Coronavirus and business vulnerabilities: How to manage disruptions?

As the enormity of the Covid-19’s probable economic fallout dawns, the fundamental question is whether the businesses and corporates in the Middle East have envisioned the level of impact it will have on their business continuity plans. The novel coronavirus has presented corporates with an unprecedented situation, which will not only change the way organisations approach continuity planning, but also their operating models. In this article, Dr. Saeeda Jaffar, Managing Director of Alvarez & Marsal’s Dubai office, highlights how corporates can best navigate the short-term volatility and take a front footed approach to ensure business continuity and resilience.

Reconsidering plans

While the long-term economic impact on companies across the Middle East remains uncertain, management teams are going to need to relook at their business continuity playbooks. It is unlikely that many organisations will have envisaged the level of impact that COVID-19 presents and built that into their continuity plans.

The path to digital is going to accelerate

We believe the outbreak will accelerate the path to digital. The current pandemic has proved to us just how vulnerable physical infrastructure is. In today’s world, to have a truly practical digital offering is a non-negotiable. Public and private institutions are having to encourage their customers to interact through their digital facilities as far as possible. As they look to reduce the risks of transmitting the virus through human interactions, companies that have been undertaking digital transformation programs or promoting new technologies are going to be in a position to see much more rapid adoption of their digital offerings.

Supply chain approach needs re-thinking

COVID-19 shows that more resilient supply chain models are now needed. At this point, we are heavily reliant on highly concentrated supply chains, notably with China as the supply market. We’ve seen through the disruptions of the past two months that this brings significant operational risk. Delays in deliveries causing stock shortages would lead to a decentralised operating supply chain model.

Future supply chains are going to need to build some slack into the system. Supply chains have got to a stage where they are highly optimised: lean and hyper-efficient. But as recent disruptions show, there may need to be a bit more buffer with a little more flexibility around inventory built into the overall supply chain system. Companies will need to activate more sophisticated analytics and scenario modelling to assess their supply chain efficiency and where potential supply issues lie. In the medium-term that will need to consider more-aggressive COVID-19 infection scenarios.

Implement tactical measures

As the pandemic rages, the speed of response to the crisis is extremely critical. The reality of the future is likely to be that there is going to be a lot of pain in the system. The question for all organisations is ‘what are you going to do today to try to limit the future downside? Organisations will need to move earlier, act more boldly and examine more deeply than they might ever have imagined.

It is ever so important during these times to undertake a pre-mortem of the various operating and financial realities the business may face in light of varying possible scenarios. When conducting these pre-mortems, organisations should ask themselves, what are the cash flow implications of each, and what operational, strategic, and financial measures are needed to be put in place today, to put the company and its people in the best situation possible under each possible scenario.

We applaud the news of the Central Bank of the UAE rolling out a Dh100 billion economic stimulus package to offset the impact of the coronavirus. As the Government of the UAE acts fast to implement containment measures and a considered approach towards sharing updates, it bolsters confidence in the business community.    

While the depth and extent of the economic impact in many companies is unfeasible to forecast, China’s experience points to a scenario that companies should prepare for. Bearing in mind the time, it takes to formulate, disseminate, and apply new policies in large companies, recovery planning needs to start while you’re still reacting to the crisis.

Instead of thinking that what worked in the past will continue to work in the future, it’s more crucial than ever for companies to rethink their approaches to preparedness. It’s time for companies to embed a cash culture, optimise the capital structure, review all non-essential and non-value added costs,  leverage government stimulus, balance out the pain by offering more comprehensive and tactical solutions on-ground and making a real sustainable change.

* Any opinions expressed in this article are the author’s own

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