Recent black swan events have precipitated market upheaval to a degree not seen since the Great Recession. Our team has produced several blog posts and articles covering COVID-19 and the recent oil price shock specifically, but the real question for business leaders is what to do now. Our Management Objectives™ for the back side of the business cycle – Phase C, Slowing Growth, and Phase D, Recession – offer a good starting point.
Certain Management Objectives on this list are especially relevant to the current situation:
- Cash is king – While cash is always important, uncertainty makes it even more so. Evaluate your cash position. Be in touch with your banker, as liquidity is still present in the system and interest rates are still low.
- Evaluate your vendors for financial strength – Quarantine efforts are disrupting supply chains and distribution channels. Consider not just your direct suppliers, but tier two and tier three suppliers as well. Similarly, consider whether your company could stand to benefit from nearshoring as businesses worldwide reassess risks to their supply chains and look to diversify. This may be an opportunity to win back business that was lost to Asia in the past decade.
- Offer alternative products with a lower cost basis – Your customers may be delaying their orders in the face of ongoing volatility. Work with them to understand their concerns and explore alternative solutions. These should enable you to maintain market share and build on existing relationships. Your actions today can build customer loyalty for the long term.
- Perform due diligence on acquisitions while valuations are falling – Be opportunistic. Consider purchasing capital equipment on favorable terms or locking in low prices on raw materials.
- Develop programs for advertising, training, and marketing to implement later – Having plans solidified in advance will allow you to implement them more quickly once the uncertainty passes, keeping you ahead of the competition.
My personal favorite Management Objective is the final one on the list: “Lead with optimism.” The impact of COVID-19 will be temporary. Life, and the economy, will go on. Fear-based decisions may prove rash, and overreacting may result in your locking in losses. Instead, communicate proactively with your customers and your employees about your response.
As always, stay connected with ITR Economics for more on the eventual business cycle low and the timing of the subsequent upswing. Singular data points will be volatile in the coming months, and focusing on the long game is more important than ever. As the world recovers, don’t be caught having to play catch-up. Instead, put your plans in place now and be ready to execute when the time comes. The recovery is likely to make a V-shape as markets bounce back from the sharp drop. It will be up to you to catch the rising trend.