Business Dilemmas in Times of Crisis

Times of crisis put certain business models to the test, in operations or customer interaction, supplier and distributor relations, or whatever applies depending on the context (for example, whether the nature of the business is B2C — business-to-consumer—, B2B — business-to-business—, or any other).

This is where the great questions arise regarding adverse circumstances: What should the points of attention be? The priorities? Budget balance and its labels? Who are the strategic partners and how should relations and communication with them be conducted? How should tasks, positions and work be reconfigured within the team?

These great questions require great answers, developing operational and strategic plans that will address and serve to formulate actions from both a business and a market perspective. These plans seek to keep the company’s processes flowing, which implies: safeguarding cashflows and constantly monitoring liquidity, maintaining a solid or at least functional supply chain, interacting with customers in response to their expectations, and conserving the health and fluidity of collaborator team structures, among other matters.

Liquidity, in particular, has become a focal point. We must remember that some suppliers view it as a sign of the company’s operational strength and continuity. Past crises have demonstrated the importance of asset liquidity. An analogy could be having enough fuel when sailing out to sea. The greater the fuel reserve, the greater confidence and peace of mind will be, and the possibility of reaching greater distances with storage limitations and the opportunity cost of having excess fuel that might not be used.

Liquidity indicators, such as cashflow or the so-called acid test ratio (whose formula is current assets minus inventories divided by current liabilities), gain particular relevance when determining the extent to which companies can meet their obligations, especially in the short term. A ratio equal to or greater than 1 shows that the company has sufficient liquid and convertible assets to meet its payments, contrary to what would happen if it is less than 1.

Therefore, we need to understand and evaluate the challenges and opportunities involved. The former context will now have a new starting point that has been called the new normal, thereby inviting us to reconfigure ourselves under more flexible and resilient schemes, with a clear vision of the course to be taken in the short and medium term.

A more than 3% drop in the global GDP has been projected for 2020, in an unpredictable, highly dynamic scenario, where political ideology directives have been combined with their respective actions, in some cases with social resizing and economic challenges and interests. In fact, it has never before been so necessary to replace the word rigidity with flexibility in an environment where volatility, uncertainty, complexity and ambiguity constantly arise.

As in any crisis context, there are losers and winners. In this regard, there is a great deal of talk about innovation, a concept that should not be limited to product innovation, but extended to encompass innovation in processes, distribution methods, and technology adoption on different levels and scales, etc., making it more comprehensive, propositional and disruptive.

If the crisis caused by COVID-19 were to end today, it would take many businesses three months, at best, to regain a certain level of stability. However, neither market conditions nor business structures would be the same as before. Therefore, understanding the nature and impact of the crisis by business sector, size, context and market condition is crucial. This should form the basis for developing plans and action frameworks, without forgetting the stages of a crisis and its evolution towards a new context.