Crises are the ideal time to make big changes to create a better future.
So why aren't companies making them?
for one of the world’s most iconic car makers. In early 2020, Maserati had finished designing a new sportscar, its first in 15 years. The over-100-year-old company now
needed a complete rebranding that would be ready to complement the car. But as everyone knows, that was just when the pandemic hit, and Maserati, like every other auto mobile manufacturer, found itself facing a world where car driving—and buying—hit the brakes. In that environment, the question was painful but obvious:
the moment of truth
Russell Pearlman
Contributor,
Korn Ferry
Institute
It was
Three-quarters of a year into
the pandemic, companies that thought they would undergo dramatic transformations haven’t.
The Problem
Firms that have changed leadership, come up with new innovations, and shaken up operations are already
overtaking competitors.
WHY IT MATTERS
Experts say instead of trying
to return to pre-pandemic operations, leaders must shift their mentality toward envisioning a wholenew future for their firms.
THE SOLUTION
Now what?
In this case, the answer was to push forward—somehow. Maserati is based in northern Italy, at the heart of COVID’s early devastation, but the company kept focus. According to Davide Grosso, Maserati’s chief operating officer, leadership decided to showcase the new car in September, a fairly bold step given the world’s conditions at the time. Then, even as the pandemic kept many Maserati employees scattered across multiple countries, the carmaker plowed through a complex and costly rebranding, a process that overhauled the firm’s ads, pricing strategies, even its logo. “This was a way to reinvent ourselves. We couldn’t have afforded to wait,” Grosso says.
The carmaker’s actions are actually what many companies early on this year had been hoping they would do during the crisis. Without a doubt, a virus that has killed more than a million people, sickened more than 44 million worldwide, and closed economies for months is truly a horrible event. But across the globe, CEOs and boards knew from past experience that such times can create opportunities for the future. Indeed, some great business innovations have followed painful crises. The thinking in one C-suite after another was that the great pause COVID-19 initiated might give their organization time to go through a full face-lift —redefining customer experiences, restructuring supply chains, and even completely rethinking their relationships with employees. Branches and products that hadn’t produced in years might finally be shuttered. Entire new operations and corporate structures could be created.
The C-suite would look entirely different. To be sure, the world has seen corporations adjust and change—think of the explosion in e-commerce and delivery operations, for instance. Yet experts say a shocking number of firms have remained fairly at a standstill in the eight months since the pandemic struck. Far from boosting research funding, for example, companies worldwide have collectively slashed hundreds of billions of dollars from their research and capital spending plans. Mergers and acquisitions have fallen off a cliff. And a lot more CEOs have kept their jobs in 2020 thanin 2019. “You have external circumstances creating lots of opportunity,” says Todd Saxton, a professor of strategy & entrepreneurship at Indiana University’s Kelley School of Business. “But there are lots of firms still on the phone waiting for things to be ‘normal’ again.” All of which raises one obvious question that may be debated
for years: Why?
At the moment, many things are out of corporate leaders’ hands, but one thing they can control is setting up the firm to be innovative. Experts suggest investing in the following areas to help a firm flourish in the near future.
unstuck:
PROJECTS TO KEEP IN MIND
Adapt to what the customer wants and deepen your relationship with them, whether they are a suburban teenager or a billion-dollar automaker.
Customer
Interaction
Figure out which roles are truly critical to the organization, and which types of people are needed for those roles. Then implement ways to more effectively find new talent and evaluate existing talent.
Workforce
Remodel
Getting back to “normal” isn’t enough. The pandemic has shown that supply chains need to account for major disruptions.
Supply Chain
Overhaul
The pandemic has made millions of people rethink their values and needs. That will impact what they buy
and how they buy it. And that will make many existing business
strategies irrelevant.
Business Strategy
Rethink
becoming
are freezing up during this latest pandemic, it won’t be the first time that a global crisis has left the business world stricken. In the past 100 years, we’ve had two world wars, major recessions, and the 1918 flu pandemic. Historians say business leaders do tend to talk big during such moments, but financial realities and the hunkering-down mentality take over.
More recently, for example, the world was hit with the Great Recession of 2008. Almost immediately, business leaders quietly saw a chance to rebuild during all the layoffs and business slow downs to emerge in a different place. But instead of betting on innovation and growth, capital spending—a good proxy of that kind of activity—dropped off. And according to a study by the Georgia Institute of Technology, this pattern continued even as the economic recovery began. “Investing for growth was there to be had, but many companies just didn’t take advantage,” says Charles Mulford, the Georgia Tech professor who authored the study. In the case of the current pandemic, the hopeful talk started early in corporate corners. Days after the broad lockdowns in the United States, Korn Ferry interviewed more than two dozen board directors atlarge US firms. Each of them was more than aware of the unfolding tragedy happening to the country and, in many cases, their own employees, but still they offered two edicts for their CEOs: make sure the company survives, and start making big changes. What’s more, many of the directors had a road map for this, centering the changes on three basic ideas. First, identify your best employees, from the entry level on up, and make sure they can continue to contribute. Second, fix any serious flaws in the company operations that COVID was exposing. “Everyone has to rethink supply chains,” one director said in mid-March. Third, and most important, innovate now, even when things look bleak, so the future can be successful.
if firms
You have external circumstances creating lots of opportunity. But there are lots of firms still on the phone waiting for things to be ‘normal' again.
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PUTTING PAYOUTS
OVER FUTURE PROFITS
Companies that pull back or freeze during bad economic times could just make it up by spending more on capital projects or research once the economy improves. But for the most part, they don’t. Indeed, it took companies until 2012 to return to capital-spending levels from before the Great Recession. On the flip side, by 2013, the percentage of revenue that companies devoted to stock repurchases and dividends was 11 percent higher than it was in 2007.
4.18%
4.32%
4.25%
3.43%
3.60%
4.15%
4.39%
2008
2009
2010
2011
2012
4.36%
2013
4.50%
2014
2007
2006
Source: Georgia Tech
CAPITAL SPENDING AS A PERCENTAGE OF REVENUE
Many organizations, by focusing only on survival during the pandemic, have sacrificed a chance to set themselves up for success for a generation.
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Without a doubt, some companies did adapt quickly. Tales offirms sending their entire staffs home to shift to remote workwould become legendary. Innovation was in the air too. Multiple spirits makers, for example, turned their distilleries into hand sanitizer production lines. Retailers and chain restaurants built systems and trained employees within weeks to get products to customers’ homes faster than ever before. For their part, giants like Amazon seized on consumer needs and hired hundreds ofthousands of workers to boost deliveries. Seeing all this, investors were just one group that assumed massive corporate change—a shift to efficiency was in the making, and promptly pumped billions back into the stock market after an initial collapse. But a lot of shifts that were anticipated never happened. Starting from the top, many analysts believed boards would force out CEOs in favor of creating a new leadership environment for new times. Those leaders, in turn, would recruit new talent with new vision, and so on. Instead, although more than 1,000 chief executives at US companies have quit or been forced out so far this year, that’s 10 percent less than 2019—when business conditions were strong and changes at the top should have been less frequent. And as it turned out, companies handled staffing and salary cuts the same way they had in the past: instead of selective reductions, most firms relied on broad pay cuts that affected the entire firm or laid off workers en masse. Operations have not been reimagined quite as much either. After early shortages of goods like toilet paper and hand sanitizer, for example, experts thought supply chains would become more data-driven to anticipate—and even avoid such bottlenecks. But according to Gopal Iyer, a UK-based expert on supply chains for the consulting firm 4C Associates, many firms discovered they had one small problem: they didn’t know many of their smaller but key suppliers. Meanwhile, experts say many commercial-property companies aren’t rethinking their models either, seeking payment for leases instead of new terms from tenants, many of whom have their own financial issues.
companies now say that their capital spending will increase significantly over the next 12 months, the giddiest organizations have beensince October 2014, according to an August survey by the Federal Reserve Bank of Chicago.
Merger activity is likely going to rise in 2021, while many assumethat executive management turnover will also resume its normalaverages. That’s better than not growing, of course. But experts wonder if many organizations, by focusing only on survival during the pandemic, have sacrificed a chance to set themselves up for success for a generation. Nathan Blain, Korn Ferry’s global leader of organizational strategy and digital transformation, says many companies are going to learn the hard way: “It will hurt to see your peers doing something well that they started while you were overly worried about the pandemic.”
The companies that have begun massive changes stick out prominently because there are so few of them. Walmart, for instance, has been revamping the roles of hundreds of thousands of its store-based employees even as the pandemic posed major challenges for the retailer. The new system creates new coaching roles, raises salaries for some employees, and tries to prepare for afar more dominant e-commerce world. Ironically, how the massive retailer’s employees responded to the early challenges of the pandemic gave Walmart’s leaders confidence that they could execute the massive workforce revamp, says Christian Hasenoehrl, a Korn Ferry senior client partner who works with Walmart. “There are growing pains no matter when you do it, but the conversion is abetter way to manage a store, even during the pandemic,” he says.
For their
Part,
Many analysts believed boards would force out CEOs in favor of creating a new leadership environment for new times.
Experts say that mentality could allow other firms to get unstuck. Focus not on getting back to the old days—like January 2020—and instead prepare for what the market might be like in the future, says Saxton. “That will be a big thing separating winners from losers,” he says. Scenario planning is essential here, asis making sure transformation plans are flexible enough so they can adapt if the market doesn’t turnout exactly as predicted.
If there’s one area to focus on, it’s how customers interact with the company, says Jason Schloetzer, who runs the Future of Work institute at George town University’s McDonough School of Business. Because of the pandemic, some industries that focused exclusively on dealing with big corporate buyers have turned to working with individual, ordinary customers. Companies first need to study whether that dynamic will stick around after the pandemic; then, if it’s expected to last, they can modify supply chains, digital infrastructure, and marketing to be able to capitalize on it over the long haul.
The rewards of acting now could be rich. Maserati unveiled its new car and strategy in September, creating a worldwide video streaming event rather than showcasing the car at a traditional auto show.It received adoring praise from suppliers, as well as existing and potential customers. The firm also ended up having the market to itself, Grasso says. “Nobody else had their products ready. We took a risk but it worked out.”
more than 1,000 chief executives at US companies have quit or been forced out so far this year
that’s 10 % less than 2019
There are certainly plenty of reasons why firms haven’t focused on long-term transformations during the pandemic. Naturally, when revenue streams are completely cut off, as they were for many firms, the short-term directive centers on how to make next month’s payroll, not reimagining how employees are hired and developed. The healthcare aspect of the crisis also created new anxieties among leaders and rank-and-file employees alike. Either workers or their family members were getting seriously ill, and many leaders were loath to give them the additional burden of helping to transform the workplace. At the same time, leaders who wanted to make big changes felt the pandemic’s uncertainties prevented them from estimating how much revenue those changes would bring in—or cost. “Some firms got caught in analysis by paralysis, looking for information that isn’t out there,” Saxton says.
Read the full Magazine
Read the full Magazine
The Problem
WHY IT MATTERS
THE SOLUTION
CAPITAL SPENDING AS A PERCENTAGE OF REVENUE
more than 1,000 chief executives at US companies have quit or been forced out so far this year
that’s 10 % less than 2019
