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Strategy is an over-used word in business today. Executives describe virtually any lose plan as a \u2018strategy\u2019 to increase the \u2018curb appeal\u2019 of their latest plan. Overused it may be, but it\u2019s the only word we have to describe a thoughtful and cohesive response to a challenge. There\u2019s nothing like a crisis to focus the mind on the need for \u2018a strategy.\u2019<\/p>\n\n\n\n
This isn\u2019t the first time society has been impacted by over-biting on spending and its \u2018trust\u2019 in banking systems to find the world as it knows it comes crashing down around its feet. There\u2019s even a name for it coined by experts in econometrics – a \u2018structural break\u2019 – the moment in time-series data when trends and the patterns of associations among variables change.<\/strong> Put another way, it\u2019s the point the behavioral norms of economies turn on a dime because of an external event. <\/p>\n\n\n\n <\/p>\n\n\n\n Examples of structural breaks include:<\/p>\n\n\n\n 1819-What became known as the first US depression happened just after the Napoleonic Wars and was triggered by real-estate debt, not too dissimilar to the subprime mortgage debacle that led to the financial crisis of 2007-08. Over-extended banks started calling in heavily mortgaged farms and business properties they\u2019d financed. It caused a financial panic, then a collapse. It led to the creation of a central banking system and for the first time, debt-relief came into the social consciousness. This panic led to the formation of giants in the fields of manufacturing, food processing, publishing, and energy including Consolidated Edison, Fairbanks Morse, and HarperCollins.<\/p>\n\n\n\n 1893\u2013Another credit crunch, this one triggered by the failure of traded railroad notes, led to the 1893\u201397 \u2018Long Depression.\u2019 Bluntly, there wasn\u2019t enough gold to underwrite all of the primary notes (Bonds). In the United States, five hundred banks closed, thousands of businesses failed, and one-fourth of all rail mileage in the U.S. went into receivership. And yet, the depression did not keep innovators down. In the twilight of this crisis, companies like IBM and The Hershey Company were born.<\/p>\n\n\n\n 1929 – The Great Depression that took place in the early 1930s that started with a major fall in stock prices happened in the United States on or around September 4, 1929. Between 1929 and 1932, worldwide gross domestic product (GDP) fell by something close to 15%. The Great Depression led to a resurgence in bartering, a re-think in household consumption, with many housewives returning to old recipes handed down from mother to daughter to make food go further by recycling Sunday roasts into sandwiches and soups. Meanwhile, fathers would sell space in spare rooms, offer to do repair work, and sought out cash loans. Structural breaks change attitudes and behaviors for a generation.<\/p>\n\n\n\n 1995\u2013Japan\u2019s \u2018lost decade\u2019 from 1995 to 2004 followed a period of high leverage and inflated land values. It was brought to an end eventually by another financial crash.<\/p>\n\n\n\n 2007-The financial crisis of 2007-09 was driven by over-extended trust in the subprime mortgage market. Those countries with lower bank lending like Poland and Slovakia actually benefitted during the recovery period, as (over time) did emerging markets like China and India.<\/p>\n\n\n\n <\/p>\n\n\n\n What we know from history is that these structural breaks render old ways and business models obsolete while almost always pointing towards the new kind of future. Therefore, when responding to a structural break, cutting costs alone is never enough. Change in markets and demands requires a root and branch change in approaches and \u2018systems.\u2019 Unfortunately, the other learning lesson from history is that any such a break creates large amounts of social unrest and human suffering, sometimes for extended periods of time.<\/p>\n\n\n\n In this article, I outline the long-term impacts of COVID-19 we can expect based largely on the fact that history tends to repeat.<\/p>\n\n\n\n <\/p>\n\n\n\n My son has Aspergers, so he thinks a lot. He is also grown-up and lives away these days. On our latest round of social distancing lock-down phone calls between households, the subject of the economy came up. Mason had been thinking about the economy and the impact COVID-19 would have on it. His assessment after days of desktop research – much easier now with Google than in my younger years – was that many companies and industries that were going to die anyway would now die prematurely. <\/p>\n\n\n\n It\u2019s no coincidence that organizations, like humans, appear to have a shelf-life. Markets change and, at their core, most organizations generally don\u2019t. They gravitate around one way of making wealth, and when that economic engine fails, it\u2019s proven by history to be almost impossible for any enterprise to re-invent itself. Okay, some business models (like water and food production) enjoy a much longer lease of life, but there are few scant examples of companies that have managed to re-invent and survive. <\/p>\n\n\n\n According to the British theoretical physicist Geoffrey B. West, in his presentation to the Santa Fe Institute on the 24th September 2015, \u2018Why Cities Keep on Growing, Corporations Always Die, and Life Gets Faster\u2019 (you can see on YouTube), there is strong statistical evidence to suggest that companies with strong business models enjoy strong growth for their first few years of life, then get fat and flabby in their middling years (becoming ever more unhealthy), decline in financial health in their later years, and then encounter an unprecedented event which, owing largely to other underlying health conditions, results in their death.<\/p><\/blockquote>\n\n\n\n COVID-19 seems to be indiscriminate in its selection of victims when examining the carnage it brings on societies and compare by age, color, or creed. But what healthcare professionals keep pointing out is that many of its victims had underlying health conditions. I am sure, when the dust settles and we look at the economic impact of COVID-19, we\u2019ll get a familiar account from economists. Businesses, industries, and economies of countries will suffer a similar epitaph to account for their loss of life.<\/p>\n\n\n\n <\/p>\n\n\n\n There is no place for nostalgia in business. The HOVIS bread trundling down cobbled streets along the quaint streets of a Yorkshire town to the subtle tones of Dvorak\u2019s New World Symphony didn\u2019t exist, but that\u2019s how most English people like to think about their morning bread delivery. Similarly, the audience glued to their TV screens to watch an old man in a leather-bound chair hand his beloved grandchild a Werther\u2019s Original didn\u2019t worry too much that the recipe sweet had just been invented. Of course, there are REAL THINGS about our society that are much more true to life. People in England still aspire to walk down the high-street of their Town and not be faced with empty shop fronts. Likewise, they still like the \u2018idea\u2019 of crowding around a fierce open fire in their local Pub (Public House) to meet with neighbors and discuss the day that\u2019s gone before.<\/p>\n\n\n\n Unfortunately, this is a false reality in the digital world. As humans, we enjoy the nostalgic notions of one ideal, then serve ourselves in a way that results in something else: <\/p>\n\n\n\n There are many companies, industries, and economies that were already failing before COVID-19. Some retailers were on their last throw of the dice and calling in administrators when the first chimes of COVID-19 rang out around the world. Nothing was going to save these companies, not a bung of extra cash from hard-pressed shareholders, not a government bail-out\u2026 nothing. They were living on borrowed time anyway. All that the pandemic of 2020 has done is to hammer down and tap the final nail in the coffin.<\/p>\n\n\n\n <\/p>\n\n\n\n It did surprise me how slow some local businesses in my area were to react to this new reality, and how few have seen it as an opportunity to re-invent themselves. Many came into this crisis without a website that worked. Four weeks in, and still nothing. Others had no means of arranging door-to-door deliveries. Few tried to correct that situation, all presumably expecting things to go back to \u2018normal\u2019 after a few weeks of lock-down. (Wrong.)<\/p>\n\n\n\n Our local butcher did nothing to start delivering door to door when the lockdown started. The baker did – but charged a King\u2019s ransom for delivery. None of the local farms contacted us to offer a practical way to get food delivered to the door, or collected, in a safe way. Not even Tesco\u2019s, the darling of the British retail sector, was able to come up with sensible precautions to make safe collection or delivery possible. Instead, they petitioned customers to continue to come into the stores. What followed was a weird kind of stand-off. The customers wouldn\u2019t visit stores. Tesco\u2019s didn\u2019t re-equip its supply chain to address the new demand. <\/p>\n\n\n\n Then came the early shoots of innovation. Like many old Tesco\u2019s customers, we went elsewhere for our produce. We bought pies delivered to the door by the local pie maker. We found a local supplier of eggs, also a local farm shop that agreed to deliver fresh veg. Then, we hit on using a local \u2018egg man\u2019 and started buying fruit and veg from the local Friday market-stall guy who offered to do his own version of \u2018click and collect\u2019 on Facebook.<\/p>\n\n\n\n I shouldn\u2019t be surprised by the intransigence, unwillingness and the general heel-dragging of leadership teams to change their business models. Nobody likes change. During my career, I\u2019ve encountered leaders of many large and small companies who wanted to bury their heads in the sand when the economic engine of their business was disrupted by competitors or a change in market conditions. Normally, the writing is on the walls and a new future has shown itself, but incumbent players and old rivals in a market (that\u2019s still making hay on an aging business model) are often reluctant to adapt. Notable examples include: <\/p>\n\n\n\n \u201cA corporate crisis is often a sign that the company\u2019s business model has petered out\u2014that the industry\u2019s underlying structure has changed dramatically, so old ways of doing business no longer work.\u201d <\/p>Richard P. Rumelt ,McKinsey & Co. – The McKinsey Quarterly 2009 Number 1. Strategy in a \u2018structural break\u2019<\/cite><\/blockquote><\/figure>\n\n\n\n One of the hardest things to cope with after weeks of lock-down is to forget \u2018how it used to be\u2019 before this all happened. How we suddenly crave to step into a hardware store, visit the Post Office, go for a beer, or walk in a park without having to check our course because someone else is on the same path. The mental challenge is far greater than the physical one (it\u2019s not too painful for humans to sprawl on a couch). What makes the mental challenge so difficult is the nostalgia of \u2018the way it used to be.\u2019<\/p>\n\n\n\n One of the methods I\u2019ve always used to implement improvements to organizations is to change lots of things at the same time. That way, people know they can never go back to \u2018how things were\u2019 because it\u2019s pretty obvious that old view of their world is gone. Unfortunately, with the lock-down today, only one thing has changed. We can\u2019t go out. For that reason, we crave for \u2018it to be over.\u2019 But whilst the confinement may relax, the problem hasn\u2019t gone away. Nor has the long-term impact of COVID-19 on human outlook and job security, on human behavior, and the economy.<\/p><\/blockquote>\n\n\n\n <\/p>\n\n\n\n After weeks of confinement, new ways become the new normal, and it\u2019s very difficult to turn back the clock. I was speaking to one business leader who told me he\u2019d never considered having his people work from home before. He didn\u2019t like the idea of people working alone, and he wasn\u2019t sure he trusted them. But now, after the great experiment of social distancing and lock-down, he\u2019s a convert. He\u2019s also paid for laptops and other IT to make sure they have what they need. After the crisis, he won\u2019t get any money back for returning all of that kit. Neither will his landlord agree to reduce rates on his office when the car park is half empty upon the great \u2018return to work\u2019 set before us.<\/p>\n\n\n\n <\/p>\n\n\n\n Any part of our fragile consumer economy that is framed around a weak economic engine – and therefore does not create enough profit to weather the storms of the next year or so – probably won\u2019t be here by 2025. Business leaders and consumers alike have to let go of old ideals and nostalgia. Things won\u2019t be as they were. Things have changed.<\/p>\n\n\n\n The digital economy has been given a massive stimulus, with clear consequences for any enterprise based on an analog economic engine:<\/p>\n\n\n\n <\/p>\n\n\n\n You can look upon COVID-19 as a global forced experiment on a generation of individuals. From this transformation in attitudes and behaviors we can expect to see grow a new normal: Think about how the Baby Boomer generation reacted to the lean economy they experienced as they were growing up, and how Millennials reacted to being placed on a pedestal during a time of plenty. It\u2019s as if, social conditioning happens without us noticing but businesses DO NOTICE when the cash registers are impacted by the choices young people make when they divert their spending to good causes.<\/p>\n\n\n\n <\/p>\n\n\n\n We can see examples of companies that will do well in this crisis. Netflix has added 16 million subscriptions to its service. Amazon has proved to be as vital to economies as social welfare systems. While Zoom has become a household name. I\u2019m sure the list of notables will grow over time. <\/p>\n\n\n\n \u201cEvery failed idea from the Dotcom bubble would work now.\u201d<\/p>Marc Andreessen<\/a><\/cite><\/blockquote>\n\n\n\n <\/p>\n\n\n\n I think from the social cues we\u2019ve seen, we can draw some conclusions:<\/p>\n\n\n\n <\/p>\n\n\n\n I started this article speaking of the Great Depression. Sometimes, we forget that circumstances are different between now and the period when the money ran out<\/em> in the last century. There is STILL MONEY in the economy. Most people continue to have money in their pockets. The difference is they\u2019re not stepping out of their homes to spend it. Companies need to recognize business models that work in a new digitally-enabled era of social distancing. They need to go where the customers are.<\/p>\n\n\n\n \u2018The customer is always right\u2019 – or so the saying goes. If customers want to buy products and services from their home, then that\u2019s what companies must serve. Never choose to argue with customers, or make emotional appeals in an attempt to encourage them to change their ways. You will never win that fight.<\/p><\/blockquote>\n\n\n\n I leave the rest of my summary to a commentary by the technologist Benedict Evans. You can read the full article here<\/a>. As Ben put it: <\/p>\n\n\n\n \u201cEvery time we get a new kind of tool, we start by making the new thing fit the existing ways that we work, but then, over time, we change the work to fit the new tool. We\u2019re all online now, and, just as importantly, we\u2019re all willing to use this for any part of our lives, if you can work out the right experience and business model. Today, anyone will do anything online. A lot of companies will be born in nine months, and more of them will be the next Slack or Dropbox than the next Zoom. \u201d<\/p><\/blockquote><\/figure>\n\n\n\n <\/p>\n\n\n\n Ian C. Tomlin is a tech innovator, international business consultant, researcher, and writer specializing in organization and business model design, growth, and digital transformation. He is CEO of the B2B marketing company Newton Day<\/a> and serves on the management teams of US Tech Solutions Inc<\/a>., Workspend Ltd<\/a>, Simplify Workforce Ltd<\/a>, and NDMC Ltd<\/a> – the management consulting business and owners of Encanvas software. He is the author of the 60-Minute Expert series of short-format business books and can be reached on LinkedIn<\/a> and Twitter<\/a>.<\/p>\n\n\n\n <\/p>\n\n\n\n GO WHERE THE BUSINESS IS: The economic impact of COVID-19 is here to stay, but that\u2019s not a terrible thing, for many businesses the outcome couldn\u2019t be avoided anyway. And a crisis always shines a torch on the future of commercial opportunity. An article on the long-term impact of COVID-19 on the business world In […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[9,33,35,47],"tags":[],"class_list":["post-1564","post","type-post","status-publish","format-standard","hentry","category-business-models","category-digital-ecosystem","category-digital-transformation","category-organizational-change"],"yoast_head":"\nExamples of structural breaks<\/h4>\n\n\n\n
The consequential impact of structural breaks<\/h4>\n\n\n\n
Like humans, companies and industries will prematurely die as the consequence of COVID-I9<\/h3>\n\n\n\n
The high-street and public houses you frequented in your younger years were dying anyway<\/h3>\n\n\n\n
Some companies ARE innovating their way out of difficult times<\/h3>\n\n\n\n
It\u2019s time to let go and say goodbye to old norms<\/h3>\n\n\n\n
We\u2019ve changed, not just the world around us<\/h3>\n\n\n\n
Which businesses, industries, and economies are likely to die?<\/h3>\n\n\n\n
A new normal<\/h3>\n\n\n\n
Final thoughts<\/h3>\n\n\n\n
There are always winners in a crisis<\/h4>\n\n\n\n
What will the new normal look like?<\/h4>\n\n\n\n
There is always hope – but don\u2019t try holding back the tide of change and expect it to work<\/h4>\n\n\n\n
About the author<\/h3>\n\n\n\n
Now Read<\/h3>\n\n\n