The coronavirus, officially known as Covid-19, continues to grow outside China and worries of a global pandemic mount. The biggest stock market correction since the 2008 Financial Crisis still has markets on edge. The Dow Jones Industrial Average had its biggest one-day point decline in history after a week of record drops.
Moody’s Analytics predicts a 40 percent chance that the virus will break containment in China and grow into a global pandemic that would push the United States and the world into a recession.
Goldman Sachs Group’s equity analysts warn that American businesses will generate no earnings growth in 2020 if the virus spreads globally. Hopes that the Federal Reserve (among other central banks) will take action and lower interest rates have rallied markets, but uncertainty remains.
Why are markets so spooked? The economic concerns are not so much about the virus itself. They are about the prolonged impact of supply shortages paired with wavering consumer confidence and reduced spending due to response measures. With case numbers growing in Italy, supply chain fears increase. The spread of Covid-19 and attempts to contain it are now affecting European industrial hubs as well manufacturing in China, South Korea and Japan, which could cause prolonged shortages across a variety of sectors. As for the U.S., it’s a matter of when, not if.
Are we prepared?
The answer varies dramatically by an organization’s size, sector and by how regulated it is. Suddenly, everyone is talking about pandemic preparedness plans and why companies need them. Those plans fall under the wider umbrella of business continuity management, defined as a ‘holistic management process that identifies potential threats to an organization and the impacts to business operations those threats, if realized, might cause, and which provides a framework for building organizational resilience with the capability of an effective response that safeguards the interests of its key stakeholders, reputation, brand and value-creating activities’, according to DRI International. Business continuity management integrates the disciplines of emergency response, crisis management, disaster recovery (technology continuity) and business continuity (organizational/operational relocation). To face down Covid-19, organizations will need all of that.
Update your plans
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Resilient companies have invested in business continuity management for a long time and are activating those plans to address this new threat. They are asking questions like whether their businesses could continue to operate if 35-40% of their workforce were out sick. They need to monitor the situation closely, activate pandemic preparedness plans, and prepare social distancing strategies.
While Covid-19 is manifesting differently (as all threats do), the business impacts are predictable and we can prepare for them. That means companies with solid planning processes can take some of what they learned from other outbreaks like SARS and MERS and apply it now. Investing in a solid, long-term business continuity program makes companies far better prepared to handle these sudden shocks.
The complexity will vary greatly based on organizational needs, but all plans need leadership buy-in and clear objectives, a thorough risk assessment and an analysis of the potential impact to core functions. For Covid-19, it has to have pandemic-specific elements and strategies. When your plan is activated, you will need to set up an emergency operations center to manage the ongoing response with key team members assembled so that you can make decisions quickly and effectively with the right information at hand.
Manage cash flow
Companies need to be thinking about protecting cash flow over profits if the crisis deepens. With major events being canceled and consumer confidence dropping, cash will be king. If this situation continues long term, companies need to ensure that they can maintain payroll. Some governments may require companies to pay employees even if they are unable to work. Those efforts could help keep people content and ensure that your workforce remains in place when business resumes but also could represent a significant cost for business.
Business interruption and contingent business interruption insurance policies will need to be reviewed to see exactly what is covered and what might not be covered. Legal protections in contracts for your organization as well as from suppliers will need review as this event could—or could not—trigger force majeure clauses.
Take care of your employees
Educate employees about proper hygiene and how to prevent the spread of infection such as by washing hands thoroughly. You could even have a contest for the best song to sing in your head to scrub for the proper amount of time (Happy Birthday? Baby Shark? If You’re Dirty and You Know It, Wash Your Hands?). Companies also should verify internal stocks of medical supplies including facemasks (for those with symptoms), tissues, and hand sanitizer. Ensure that any sick policies don't discourage ill employees from staying home, but also be sure to review any changes with legal counsel.
Check to see if you need to assist with employee evacuations out of affected areas. Many organizations are imposing travel restrictions for employees to limit non-essential travel (and in some cases mandating no travel at all). Since airports and other transit hubs will be incubators and restricting travel could have long-ranging impacts, it is important to see what must be cancelled and what can be done to change meeting or event locations to minimize impact.
Work from home has its limits
Work from home is a partial solution for some services businesses during a period of enforced or voluntary social distancing, but technical issues may affect your company if it does not already employ these strategies. You’ll need a strategy for supplying the right technology to your teams, prioritizing critical traffic to your systems, and for making sure that appropriate employees can access your systems offsite. You also should be using remote meeting and other communications tools. If everyone practices work-from-home tools regularly, they will be better able to use them during a crisis scenario.
Companies that have been testing their work from home capabilities through regular scheduling will be better off, but school closures will put strain on workers around the globe. Remember the BBC commentator whose children toddled in during his news interview? That will be happening to parents everywhere if schools are closed, leading to distraction and lost productivity. Additionally, it is not at all clear that schools are prepared to run classes online, so the impact on families will be an added stress on the workforce.
Expect prolonged supply chain disruptions
Manufacturers will have a harder time if factories stay shuttered, whether these are in-house or an upstream supplier's factories. Do you have stock at hand, can you create stockpiles now for critical components and/or do you have alternate suppliers? Companies also should prioritize customers so they know who they must deliver to first if there is a shortage and also know how suppliers have ranked them in return.
Big businesses should be able to withstand this as long as disruption is not too prolonged or severe since they likely have whole teams dedicated to building resilience into their supply chain management processes. But small and medium-sized businesses are already struggling wherever the virus is hitting. In China, for example, small and medium-size businesses are key to continued growth. They contribute over half of its tax revenue, 60 percent of total economic output and are an important innovator for new technology and product development.
China is the world’s largest exporter of intermediate manufactured products and components destined for use in supply chains across the world. If this crisis is prolonged and supplies begin to dwindle, China will prioritize its needs for its own people over export, as any government would.
Business should be aware that government resources may be diverted so there may be some disruption in other critical services like transit. It is helpful to maintain clear lines of communication with essential organizations such as the Centers for Disease Control and Prevention (CDC) in the U.S. and the World Health Organization (WHO).
Don’t fuel the panic by saying the wrong thing
People will look to their leaders for stability. Be sure to help prevent the spread of misinformation which can be counter-productive at best and dangerous at worst. Anyone in a leadership role must brush up on their crisis communications skills now so that they don’t lead their organizations further into panic. Effective and managed communication should be simple, direct and honest.
A crisis communications plan should clearly outline roles and responsibilities for the identified team. In times of panic, it helps to give people direction so that they have something to do. All messaging should be clear and easy to understand. Important points should be repeated often with consistency, respect and empathy and should address the specific concerns of the intended audience.
So, remember to keep calm, carry on and do your part to prepare yourself and your organizations for Covid-19 and any other challenges that may lie ahead. We all need to have a plan.
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