have best response would be. The continuity. While the board “gets created economic crises by board of directors has an out of the way” of management, it shutting down society to control important role alongside the can be building its “strategic the health crises. As Australia and executive team to set up the muscle” for the challenges ahead. other nations around the world organisation to survive and thrive While the situation can feel ease restrictions on movement in the medium term. Undoubtedly confusing and overwhelming, a and business, the recognition is there will be growth opportunities. carefully structured suite of growing that the world won’t Whether these opportunities are questions can allow the board to “return to normal”. Business is identified and grasped will engage in crucial conversations central to the economic recovery depend on the attitude and that bring clarity and coherence to and leaders are asking “What do approach adopted now. the organisation’s strategy and we need to do now to thrive in Identifying and exploring some practices beyond the crisis. the months ahead?” critical questions can clarify and shape the way ahead.

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“Only a crisis – actual or perceived – produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around.”

Milton Friedman

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As Australia works toward relaxing social isolation rules and prepares to reboot the economy, business leaders are questioning what the new normal will look like. How will business conditions continue to evolve and what needs to be done now to thrive in the months ahead? This paper provides some insights and critical questions for company directors and executives to address in preparing for a new world.

economy should strengthen from Citizens (and politicians) have A little history here, but for now directors aren’t been reminded of the importance One year ago in April 2019, buying it. Rather, they see the risk of a trustworthy government and Treasurer Josh Frydenberg rocked of further deterioration ahead.”2 the power of people unifying to the beat of Back in Black. It was At the time, most of eastern against a common foe. the theme of his first budget as Australia was in drought and Australia’s treasurer, signalling bushfires had been burning since Emerging from the storm that in 2020 the Australian June. government would be back in Today, Australia is moving slowly surplus. It would be the first time By mid-January 2020, the Prime but surely toward easing the in more than a decade. Minister was being pilloried for requirement for social isolation, to his poor leadership of the open up schools and businesses. It was a pre-election budget “unprecedent bushfire crisis” and Clearly, this does not mean the founded on some bold his government’s dismissive crisis has passed. Maintaining assumptions. It promised tax cuts, attitude to the climate public health and rebuilding the congestion-busting infrastructure emergency3. Ironically, at the economy remains a critical and more doctors and mental same moment, the World communal problem. health services for the bush. These Economic Forum4 identified benefits wouldn’t arrive straight climate action failure as the top Indeed, as we emerge from the away, of course, but in the next global risk. unifying clarity of virus-induced four years (or the four years after isolation into the uncertainty and complexity of the world beyond, it that). At the time, journalist Navigating into the storm Annabel Crabb1, commented “In seems that the challenges might this environment of global On 25 January, the first case of only escalate. Business leaders are unpredictability we now inhabit, coronavirus was confirmed in genuinely questioning “What is on the very idea of forecasting four Australia when a man returned the other side of the storm?” and 5 years into the future feels from Wuhan, China . “What do we need to do now to thrive in the months ahead?” bizarre.” By mid-March Australia’s borders were closed and social isolation The federal government was A clear role for government returned to power in May 2019 was imposed. Now, nearly two thanks to “the quiet Australians”. thirds of businesses are suffering Averting the health crisis has Prime Minister, Scott Morrison, plummeting demand for their incurred an economic crisis. 6 reassured voters the economy was products and services , and Nearly 800,000 Australians have strong, resilient and under the governments take on debt lost their jobs. Millions more have Coalition’s plans would “keep exceeding $320 billion (16% of had their work hours reduced or 7 8 ticking along”. This was despite GDP) to prop up the economy . are working differently . the country’s economic growth On the upside, supermarkets are Unemployment is predicted to rise slowing to its weakest point since booming and farming prospects to between 10% and 15%. are up. Oil is being given away. the global financial crisis. So, the priority for government is In October 2019, AICD’s Chief By world standards, Australians clear: to restore economic growth Economist, Mark Thirlwell, said have navigated the COVID-19 so that people can return to work “The Reserve Bank says that the crisis remarkably well, thus far. and debt can be repaid.

INNERGISE | Beyond the storm Page 5 inequality, will economic inclusion be on the private sector agenda?

And does the disposition and capability exist within our business community to navigate and thrive in a world of uncertainty, within a community that generally views it as unethical12.

Uncertainty on steroids Any assumption that coming out Figure 1. Before the pandemic, Australian businesses were considered competent but of social isolation means “getting unethical by the general population (Edelman Trust Barometer, 2020) back to normal” is naïve. Many businesses are already adapting Remember that our economy was savings may be the priority of their business models (think tele- faltering before we encountered households for many months. So, health) and social attitudes are COVID-199. So, it will be essential we should expect a lower than changing. Indeed, there are good to remove major impediments to ordinary level of consumer reasons to argue against returning economic growth. Taxes on demand over the medium term. to our prior state of thinking, income, consumption and land That is, consumer spending operating and governing. must be reformed along with should not be looked to as the While the social disruption innovation policy and industrial stimulus for an economic experienced in Australia is less relations. At the same time, people recovery. than other countries, and will be seeking government consequently the political impetus support for education and A critical role for the for change is lower, there will still retraining as many of the jobs that business community be a suite of policy reforms by were lost will not return. federal and state governments. Consequently, there is a critical These represent just one aspect of To pay down debt, governments role for private investment and the uncertainty and complexity will also be looking for cost the business community in that businesses must navigate. savings rather than raising taxes. Australia’s economic recovery. Any increase to business and How the community responds to Like governments, the private household costs puts confidence, circumstances will have major sector is seeking the highest spending and thus the economy at consequences too. Current crises impact, least cost way of greater risk. have raised big questions like “Is rebuilding consumer confidence the economy serving private and demand. Business leaders will Muted consumer spending interests at the expense of public be keenly focused, endeavouring interests?”, “Who are the most While the Australian Government to ensure that every dollar spent essential workers?” and “Are we has taken on considerable debt to creates maximum value. keep people in jobs it has not more entwined and vulnerable to reached all workers10. Many are But in a society where COVID-19 Nature than we think?” More now having to draw on limited has increased unemployment and fundamentally, as people move savings and superannuation to through different environments, survive. If the need for social isolation drags on, more businesses and households will become bankrupt. “How do we make sense of the situation? Indeed, Australian households are I’m not sure anyone can.” already the most indebted in the world11. Paying for basic John Mullen, Chair of Telstra and Toll Holdings13 necessities, paying down debt and establishing some precautionary

Page 6 Beyond the storm | INNERGISE Figure 2. Responses to the coronavirus crisis could be many and varied making it virtually impossible to predict the medium-term future with any confidence.

like public transport or high- Leading your business What then are the practical density apartments, they will be response actions you should take to asking “Do I feel safe?” maximise the odds your business How we respond to these and and its stakeholders can thrive Quite simply, many shifts in other questions as leaders in over the medium term? community expectations, public business, public enterprise and policy and economic and business the community will reflect our GOVERNING WITH PURPOSE activity are possible locally and sense-making capability and Prior to COVID-19, company abroad (see Figure 2). The values. It will be reflected in the directors, investors, regulators combinations and permutations choices we make. Those choices and academics around the world are vast, making the medium-term could create confusion, fear and were debating and revising the future impossible to predict. anger or comfort, hope and role of business in society16. Now productivity. this question is front and centre …

INNERGISE | Beyond the storm Page 7 and the answer has possibly never To be able to lead and govern your BOX 2 mattered more. organisation with clarity, Scenarios aren’t optional creativity and conviction, you While executives are busy dealing should examine the ideology that Scenarios have always been a with immediate issues of business shapes your organisation. Discuss feature in good strategic analysis continuity, directors should be these five questions: but now they are essential. reviewing the expectations, Your scenarios should be framed material issues and direction of • How is the role of our business around business-critical variables the organisation in the medium in society changing? that have uncertain outcomes. term. • What societal outcomes can we influence effectively, Work across multiple time constructively and responsibly? horizons, discerning between • If consumption is the route to short-term changes triggered by economic recovery, what the shock of COVID-19 and characteristics make goods and longer-term shifts arising from the enduring stress it has created. services worthy for consumption? What trends are reliable and • How is our business purpose which are speculative, and what more or less relevant? Do we factors while concerning are less need to pivot? relevant to your industry or BOX 1 • What are the big assumptions business? Climate change, for Why are we here? we’re making that might not be example, will be a feature in all We must learn from this crisis. true? scenarios as it presents a The tragic and ongoing loss of significant, predictable and thousands of lives must not be in LEADING STRATEGICALLY enduring condition. vain. This means facing into the Business leaders have always had Identify options for action, real root causes of the dual to negotiate uncertainty. Now it’s particularly those that are health and economic crises, and more vivid and confronting. But sensible under a number of what’s required of us in building rather than fighting and reacting different scenarios. Remember more a resilient, prosperous to it, you could be assertive and that it’s not about starting with society. embrace it. Many business leaders the perfect plan; it’s about being Leading scientists have will not have experienced a similar on the fastest improvement 17 demonstrated that rampant opportunity to redirect, declutter trajectory . and energise their business. Four deforestation and exploitation of Beyond the immediate insights questions to examine are: wild species has created the scenarios provide to build robust perfect storm for the spill-over of • What do we need to do to business strategies, they also diseases. Today, roughly 70% of build a collective awareness how enhance the clarity and power of emerging human diseases circumstances can change. This our strategies? originate from contact with wild enables an attentiveness to the 14 • What are we collectively animals . early signals of emerging inspired to create? important shifts. So, while it might be politically • What are the three business- expedient to relax environmental shaping choices that are crucial Indeed, it may be wise to brace standards to prop up industries, it for us to make? for another crisis. In Australia, we essentially subsidises the • What recalibrations should we are probably just lucky that we emergence of future pandemics. weren’t fighting bushfires at the make to our risk appetite? While the cost of environmental same time as the coronavirus protection and rehabilitation may Make sure the board and outbreak. Could your be billions of dollars per year, a executive team discuss these organisation survive, say, a water- pandemic can cost trillions. By things together. You will need to borne virus outbreak at the same the end of 2020, “rich-world build a collective consciousness time as a cyber-attack or a warm public debt” could run to $66 and make sense of the uncertainty conflict in south-east Asia? trillion or over 120% of GPD15. together. Otherwise, different interpretations of the business

Page 8 Beyond the storm | INNERGISE conditions will hamper effective decision making, sap confidence and destroy alignment and “Resilience is no longer a theoretical concern. productivity. Companies and countries have been made

ENABLING GROWTH painfully aware of the fragility of the critical In the midst of a recession it systems on which they depend.” might seem that there are no growth opportunities. But change 18 Rich Lesser and Martin Reeves brings opportunity. To be successful, you need to adjust your perspective and expand your Some questions to help identity • How do we align our financial economic imagination. Consider: productivity improvement arrangements and shareholder • What now are our customers’ opportunities are: expectations? unmet needs? • What initiatives should we stop Try to move beyond incremental • What do customers value more because they add little value? adjustments to budgets to make now than before? • How can we achieve greater sure you are resourcing for the • How can we make customers utilisation of valuable assets? future, not the past. more “sticky”? • What service extensions can we • How can we act more nimbly offer to existing customers? than our competitors? • How should we refocus our • How is your market access innovation, research and changing? What partnerships development investments? can expand our access? • How can we engage our people • What market segments could to drive week-on-week benefit from our capabilities performance improvements? (e.g. clothing manufacturers • What parts of the business are producing protective masks) BOX 3 over-optimised and • What should we divest and/or consequently fragile? Solve problems better acquire to facilitate future • What low value, highly It is confronting but true that growth? repetitive work can we much of the time people are It might be that your access to automate? solving the wrong problems. It’s a major impediment to productivity international markets is impeded FINANCING GROWTH growth. To overcome it, first but local demands are growing, Beyond the short-term issues of encourage people to ask, “Are we particularly for simpler, lower cost cash flow and solvency, you need solving the right problem?”. products that can be trusted. to set the business up to fund Customers might particularly Second, maintain a sharp focus growth over the medium term. appreciate service options that on those things that create value This may require you to rework allow them to expand over time for your customers. Don’t assume your budgets. and pay on an instalment basis. a business-as-usual response is still fit for purpose, nor jump at • What functions should be ENHANCING PRODUCTIVITY the first solution idea. Generate a operating on a survival budget? Emerging from COVID-19, all range of ways the customer value • How should we adjust cash organisations will need to invest and outcome can be delivered. reserves and access to debt to carefully. Every dollar spent needs fund future growth? Third, make a range of small bets. to create value. So, how do you • What provisions do we need to Reduce your investment and risk best allocate resources on a day to make for bad debts and by trying solutions as quickly and day basis, particularly when so simply as possible. Embrace and inflation? much is uncertain and conditions improve those that work best. • What non-core business can still change quickly? Learn fast and compete on the functions can we outsource to basis of your rate of learning. reduce recurrent costs?

INNERGISE | Beyond the storm Page 9 • How could we derive value by • What workforce capability to do exceeding minimum regulatory we need to build (or access) to standards? enable our future business? • How can we make regulations • How can we equip our people to irrelevant? make decisions as if it were their business? LOOKING AFTER YOUR PEOPLE • Who should we engage to think Over the medium term, the work with and coach our executives? BOX 4 environment has the potential to Remove your own red tape be tremendously exciting but also Summary very stressful. The pace of learning While systems, procedures and and adjustment will likely be high. The dual health and economic rules have their place, they can People will learn lessons that will crises triggered by coronavirus also stifle innovation and be a serve them well throughout their present the greatest challenge to significant self-imposed ‘red tape’ careers. But this will also expose our communities, governments cost. In fact, Deloitte Access people to mental health risks. and businesses since the Second Economics found that the cost of Those that can’t cope with the World War. And as we emerge complying with self-imposed from the crisis, the challenges will rules in the private sector is pressure will be particularly likely exceed those going into it. double that attributable to vulnerable. So, look after your Reforms will be necessary and will government regulations19. people, from the top floor to the shop floor. Make their health and not be easy. There will be winners It can be a better investment to welfare an authentic, overt and losers. equip people to make good priority. decisions on the basis of values, For many it is a distressing time good-business principles and MAKING IT HAPPEN and the future can appear bleak. A customer interest than to follow The question then becomes “Can desire to “get back to normal” can ever-expanding rules and you pull this off?” Do you have the be coupled with the hope that the procedures. leadership skills, culture and economic recovery won’t be too painful and future circumstances alignment to succeed? Based on not so different to before. But REMAINING HYGIENIC the low levels of productivity and hope is not a strategy. Nor is there While you are making the innovation commercialisation room for complacency. We will business fit for the future, you occurring prior to our current not “return to normal”. can’t forget matters of hygiene. crisis20, it’s reasonable to assume The business must remain viable many organisations will struggle. Responsible business leaders by complying with regulations and Undoubtedly, it presents a should get on the front foot. mitigating critical business risks. challenge (and growth Change brings opportunity. Of course, there are also opportunity) for many business Indeed, our current crisis provides 21 opportunities here for value leaders . an unequalled opportunity to creation. It needn’t just be a drain Furthermore, no business leader refocus, declutter and energise on resources. Some questions to can gather all the data, make businesses. For business leaders explore are: sense of the complexity or have all with ambition and vision, it is an immensely exciting prospect. • Who is responsible for keeping the answers. So, tap into the talent and potential of your people. There is reason to be confident, close to regulators and emerging and confidence matter policy shifts? Invite your people take ownership for the business success, because enormously to your investors, • How will safety expectations it is their jobs on the line too. staff and the wider community. evolve in a post-COVID-19 world? Consider the following: While management teams deal • How can we benefit from a with the immediate issues, it is up heightened focus on cyber • Are executives clear about the to directors to start to do the resilience? risks we want them to take? deeply thoughtful work in • What adjustments in our • What missions can we use to supporting the executive to financial and business reporting align everyone’s efforts? reposition businesses for growth will enhance trust? • Are our decision-making criteria over the medium term. A good clear and applicable by all staff? place to start is some powerful questions.

Page 10 Beyond the storm | INNERGISE References 12. Edelman Trust Barometer 2020 (Australian edition) 1. Annabel Crabb (2019) Federal Budget 2019 sees Josh 13. Narelle Hooper and Jane Frydenberg make a noisy debut Southward (2020) What — but we've seen this act before, happens next? Company

ABC News (online), 2 April Director, Vol. 36 Issue 4, pp 16- 19 2. Ipsos (2019) Director Sentiment Index: Research Findings, 14. Eduardo Brondizio et al (2019) Second Half 2019, Australian Global assessment report on Institute of Company Directors biodiversity and ecosystem (AICD), Melbourne services of the Intergovernmental Science- 3. Laura Tingle (2020) Are the Policy Platform on Biodiversity bushfires Scott Morrison's and Ecosystem Services, Hurricane Katrina moment that Intergovernmental Science- he can't live down? ABC News Policy Platform on Biodiversity (online), 4 January and Ecosystem Services 4. World Economic Forum, The (IPBES), Bonn. Global Risks Report 2020, 15. The Economist (2020) The Geneva. pandemic will leave the rich 5. Department of Health (2020) world deep in debt, and force First confirmed case of novel some hard choices, 23 April coronavirus in Australia, 25 16. David Walker (2019) What is the January, Australian purpose of the corporation? Government, Canberra Company Director, Vol. 36 Issue 6. Andrew Stevens (2020) 2, December 2019 Repositioning for recovery, 17. Martin Hirt et al (2020) Getting Company Director, Vol. 36 Issue ahead of the next stage of the 4, pp 48-49 coronavirus crisis, McKinsey & 7. Mark Thirwell (2020) Fighting Company the fallout, Company Director, 18. Rich Lesser and Martin Reeves Vol. 36 Issue 4, pp 38-39 (2020) Leading Out of 8. Alex Collie (2020) 90% out of Adversity, 9 April, BCG work with one week’s notice. Henderson Institute These 8 charts show the 19. Deloitte Access Economics unemployment impacts of (2014) Get out of your own coronavirus in Australia, In: The way: Unleashing productivity, Conversation, 28 April Building the Lucky Country 9. Stephen Letts and Michael Series #4, Deloitte Touche Janda (2019) RBA cuts interest Tohmatsu, Sydney rates to new low of 1pc amid 20. Ian Jacobs (2018) Australia can slowing economy, prompting big do a better job of four banks to respond, ABC commercialising research – News (online), 2 July here’s how, In: The 10. Paul Karp (2020) Jobkeeper Conversation, 3 May payment: check your eligibility. 21. Peter Gahan et al (2016) Here's everything you need to Leadership at Work: Do know to register. The Guardian, Australian leaders have what it 30 April takes? Melbourne: Centre for 11. Chris Pash (2018) Australia's Workplace Leadership, household debt is now one of the University of Melbourne highest in the world, Business Insider Australia, 18 January

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