The COVID-19 outbreak has proven to be a significant exogenous shock, impacting both demand and supply sides of the world economy. Given the universal drop in generalized demand and supply chain distress, many businesses are threatened with short-term liquidity shortages and weak long-term consumer prospects.
Contact our Bâton Global data-analytics team for on-demand support managing liquidity and dynamic scenario planning
Starting in March 2020, fiscal and monetary authorities worldwide deployed various economic stimulus plans to counterbalance quarantine measures. Meanwhile, respected corporate leaders and forecasters have cut their economic and sales forecasts for the year, while small business owners are calculating their remaining operation runway timelines.
At Bâton Global (B|G), we recommend leaders address imminent business threats while wearing their crisis leadership hats. We outline 4 key focus areas to address the short-term liquidity and profitability problem:
Get the house in order
In times of crisis, balancing execution speed with impact to the firm is the first priority. However, chaos and rapid change during a crisis may hinder organizations from achieving these objectives. Hence, it is important organizations enable quick decision-making by proactively managing data towards actionable insights, formulating data-driven solutions, communicating plans clearly to their workforce, and tracking impact.
These tasks can be streamlined into the following action steps:
Conduct dynamic data-driven scenario planning
Due to the shifting market forces and uncertainties created by COVID-19, organizations are required to make profound changes to their organizations’ budgets and plans. Scenario planning – powered by data – is an effective way to challenge prevailing mindsets and reconsider the range of future possibilities due to implications of the virus outbreak.
B|G has found that organizations tend to rely heavily on the expertise and intuition of leaders when planning for the future. Although knowledge and expertise are paramount in effectively operating an organization, data analytics can provide a more robust and widespread understanding of possible outcomes. Organizations have access to abundant sources of internal data including sales and expense data, and data from outside forces greatly impacting the organization such as economic, sociopolitical, and industry data. To leverage this data and perform dynamic scenario planning, B|G recommends the following approach:
Data-driven scenario planning supports leaders in making short-term decisions in times of crisis and long-term bets with a great deal of uncertainty. Effective scenario planning leads to increased margins, more efficient uses of resources, improved product differentiation, and less organization risk.
Balance sheet management fundamentals
COVID-19 has severely affected firms’ ability to sustain healthy revenue and cash flow figures. Thus, it is crucial for your organization to ensure balance sheet management excellence to optimize its cash cycle conversion through two key levers when possible:
Minimize the risk of eroding margins
The speed of the outbreak has prevented organizations from planning adequately for market changes, leaving them with steep declines in demand and relatively burdensome cost centers. Hence, there is an urgent need for firms to minimize profit margin erosion by optimizing revenue and costs as they wait for a recovery.
On the revenue side, leaders should develop short, medium and long-term plans to recover revenue. Three factors guide how firms can guard their revenue:
On the cost side, leaders should be laser-focused in preserving cash through cost-cutting measures. Prudent capital spending in the following key cost centers should be in place:
It is also critical to align incentives by rewarding staff efforts to save so that cost reduction initiatives do not compromise revenue-generating capabilities.
Is your team prepared?
Leaders must communicate clearly and earnestly during times of crisis. The key is to establish alignment on mitigative strategies within your workforce – harmonizing initiatives across business units to hit the ground running in recovering from COVID-19 shocks.
Most organizations lack experience operating under such conditions. Contact our data analytics team for on-demand support managing liquidity and dynamic scenario planning.