Covid-19 with its global reach and unprecedented demand impact has caught even the best prepared mature businesses under-prepared. For early stage companies like ours, growth was the fuel which was energising the entire organisation. Managing this crisis requires an all hands on the deck approach where the focus is on preserving value in the short term and rebuilding back to prosperity when the wind comes back in the sails. This is a tough balancing act and requires the leadership teams to collaborate like never before. CFOs can play an extremely critical role in times like these and can act as an anchor point around which the business transformation can take place.
There are five critical elements which should form the essential parts of navigating the COVID response for any organisation and CFOs role is integral to all of them.
- Ensuring liquidity:
The revenues for many businesses are significantly impacted and uncertainty continues to exist as to when the business will recover back to its pre-COVID levels. This puts a lot of stress not just on short term liquidity and working capital planning, but will also impact longer term financing strategy of the companies. Many business with debt or debt like financing structures might be staring at covenant breaches and cross defaults. It is imperative that CFOs proactively lead the discussions with lenders in a transparent manner and work out solutions for restructuring these facilities. Many large business around the world have shored up their cash reserves by raising fresh capital and have opted in favour of certainty of balance sheet cash rather than optimizing for cost of capital. On the working capital front, the key is to identify the suppliers in the value chain who can be your partners for the long run and support with longer payment cycles and variable economic models as against fixed commitments. The fact that most of these negotiations will happen in virtual meetings only and will get dragged over several sessions, weeks or months add to the challenge.
- Over communication:
Nothing scares people more than not knowing. At a time when nobody knows what’s coming with any degree of certainty, overcommunication is the best strategy. The teams need to hear regularly from their leaders to stay motivated. Your partners and customers need you to listen. The lenders and investors need to know that their money is safe. The Boards expect regular check-ins to ensure that the management is steering the company in the right direction and is learning from the experiences of other market participants. You are not expected to have all the answers, but continuous engagement and transparent communication goes a long way in building trust and confidence.
- Redesigning cost structures:
Never waste a good crisis. COVID has forced leaders to take a hard look at their cost structures and identify deep rooted inefficiencies that had creeped into the organizations. It has also put razor sharp focus on the use of technology to develop new ways of working and automation. The concepts of centralization, outsourcing, zero based budgeting, marginal costing and fundamental economics 1-1 get new meaning in the wake of this uncertainty. CFO would do well to do detailed scenario planning and maintain pragmatism with a conservative view of recovery while designing the new cost structures. An aggressive view on recovery while doing cost and cash planning would be kicking the proverbial can down the road and given the uncertain & unprecedented market reality is an avoidable risk. A fair and balanced dialogue grounded in reality and numbers can help provide much needed clarity to these discussions and maintain focus while cutting through the emotions which can typically run high in these situations.
- Reimagining product and customer experience:
The pandemic will fundamentally change the consumer journey in many sectors and businesses that are nimble enough to adapt to the changing expectations will emerge victorious. To give an example from hospitality, ensuring health and safety of the hotel guests will be the most important determinant for building credibility for any brand. To that end, OYO has developed propositions like zero touch hotel check-in experience, SOPs for new hygiene standards and “Sanitised Stay” tab on mobile app for hotels complying with the new standards. Such market leading innovations could help organisations get increased consumer trust, mindshare and create competitive advantage. OYO has also worked with the community and has been one of the biggest hospitality partners of Indian Government’s Vande Bharat Mission.
- Seizing opportunities to rebuild:
Understanding and pre-empting the macro trends that will emerge as countries come out of the crisis will be define the businesses that will increase market share post crisis. Again, drawing on the hospitality example, some clear trends are already visible for OYO in many markets across the world:
- Branded budget segment was lesser effected by COVID and is the first one to recover as compare to both the upscale/luxury segment and the unorganized sector (due to enhance quality concerns)
- Local / Domestic Demand will gain more traction than inbound / international demand as more and more people are traveling to the “places they can drive to”. This has been especially evident in OYO Vacation Homes business resurgence in Europe
- Offline to Online shift is accelerating as more consumers have graduated from discovery to transacting online phase as a result of COVID lockdown. This is consistent with the trends visible in e-commerce and food delivery
- Increased duration of stay as people try to avoid frequent travel
To sum up, COVID is the most challenging opportunity that most of us will see in our professional careers. Rephrasing Reid Hoffman, the businesses have literally been thrown out of the aircraft and I think the onus will be on the CFOs to build the parachute through the free fall. A transparent, pragmatic finance leader grounded in numbers, with ability to anchor all strategic decisions for future business in a deep crisis like 2020 is among the most important assets a business can hope to have and at the end can probably make that important difference to long term survival. With a crisis this big, even the best CFO might not be able to avoid the scar, but she can ensure that the story has a happy ending.