What learnings can we gather from the experience of Covid-19 and what will we change in our legacy business models?
This pandemic crisis, having “frozen” current business models, is creating a significant disruption to the worldwide economy. The impact varies from sector to sector, some exceptions being e-commerce and life sciences but, overall, it is trending towards a global recession. How far and how long the recession will be is the question that we all have. What is clear, is that this new “shut-in” economy requires change. Fast and deep.
Article by Giorgio Merli and Alessandro de Luca
The world was already evolving towards a more digital, data driven economy prior to Covid-19. All this has now been accelerated 10x, the evolution is becoming a revolution. Looking at the new situation with the “eyes from the past” is simply a waste of time and resources. The point of no return has been passed, we now need to focus on how to change our business models and which are the new capabilities to be developed.
Let’s understand the problems that the Covid-19 crisis has highlighted:
- Many supply chains, designed and operated on a global basis, have failed to guarantee a reliable supply.
- The manufacture of critical products (such as medicines, health supplies, lab equipment, as well as some basic food…) cannot be entirely outsourced delocalized. because this strategy has now caused severe shortages in several countries.
- The lack of flexibility and agility of some End-to-end supply chains is evident when demand for “protective masks” and related items surged dramatically.
- Companies, who did not plan to evolve their business models towards more digital offerings are struggling the most, whereas e-Commerce companies are thriving the most.
- Same applies for “smart working”. Whoever was able to transform themselves by enabling their employees to work remotely are surviving. The others are in “waiting mode”, to say the least.
What can be done to “survive” in the short term? We have listed below 3 points that will set the stage on how best to navigate through the middle of the Covid-19 crisis
1) BUSINESS MODELS: as we have seen, the world has turned towards e-Commerce and different models of home delivery as a vital way to manage the supply of food (and other things) during the confinement period. This has created a significant shift in skeptical customers to using digital platforms and this shift will probably be maintained (in part or entirely) in the post Covd-19 world. This move towards “digital solutions” is also relevant for supply chain(s) to be able to supply customers expecting the “right product at the right place at the right time” but also in managing financial transactions i.e. boosting the use of cryptocurrencies and its related technology (i.e. blockchain). It therefore becomes obvious that companies who master Product, Information and Cash flow will be the front-runners in their specific sectors.
2) PEOPLE/WAY of WORKING: similarly, Smart Working will emerge and continue in a sustainable way. Companies who have proven to be more agile in developing, implementing and rewarding this new way of working will have a clear competitive edge in the new world where social contact and travelling will become the exception rather than the norm. This will induce a de-urbanization from big cities (with all the social implications related to it) and will require a robust and reliable digital network infrastructure. As in the ‘60s, the creation of highways was an economy booster by accelerating the efficiencies of road distribution, today the “new highways” will be the digital networks where speed will not be measured in miles(kilometers)/hours but in T-bite/seconds. It is important to consider that countries like China, who has advanced greatly in terms of 5G adoption, will have a significant competitive advantage versus the USA who seems to have understood a bit later the power of this technology. Europe also seems to be lagging behind this last technological train…In parallel, to technology it is crucial to understand that successful “Smart Working” will occur only and upon the development of new skillsets such as virtual communication, digital interaction, agile working schedule, self-discipline. This will generate the need for a new reward system within the corporate world, directed towards being task and goal oriented rather than focused on time and effort.
3) SUPPLY CHAINS: the supply shortages caused by the current crisis will have to be mitigated by activities of “Re-Shoring” (geographical re-localization of elements of the supply chain in proximity of markets/customers) and “Re-Insourcing” (re-thinking what to produce in-house vs what to be outsourced to third parties). There will be a need to create “Agile Capacity” in terms of capabilities of fast scale-up or scale-down of the overall chain in order to cope with high volatility of demand (driven by over-stocking panic from the customer and/or speculative buying) and the even higher variability of supply driven by all supply chain disruptions). We must move from Lean towards Control Tower Supply Chains.
The 3 points above are “just” some mitigating actions to survive the crisis but what are the “Must Haves” in order to effectively compete in Industry C.0 (post Covid-19)?
C1) NEW VALUE PROPOSITIONS: it is time to rethink product/service offerings to customers in a world that will be much more virtual than the one we were used to. They will look for digital solutions that encompass product & service into one single value proposition. This means that companies should accelerate their journey to start selling “product as a service”. In some industries this trend had already started some years ago (selling cars via fleet management, smart phones via subscriptions, etc..), in others this will require a total rethink of their current system. Let’s think about fitness centers, they will have to develop virtual coaching combined with renting, on-demand, fitness equipment… In parallel, there will be an acceleration of the concept of “Pro-Sumership” i.e. giving the option of products produced to custom-made design. This could mean not only simple “self-ordering/delivering” (eCommerce) but also “self-customization” (on-line product design and order). Going a step further, “pro-sumership” applied in a B2B concept would mean a “self-engineered” partnership between two companies and, even more advanced, a “self-design” customer-supplier approach.
C2) NEW SUPPLY CHAINS: in a world where VUCA (Volatility, Uncertainty, Complexity, Ambiguity) is the norm, there will be a paradigm shift from Globalization to Localization and all previous discussion about what is strategic to in-source and what to outsource will be challenged. It will be the time when Supply Chain Re-Design is key. We would need to incorporate “agility” into processes and transactions, we would need to identify data integration/digital solutions that today will be a “must have” (contrary to previously being “nice to have”). For this holistic redesign, a new functional role is needed: supply chain architects. These individuals will be able to i) rebalance supply chain footprints between local suppliers (short lead-time and flexible solutions) and global providers (scale efficiencies), ii) redesign the digital system architecture and data infrastructure and iii) increase the speed of the decision process (S&OP/IBP).
C3) NEW TECHNOLOGIES: AI, machine learning, advanced analytics, blockchain…….Several new technologies are rising very fast but one, among many others, will be extremely important for industrial operations: Digital Twins (a digital replica of a physical object, product and/or service). This technological development will become key to accelerating the journey towards servitization and pro-sumership by enabling an effective and efficient modelling of reality with advanced analytics techniques. In fact, Digital twins, when used in the industrial context, are extremely powerful in providing a safe (virtual) environment for testing the impact of changes on the performance of a specific manufacturing system or supply chain with minimum capital investment.
C4) NEW SKILLSETS: it goes without saying that this unprecedented change in business models, supply chains and technologies will require a major “upskilling” and “reskilling” of the overall workforce and management. We will face the confluence of two major “game changers”: the post-Covid-19 society and the rise of millennials and Gen-z both as customers and as a workforce. We will need more “data miners, engineers, scientists” fully skilled in advanced social selling, digital supply chains, social media listening and with great communication capability. We will need to reward and boost soft skills as “creative & critical thinking”, “communication”, “curiosity”, “adaptability”. The new generation of management will look more “Steve Jobs” and less “Jack Welch”. And, more important than anything else, all of us will develop the “mindset and ability to learn continuously and independently” which will ensure we remain adaptive and effective in a fast evolving world.
C5) NEW RISKS: one danger on the horizon is the risk of cyberattacks, which keeps increasing day-by-day following the digitalization of processes, transactions and services. This threat is even more evident today as many companies, in the rush for digitizing-for-surviving, are by-passing some basic cybersecurity principles and creating vulnerabilities in their systems. So, there is a “dark swan” related to a new virus, this time an informatic one, that could seriously shut-down the overall industrial (and social) backbone of society making Covid-19 look like its “little brother” in terms of economic impact…….It is definitively paramount to invest seriously and promptly on cybersecurity at individual, company and society level. This includes the creation of “BCP” (Business Continuity Plan) and Risk Management activities that till now have been under-prioritized and under-rated. Let’s learn the lesson from the current crisis and become much more proactive for the concerns of cybersecurity.
C6) ETHICS: it becomes paramount to escalate the ethical discussion about the use of data and respecting privacy. This is an area where we all need more transparency, effective regulation and individuals/society making conscious choices. The good news is that technological solutions, based on Blockchain, are enabling the concept of anonymization of data by encrypting data streams and creating a “virtual separation” between data owners and data users. The importance is in understanding which solutions are truly secure (for privacy reasons) while providing the requisite features for easy adoption (otherwise they will remain niche). For example, several apps currently being developed to trace anonymous individuals with “potential Covid-19 symptoms” are absolutely a Must Have to contain/avoid the recurrence of this pandemic in the future. But how we can ensure data privacy? When can the government enforce obligatory vs voluntary use? How do we deal with different regulations for different countries in a world where people (used to) travel from one country to another?
These questions go well beyond the scope of this article but they will have to be answered in the global context. But for now, the task of your business in the post Covid-19 world, is to decide which ingredients will create the right recipe to design and implement your new business configuration better and quicker than your competitors.
About the authors:
Alessandro de Luca
CIO of Merck Healthcare, formerly Supply Chain executive in FMCG’s industry
Giorgio Merli
Consultant to Multinationals and Governments, Professor in several Universities, currently Senior VP of EFESO Management Consultants
